Department store retailing, which appeared to be heading for terminal decline globally only a few years ago, now has a much brighter future.
That’s according to a new report, Global Department Store Retailing 2007, from Verdict Research. Following a period of consolidation, investment and expansion in mature markets as well as fast-developing economies has given the sector a new lease of life.
Verdict Research forecasts that the sector’s growth rate will double over the next five years. Between 2001 and 2006, it stood at 8.7%, but the company says it will double between 2007 and 2012 to 17%.
Verdict puts this down to three factors. Firstly, it says, consolidation is strengthening the sector and ridding it of weaker operators. The better retailers have the opportunity to gain scale benefits and invest in growth.
Secondly, greater investment is meeting the demand for more aspirational shopping experiences. Many department store groups have underinvested in their existing store portfolios and focussed on cost cutting, says Verdict, which has made them less attractive for both shoppers and suppliers.
Now, though, retailers are upgrading and refurbishing stores to a much higher level, as well as opening new stores. This is attracting back aspirational brands and providing department store operators with the opportunity to participate in the strong growth in luxury goods.
Finally, operators are expanding again. In the US JC Penney, Kohl’s and Nordstrom all have development plans that will see them add over 600 stores to their combined portfolio by 2011. And in the UK John Lewis is reaping the benefits of its investment in its existing store portfolio and is on an expansion trail that will give it nationwide coverage over the next decade.
Verdict also predicts explosive growth from developing economies such as China and India. These markets are attractive for iconic department stores such as Harvey Nichols that can leverage the global recognition of their names in new markets, it says.