18 Mar 2014

Free Standing Stores – A Return to Old Time Retail

The way you see Department Stores is about to change – with the new trend of large department store chains moving to open their own smaller version of free standing specialty stores (FSS) in a bid to move with our changing shopping habits.

Retail insiders predict there is more growth opportunities in free standing, independent retail speciality stores in the future and that the traditional department store model will continue to decline.

In breaking news, UK department store chain Marks & Spencer announced they are coming to Australia soon with their new strategy of setting up smaller format stores instead of their traditional large department model.  M&S is already cultivating a market in Australia with free shipping offers on lingerie & underwear for purchases over a certain minimum spend and with the future bricks and mortar stores raising the brands profile here, traffic for M&S online is only going to climb.

These free standing stores will be around 2000 square metres, compared to a full scale department store of 10,000 square metres with fashion and beauty covering 80% of the floor space. The remaining 20% will be dedicated to food.

Marks and Spencer already successfully run the small format retail model in 16 stores in Hong Kong & 10 in Singapore, all one-fifth the size of large department stores, helping the group to maximise returns on their investment without the larger capital spending setting up & running costs of a larger store.

This specialty store format will be similar to current thriving retail store models –such as Country Road, which offers buyers a range of fashion & homewares in an enlarged specialty store.

In a recent article, Brian Walker, Director of the Retail Doctor Group calls the strategy to change the business model to free standing stores a smart idea, especially considering the impact international retailers will have on the market in Australia, local businesses need to shake up their existing business model if they are going to scale up to achieve profits and prosper.

Are FSS the way of the future & why this shift?

Smaller free standing specialty stores can focus on a more narrow but lucrative niche gaining buyer confidence and creating a more intimate atmosphere with personality that is increasingly lacking at large department stores. The experience of shopping in a department store hasn’t evolved with the similar aesthetic & personal feel.

Bricks & Mortar retailers are struggling, partly due to the influence of e-commerce, but mainly as they haven’t adapted to provide something extra than just a place to acquire merchandise which can instead be bought online.

The department store model is often burdened with high wages, high rents, service costs and investments into online infrastructure and poor consumer confidence. Not to mention the department stores main customer, the middle class is slowly shrinking – the position that department store’s once held in the market has gone.

According to ShopperTrak statistics the decline in consumer traffic is hitting retailers across the board. This fallout is prompting large department store chains to close hundreds of stores in the US in recent years with JC Penney recently announcing the cut of 33 poorly performing locations by May with the following explanation by company CEO Myron Ullman III…

“As we continue to progress toward long-term profitable growth, it is necessary to re-examine the financial performance of our store portfolio and adjust our national footprint accordingly.”

In today’s retail conditions department stores just aren’t pulling in as many customers as they used to. Statistics from the US Census Bureau show that since the year 2000 department store sales fell by 22%.

Threats are coming in offshore too, with overseas retailers attracted to our market to do battle with Australian brand stores lured by the potential of strong economic growth. Department stores now more than ever need to slash their costs with the future looking bleak for those that refuse to adapt. We will see more traditional department stores re-imaging their identity, with innovative design and smaller formats to better engage customers and entice them in store.

Physical stores will remain the main point of contact with customers; retailers that embrace an increasingly integrated multi-channel world with a strategy to provide new types of value to their customers other than just the transaction will thrive.

In this changing world department store retailers need to compete by revamping and repositioning their place in the market and challenging the vision of department stores of the past. The message is clear that Department store’s that don’t learn to reinvent themselves will become a dying breed.

Visit www.retailexpress.com.au or call 1300 732 618

Aaron Blackman is the CEO of Retail Express. Follow Aaron on Google+