As one-time US department store titan Barneys collapses into bankruptcy, we look at what lessons UK department stores can learn from their Stateside counterparts on what to do and not to do.

It’s not an easy time for many department stores in the UK, from House of Fraser’s dismal performance under Sports Direct to Debenhams skating on thin ice after its CVA earlier this year.

While upmarket outliers such as Liberty, Harrods and Selfridges have delivered strong results, middle-market operators have found themselves under pressure. It is a similar story in the US, as Macy’s profit warning alongside its second-quarter results this week indicated.

So, what are the lessons that British retailers can learn from the US on what to do – and not do – to avoid Barneys’ fate?

Invest in stores

Earlier this year, Sports Direct tycoon Mike Ashley pledged to invest hundreds of millions of pounds in upgrading and rebranding 31 House of Fraser branches as upmarket ‘Frasers’ stores, which he plans to open over the next five years.

While so far this investment has proved elusive, GlobalData managing director Neil Saunders believes investment has also been missing from many US department store chains – and that they are suffering as a result.

“If you want visual inspiration on department stores, the US is not the place to look for it – it is worse than the UK in a lot of instances,” he says.

“There are a lot of stores that are very underinvested and have been largely untouched since the late 1980s or 1990s.”

“If you went to a lot of Macy’s in the US you would think that it is where retail comes to die”

Xian Wang, EDGE by Ascential

EDGE by Ascential senior director of product and content Xian Wang concurs.

“If you went to a lot of Macy’s in the US you would think that it is where retail comes to die,” she says.

Saunders believes the need for fresh merchandising and modern-looking shops is essential to remain relevant for customers.

He also flags that some recent initiatives by US department store chains, while positive in themselves, have also drawn attention to the retailers’ otherwise lacklustre store environment.

He points to Macy’s recently launched off-price proposition Backstage, which is positioned as a TJ Maxx competitor in the States. The department store chain has dedicated separately branded areas in around 120 of the retailer’s 680-strong store estate, with plans to open a further 50 this year. While the proposition has been labelled a success, with sales in Macy’s stores with Backstage areas up 5% on average, Saunders argues that it highlights the lack of investment made elsewhere in the host stores.

“The really striking thing is that it is the off-price part it’s actually much nicer than the rest of the store, which is absurd,” he adds.

“The off-price feels a lot more premium than the rest of the store, which is old and dilapidated. It begs the question: why would you spend full-price in the bulk of the store when you could go to a much more attractive area and get things at a discount?”

It is a cautionary tale for UK department stores, spotlighting the peril of not devoting appropriate investment to keep the core bricks-and-mortar estate feeling fresh and relevant.

Conscious curation

While the physical environment of many middle-market department store outlets leaves much to be desired, US operators are leading the way in striking partnerships with interesting businesses to create new reasons for shoppers to come into their stores.

Macy’s acquired Story last year, a store in New York that changes its entire stock and layout every three to eight weeks around a unique theme. Story founder Rachel Shechtman says “it creates the same point of view of a magazine, changes like a gallery, but sells like a store”.  

Schechtman has been brought into Macy’s as part of the acquisition to drive the rollout and associated brand partnerships of dedicated Story areas, which have been unveiled in 40 Macy’s stores since the acquisition.

Amazon kohls

Kohl’s has teamed up with Amazon to get people into its stores

Two themes have been introduced in these concessions so far – colour and the outdoors – and Saunders says it is an example of a department store bringing in new thinking to create fresh interest for shoppers.

“It does look really interesting, it draws people in and it provides a different way of trying to sell product from the traditional way, which would be to merchandise by season and product category, and does so by theme instead,” he says.

“It is early days, but it has been successful and well-reviewed so far.”

The comparatively rapid turnover of products sold through Story, and the fact that those on offer are determined by a theme rather than something cyclical such as the time of year, also creates a sense of urgency for shoppers to snap up the lines on offer in-store while they are available.

Kohl’s is also exploring new ways to create interest among shoppers through its recently unveiled partnership with Facebook. The US department store and social media titan have teamed up on an initiative called ‘Curated by Kohls’.

The partnership which will use Facebook’s advertising data to determine an assortment of up-and-coming brands from sectors ranging from clothing, accessories and homewares lines, which will be selected and sold across Kohls website and stores on a quarterly basis starting next year.

Chief merchandising officer Doug Howe says: “Curated by Kohl’s provides the opportunity for us to showcase innovation, connect with digital retailers and team up differently with best-in-class digital platforms like Facebook.”

Pounce of high-growth categories

The benefit of the broad-church approach epitomised in department stores gives them a unique opportunity to monopolise on a wide range of hot new product categories and trends. Neiman Marcus, for instance, is selling a range of beauty and wellness products infused with CBD (the chemical compound in the cannabis plant that is not psychoactive) in some states as a result of legalisation and a subsequent boom in demand.

“It’s interesting because it is a pivot to a very high-growth area in the US and really trying to think about what the new modern department store shopper wants when they walk into the space,” says Saunders.

“It is good thinking to say ‘beyond the clothing, home and beauty we are known for what can we do to meet new demand’, and cannabis is definitely one of those areas.”

“US department stores have done a really great job at evolving their business models”

Kelsey Groome, Traub

Many US department stores have also been jumping on the surge in demand for rental and second-hand clothing, from Bloomingdale’s launching a clothing subscription service next month to Macy’s partnership with fashion consignment etailer ThredUp and Neiman Marcus buying a stake in Fashionphile to resell shoppers’ ‘preloved’ luxury handbags and jewellery.

“Fashion rental and subscription is an area that is relatively small but fast-growing in the US, so it is about trying to cash in on high-growth areas and pivot away from the traditional business model,” says Saunders.

US consultancy Traub managing director Kelsey Groome believes North American department stores’ race to develop their own second-hand, rental and resale platforms demonstrates those retailers at their best.

“US department stores have done a really great job at evolving their business models,” she says.

“Resale and rental are having a moment because it is seen as sustainable, and younger generations really care about sustainability. Particularly with department stores, the way consumers are engaging with rental is that they are renting the more fashion-forward, trendier pieces, which otherwise may likely have gone from full-price to markdown.

“Instead of going on markdown, [department stores] get more value out of one unit of inventory than going on markdown would have had. And it drives consumer engagement. If you offer rental as a service you get increased engagement. To wear, repeat and drop off in-store is also a path to purchase of full-price.”

Create new reasons for shoppers to come to stores

US department stores are forging partnerships in a bid to bring customers in-store, such as Kohl’s acceptance of free Amazon returns across its network and Nordstrom’s link-up with Rent the Runway to allow shoppers to return their rentals at selected branches.

However, the upmarket department store is also evolving its model and format in a bid to improve customer experience. Nordstrom launched its Local format last year in Los Angeles, which it calls a ‘service hub’ where shoppers can collect and return orders.

There is no inventory on sale in-store, but shoppers are able to take advantage of services including personal styling, with products selected by a stylist via an online appointment across the retailer’s range delivered to a Local store for shoppers to try on. The outlets also offer alterations, tailoring and manicures, as well as coffee and wine to encourage shoppers to extend their visit.

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Nordstrom Local’s bar encourages shoppers to stay in-store longer

The retailer has rolled out the approach in select locations in Los Angeles, and an opening in New York is in the pipeline. It is prioritising busy cities where shoppers may not have the time or inclination to schlep to a flagship branch.

“Nordstrom has looked at areas with a high penetration of online shopping and picked locations accordingly because it allows them to reduce delivery time and costs,” says Saunders.

“Nordstrom also felt that by having a presence in such areas it would elevate the brand and keep it front of mind for customers, resulting in an uplift in online shoppers. It has been a successful concept which feeds back into supporting the central department store, which orders are fulfilled from and any sale is therefore credited to. It is a smart move.”

Like their UK counterparts, life is tough for some of the best-known US department stores. But they are tirelessly seeking fresh approaches that may give the format new life.