Department stores risk obsoletion

Department stores should reinvent themselves to avoid becoming obsolete, says research house GlobalData.

Once considered retail innovators, department stores have to make disruptive changes to their business model to survive the onslaught of specialist and online retailers, the data and analytics company says.

“Department stores have finally realised that they are no longer market leaders and have to make disruptive changes to their product offerings and business models, and bring in digital technologies to reach out to customers in a modern and engaging way,” says Andreas Olah, digital retail analyst with GlobalData.

“They also need to upgrade their supply chain, logistics and staff management systems to improve margins and remain competitive.”

Olah says department stores established retail dominance by scaling up their operations and distributing mass produced goods in large stores that provided huge product portfolios combined with advice from helpful staff members. But that competitive advantage gradually eroded with the advent of more fashionable and efficient retailers, coupled with their own poor online strategies and a host of various other operational and marketing issues.

“As the new generation of tech-savvy shoppers began preferring to shop at specialist retailers with stronger brand identities or on online platforms like Amazon and eBay that provide lower prices and more targeted recommendations, department stores fell behind their competitors.

“To compound their woes, hard discounters and even some convenience stores, manage their operational costs and supply chains more efficiently, which allows them to offer products at lower prices while maintaining a profitable margin. In contrast, many department stores failed to upgrade their stores, and suffer from an oversupply of space combined with increasing costs including store rents, labor and supplies,” says Olah.

He says a range of technologies and solutions such as artificial intelligence (AI) and augmented reality can improve the competitiveness of department stores. However, they need to be in line with their brand identity and the existing setup of systems and processes.

“To compete with specialist and online retailers, department stores need to establish an omnichannel strategy that allows customers to seamlessly complete their shopping.  They should also judiciously use space to offer distinctive in-store experiences that may include areas dedicated to product demonstrations, games, cafes, and click-and-collect. Smart devices such as interactive kiosks, tablets and digital signage can be installed to improve customer interaction, while also enabling data collection for customer profiling and analytics to enhance operational efficiency.

“Upgrading and integrating their various databases and management systems can help department stores to upsell products and ensure that marketing campaigns and product strategies resonate well with their target customers. It is equally important that back-end processes are improved to make them more cost-efficient, error-free and secure.”


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