U.S. Department Stores share of retail has been halved in the last 10 years.2 In 2008 there were 138 independent department stores. By 2009 there were 57,3 and the death rattle from icons JCP and Sears is audible. Department Store growth in Europe is also subdued, forecast at 1.3 percent a year through 2015.4 In the U.K., Department Store turnover is flat, with economic malaise a constant headwind. In sum, the format is under attack.
Opportunity vs. Necessity
Hermès and Prada do a mediocre job online. However, for the moment, it doesn’t matter. As long as Miuccia Prada continues to inspire and Hermès remains the definitive luxury brand, both will enjoy a (combined) market capitalization greater than all U.S. Department Stores. However, for Department Stores, a robust online strategy is not an opportunity, but a necessity.
Department Stores are the aircraft carriers of retail: An intimidating presence, strong logistics, and a plethora of well-trained leaders. The best firms are leveraging these assets and turned online for growth. Macy’s, Nordstorm, Saks Fifth Avenue, and Marks & Spencer have set the pace. Macy’s now registers $3.1 billion in online sales—11 percent of total.5 Nordstrom, a pioneer of in-store pickup, saw same-store sales increase 8 percent after incorporating real-time inventory integration and in-store pickup of online orders.6 Saks Fifth Avenue’s site features large- scale photography, product-page videos, and robust navigation7 paired with substantial investments in fulfillment. Marks & Spencer announced plans to spend $1.56 billion through 2015 on logistics, systems, and a new e-commerce platform to reach consumers online and in-store, globally.
Winners vs. Losers
A bifurcation exists in the industry. Top department stores in the U.S. and U.K. have made substantial progress, however French icon Printemps does not offer e-commerce. Industry players ranging from GUM in Russia to
Holt Renfrew in Canada also do not offer an online channel. A subset may become hybrid global brands—marketing to wealthy tourists in emerging markets who take delivery from warehouses, masked as impressive department stores, in super-cities (e.g. Paris, Milan, New York City, Tokyo, London, etc.).
Digital IQ = Shareholder Value
This study attempts to quantify the digital competence of 40 global Department Store brands. Our aim is to provide a robust tool to diagnose digital strengths and weaknesses and help brands achieve greater return on incremental investment. Like the medium we are assessing, our methodology is dynamic, and we hope you will reach out to us with comments that improve our methodology and findings. You can reach me at scott@stern.nyu.edu.
Traffic
Search is responsible for almost half of the upstream traffic to Department Store sites. Email is also key, driving a 6.3 percent share. Social Media accounts for just 2 percent of traffic and is dominated by Facebook. Net-A-Porter captures 2.7 percent of site traffic from its more than 42,000-strong Pinterest community.
Search is responsible for almost half of the upstream traffic to Department Store sites. Email is also key, driving a 6.3 percent share. Social Media accounts for just 2 percent of traffic and is dominated by Facebook. Net-A-Porter captures 2.7 percent of site traffic from its more than 42,000-strong Pinterest community.