They were once the ultimate shopping destination, somewhere you could go to browse all of your favourite brands under one roof. Heck, you could even get a cup of tea and a slice of cake whilst you walked around.
But high street department stores have lost their lustre in recent years, with House of Fraser, Debenhams PLC (LON:DEB) and John Lewis all struggling of late.
READ: Selfridges posts record profits despite dowturn hitting House of Fraser and Debenhams
While more upmarket stores such as Selfridges and Harrods have so far avoided falling victim to the switch to online, the internet has taken chunks out of the rest, rendering their unique selling point pretty unexceptional.
“Once they were great because you could get everything under one roof but now everything is under one roof just on your computer,” explained Liberum analyst Adam Tomlinson.
He’s right, too. Websites such as ASOS PLC (LON:ASC) and Zalando offer far more products all on one website. Being able to shop ‘til you drop whilst sat on your couch has played a big part in denting department stores’ sales and reducing footfall.
Debenhams has been forced to close some of its worst-performing stores while House of Fraser was rescued by Sports Direct International PLC (LON:SPD) and its billionaire boss, Mike Ashley.
Concessions' concerns
It’s not just the stores themselves that have been affected, but the fashion retailers which rent out space in their shops (called concessions).
On Monday, Superdry PLC (LON:SDRY) became the latest to bemoan the poor performance of its concessions, noting the “well-publicised challenges” facing some its trading partners.
Along with the unfavourable weather, it reckons full-year profits will take a £10mln kicking.
Superdry isn’t alone; Ted Baker PLC (LON:TED), Quiz PLC (LON:QUIZ), French Connection Group PLC (LON:FCCN) and others have all lodged similar complaints.
Given all the profit warnings issued on the back of department stores’ waning popularity, you’d be forgiven for thinking that the concept of one large store housing dozens of brands was dead.
Innovation the key
But Tomlinson thinks there is a place for them in the future, as long as they adapt to changing trends and offer something that websites will always struggle with: the shopping experience.
“I think the best [department stores] can still be here in ten years,” the analyst said.
“I think the retail theatre is very important. If you can give people that and get the best brands together, you give people a reason to go to your store.”
“It will become less about shopping; it will also become about eating and experiential elements.”
In essence, he argues that it will be the survival of the most innovative, and one man that has never been accused of standing still is Mike Ashley.
House of Fraser now well-positioned
Tomlinson is cautiously optimistic that the power-drinking owner of Newcastle United can be the man to bring the heydays back to House of Fraser.
“I think House of Fraser/Sports Direct are in a good position because they’ve got a blank canvas and they can work from scratch on that.
“They can pick and choose the best stores, they can integrate it into their own offering as much as they want and so I think they’re starting from a better position than some of these other disadvantaged department stores.”
The top floor of any department store is notoriously difficult to commercialise, so Tomlinson likes the idea of putting gyms up there, almost guaranteeing a steady footfall through what is traditionally a neglected part of a shop.
Debenhams is done, though
Despite his somewhat positive outlook for House of Fraser – he also likes what John Lewis are doing with their new stores – the analyst is pretty disparaging in his verdict on Debenhams PLC (LON:DEB).
“Debenhams has lost its brand, it’s lost its product offering; I just think the product over the last few years has been pretty shocking, and they haven’t really invested in their stores properly.
“As a result, they’ve had to continually discount to get people into the stores and once you get people hooked on that discounting mentality, they’re just going to wait for your next sale and it just becomes a bit self-reinforcing.”
Debenhams’ problems have been reflected in its share price, which has lost more than 80% of its value in 2018 alone.
Could Mike Ashley, who already owns a 30% stake in the retailer, be the saviour once again? If his House of Fraser venture comes off, it’d be a brave man to bet against him.