Many of the oldest retail brands on the high street are department stores. From Fortnum & Mason, which opened its doors in London in 1707, to the opening of the first Macy’s in New York in 1858, these companies have been stalwarts of the retail scene for centuries. As a trusted source of essential goods and services – from fashion to food to furniture – such brands occupy a special place in the hearts of many consumers, too.
Affection alone will sadly not sustain these businesses, however, some of which appear increasingly tired and out-of-step with a dramatically shifting retail landscape. In recent weeks a succession of UK department store chains have posted flat or declining sales, with profits impacted by painful restructuring costs . The situation is even worse in the US, where total department store sales have contracted by nearly a third since 1999, resulting in closures on a mass scale.
The picture is not entirely bleak, of course, as evidenced by continued strong growth at Harrods and Selfridges – luxury retailers that are benefiting from the favourability of the pound. The overall impression, though, is of a department store sector struggling to adapt to new market realities.
Ecommerce is inevitably one of the main reasons behind the decline of bricks-and-mortar retailers, and in the case of department stores its effect is particularly stark. Yet, out of all the retailers, department stores seem to have been the slowest to react to this challenge. I often find myself looking at their management structures and wondering if this is the greatest contributing factor.Traditionally department stores have operated with a highly stratified, siloed management structure. Given the variety and complexity of what department stores do, it has historically made sense to have these clearly defined responsibilities for functions like buying, finance, marketing, store operations and IT.
The problem is that not an awful lot has changed, despite the disruption and transformation that has occurred across the retail industry in recent years. In many cases, ecommerce, digital and brand marketing functions (including the all-important and relatively nascent role of content) sit awkwardly in archaic structures, bereft of empowerment and positions of leadership.
As a result, these traditional structures have become cumbersome and slow-moving, preventing operators from adapting to changing market conditions with speed and flexibility. They have also led to the prioritisation of heavy-lift operational skills at the expense of roles focused on the customer experience and the acquisition of new customers in the post-millennial age.
This compares unfavourably to nimble, fast-growing online players like Yoox Net-a-Porter, Matchesfashion.com and Farfetch, which have much more streamlined structures and customer-focused people at the very top.
Online luxury retailers are going to great lengths to find the perfect marriage of technology and fashion-savvy (both on the marketing and product side), and are much more open-minded and bold in their senior hire choices. They also have a tendency to create bigger structures in key functional areas, accepting that to tackle this challenge you need many people with slightly different skill sets to make it work.
Farfetch, for example, initially built its growth on market-leading technology expertise hired from places like Apple, Skype and eBay. This includes the appointment of chief operating officer Andrew Robb, who in his previous role at Bauer Media had been responsible for overseeing ecommerce fashion startup Cocosa.com, from idea conception through to its commercial launch.
With its impressive tech grounding, Farfetch has since expanded its fashion expertise with hires from a wide range of sources, including YNAP, Topshop and Style.com. The company’s fluid matrix structure, which encourages collaboration across tech, product, content and marketing, has enabled it to move quickly in serving customers and seizing new market opportunities.
It has been interesting to see certain department store operators begin to restructure their operations as they strive to keep pace with online competitors and reposition their brands for the future. Encouragingly, many of these changes appear to be focused on creating more streamlined management structures that prioritise digital, brand marketing and customer acquisition.Debenhams is among those to have made a clear statement about its future direction with the appointment of Sergio Bucher, former vice-president of Amazon’s European fashion business, as CEO in May last year. The business has since embarked on a restructuring of its executive team, which includes the departure this month of group trading director Suzanne Harlow.
Under the restructure the group trading director role will no longer exist, with Debenhams reportedly planning to set up three new business units: fashion and home; beauty and beauty services; and food and events. Each business unit will be led by a member of the executive committee, which has further prioritised digital expertise by promoting Ross Clemmow from the role of ecommerce director to retail director. It all points to a more collaborative, cross-functional way of running the business.
Indeed it is interesting that a digital specialist like Ross, who has no previous experience running stores, has taken over retail operations – a clear sign that Debenhams now sees itself as a multichannel operator that makes no distinction between stores and online when it comes to its overall brand offer.
Meanwhile Fenwick this year appointed former Co-op CEO Richard Pennycook to oversee the strategic transformation of the retailer. Richard, who joined the Co-op at the height of its crisis in 2013 to lead a very successful rebuild programme for the brand, is the first chairman appointed from outside the Fenwick family. It will be interesting to see how Richard restructures management and makes new hires to support his plans for the historic department store chain.
Of course overhauling a heritage brand is no simple task, particularly where processes and structures are deeply embedded. At Harrods, for example, it is interesting that long-serving managing director Michael Ward last year postponed his previously announced plans to leave the business.
Michael, who has led the luxury department store since 2005, said he had agreed to stay on indefinitely to help the business deal with “changes in the UK’s current and future economic landscape”.
Given that Harrods last year reported record sales and profits for the seventh consecutive year, there are clear arguments in favour of continuing a winning formula.
But it is also the case that Harrods’ digital and ecommerce strategy is much less advanced when compared to other retailers – an issue it has previously said it wants to address. With Michael at the helm, Harrods has some interesting choices to make in terms of how it prepares for the future while retaining the retail magic that has made it so successful to date.
Besides ecommerce, department stores must weigh up how to reconfigure their physical sites. This has involved re-imaging the traditional bricks-and-mortar store, often by finding new uses for spaces that appeal to modern consumers.
This aim has been at the heart of Selfridges’ £300m regeneration of its London flagship over the past two and half years, which has included the installation of a 37,000 sq ft studio dedicated to lingerie, swimwear and sportswear, the opening of cocktail bar The Fount and new shop-in-shops for luxury brands such as Burberry and Chanel. The retailer has also set up events spaces across its stores to host music concerts as part of its Music Matters campaign.
Selfridges is another example of a department store operator that has reshaped its management structure in favour of a more collaborative, cross-functional approach. The appointment of Simon Forster as executive director of customer in 2012, for example, brought together responsibilities for marketing, digital, international, supply chain and customer insight – enabling Simon to lead innovation and customer acquisition across the business.
The continuing value of bricks-and-mortar retail is also evidenced by the importance that ecommerce companies have attached to physical spaces. Earlier this year Farfetch unveiled its Store of the Future concept at its Browns boutique in London, which uses in-store technology to bring together the online and offline worlds.Matchesfashion.com, which was recently acquired by private equity firm Apax Partners for a reported $1bn, started life as a luxury London boutique in 1987 and continues to depend on its flagship stores as the physical manifestation of its brand . Indeed the business recently announced plans to open a second private town house boutique in Mayfair, London.
It is also telling that Debenhams’ investment in on-demand beauty services brand Blow Ltd this week is not just a straightforward ecommerce move. Instead the department store chain plans to open specialist beauty bars in its stores using the online brand’s name.
Refashioning the department store of the future in this way requires imagination, flexibility and – most importantly – the right structure run by the right people. The future is still bright with possibilities for these historic businesses – provided they are bold and put the customer first.