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Department stores have long been a popular hub for convenience, variety and discovery. However, the explosion in online shopping, continued expansion of floorspace and now the challenges of Covid-19 have seriously challenged their business model.

David Jones has been a fixture in the Australian retail landscape since the first store was opened in George Street, Sydney in 1838. The first Myer store was established in Victoria in 1900. The two brands have dominated retail in Australia with their department store format for more than a century. Yet, the turbulence of the pandemic combined with the transformation of online shopping has cast doubt on their respective futures.

Internationally, the trends are similar – if not worse. The quintessential British department store chain John Lewis has shuttered one third of its fleet over the past 12 months, whilst 200-year-old icon Debenhams no longer exists at all (at least in a bricks-and-mortar format). In the United States, 2020 saw JC Penney file for bankruptcy and shut 240 retail locations, while Macy’s announced the closure of 125 stores. Retail mainstays Sears and Barney’s also collapsed in the face of falling sales and mounting debt.

The consumer expansion of the 1980s and 1990s drove an ever-increasing number of department store locations. And these times predated online shopping, so consumers were hitched to a particular location, selling to a captive market. Today, shoppers have infinitely more choice. They don’t have to put up with a mediocre setting or below-par customer service. They can shop the world.

So how are successful department store operators navigating these treacherous waters? Retailers like Nordstrom in the United States and John Lewis in the UK understand the exacting demands of modern consumers and their desire to mix online and offline channels. Both are rolling out smaller, suburban stores to showcase the best elements of their ranges, but also to augment their network of collection and exchange points for online orders. Prior to the pandemic, the online share of Australian department store sales was around 5%. Today that figure is above 20%. In the Covid-ravaged UK, online is exceeding 50% of sales.

Successful department store operators in the future will almost certainly operate fewer stores, and offer some form of unique customer proposition. A couple of international examples are Sandersons in the UK, and Neighbourhood Goods in the United States. Both operate only a handful of stores, with Sandersons focusing on second-tier locations like Sheffield and Stroud and offering personal beauty appointments and a wellness spa. Neighbourhood Goods describes itself as “a new type of department store, featuring an ever-changing landscape of thoughtful, exciting, and contemporary brands, stories, and events.” They offer localised, curated ranges and strive to be a community hub for shopping, eating and discovery.

To thrive, department stores must be magnets for customers, showcasing a compelling proposition. Winning on price and range – think Primark or Kmart – or winning on community and experience – think Neighbourhood Goods or Nordstrom – can both work. The bland middle ground is the death zone. In Australia, Kmart is flourishing through its stranglehold on the former. David Jones and Myer must embrace core elements of the latter or face an existential crisis.

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