Department stores sales dive – is the model dead or can it be revived?

Department stores aren’t dead, but they need to think strategically about their future as shopping centre landlord Westfield revealed that department store sales fell by 12.5% over the September quarter and Myer this morning reported its sixth consecutive fall in quarterly sales.

In its third quarter update released yesterday, Westfield – which has 43 centres in Australia and 11,792 retail outlets – said department stores sales in Australia fell 7.5% over the year, 10% over nine months and 12.5% over the quarter.

A separate report by CommSec, released this week, showed that over the September quarter, department stores accounted for just 7.5% of inflation-adjusted retail trade – the lowest share on record.

“Since the early 1980s, the share of real retail trade going to department stores has fallen from around 10% to 7.5% of spending,” CommSec chief economist Craig James said, referring to Bureau of Statistics data.

“While giving up market share to specialist retailers in a raft of segments like electrical goods and sporting goods, department stores still occupy a prominent spot in retailing. Nevertheless, department stores will need to constantly reinvent themselves in coming years to stay competitive and relevant.”

Myer this morning said quarterly sales were down 3.5% to $681.4 million.

Same store sales were down 5.1% over the five weeks, in line with forecasts, and the department store group maintained its guidance for the full year.

David Gordon, partner in charge of the national retail advisory practice at WHK Group, says the issue is not a new one: it was discussed in Australia five or six years ago when department stores crashed in the US, despite overall retail sales doing well there.

“The issue is: Do department stores have a place in our retail universe?” Gordon says.

“The answer is they do, but they’ll need to re-identify themselves.”

Gordon says with the internet offering sales of so many products around the clock, the one-stop shopping experience is less relevant these days.

Furthermore, the consumer profile of David Jones is getting older and more spendthrift, whereas younger customers want “a bit of a buzz and go to the internet”.

“It seems to me that department stores over the last year or so have positioned themselves in the consumers’ eye as, ‘I will go there when they provide me with a bargain’, which they will always do,” Gordon says.

“You have to think the department store experience has become quite boring, whereas the newer entrants, such as the specialty stores, are becoming more creative.”

“The only reason you go to the department stores is because of the variety and good deals.”

Having said that, Gordon points to the excellent merchants behind department stores and recent efforts – particularly by Myer – to improve the look of their stores.

“We’ve written them off before and I don’t think it’s wise do so,” Gordon says.