Are department stores still relevant in the current retail environment?

Author: Corinne McCool, Manager - Retail Between 2016 and 2017 David Jones reported a 6% decline in profit. Likewise Myer reported a 26% decline in profit. ABS Retail Trade figures show an annual decline in department store turnover (including discount department stores) of 2% for the year ended September 2017. These number presage the need for department stores to change.

In recent times we have seen the beginning of change. This includes retail offers that are more tailored to individual markets, provide improved customer service and focus on ‘experience’ retail (i.e. new food and service experiences). Optimisation of store space requirements and networks are also under review. These strategies have been developed in part because of the introduction of online trading, and the imminent entry of Amazon in the Australian market.

Over the past year David Jones has been active in diversifying its store network. Small format stores of around 1,400 sq.m have opened at Barangaroo in Sydney and James Street in Fortitude Valley. There are further plans to open 10 new small format stores over the next five years. The most recent opening in Wollongong, at around 8,600 sq.m, is around 70% of David Jones average store size in 2014. Space reductions have also been announced at Macarthur Square, The Glen and West Lakes. The future closure of the Market Street flagship store in Sydney CBD, aligns with the $200 million redevelopment of Elizabeth Street in 2019.

David Jones also announced a renewed focus on food, based around its famous Sydney flagship ‘Foodhall’. Key openings include the first 2,400 sq.m flagship Foodhall which opened at Bondi Junction in August 2017, followed by Wollongong. A 550 sq.m food concept store at Malvern Central is due to open in March 2018. They have also opened cafes in Wellington (New Zealand), Macarthur Square and Baranagaroo.

Myer has not appeared as active in diversifying its portfolio, instead focusing on improving store productivity levels with the closure of seven stores since 2014. In 2017 Myer closed over 24,000 sq.m of floorspace. This included closures at Brookside, Orange and Wollongong and space handed back at Cairns and Dubbo. Myer has also announced the future closure of Logan in 2018, as well as closures at Colonnades, Belconnen and Hornsby and space to be handed back at Blacktown and Castle Hill. Myer is on track to exit around 10% of its retail floorspace. A further four stores have been slated for possible closure or space to be handed back by 2020.

Myer’s strategy day in November 2017, saw the unveiling of its new retail concepts including new food partners. Planation Café is planned to open in three sites (Doncaster, Southland and Eastland), with Degani Café opening in Townsville. A pop up food program with Mister Fitz and Doughnut Time in Sydney and Brunetti & Bibelot in Melbourne is also planned. Myer also identified 12 locations for new beauty and men’s grooming services, as well as one Monkey Mania Play Centre planned to open at Eastland in March 2018.

In terms of new entrants to the market, Harris Scarfe’s owner Pepkor recently opened the first stand-alone Debenhams department store at St Collins Lane in Melbourne CBD. The smaller store offer, at around 3,600 sq.m, includes a focus on ‘exclusive’ brands. They have plans to open four to five Debenhams over the next three years and 10 over the longer term.

Consolidation of department store floorspace and new concepts is driving increases in store sales and productivity levels. Department stores, particularly in large super regional centres have maintained or improved sales productivity levels over the past few years. In contrast, overall discount department stores performance has been flat. The recent success of Kmart has been almost entirely offset by declines in Target and Big W. Further, consolidation of department store floorspace within centres presents remix opportunities. New anchor, mini-major and specialty tenancies may improve the performance of this space, as seen at Top Ryde City Shopping Centre and Westfield Hurstville.

If you would like to know more about the role department stores play in the current retail environment or future investment opportunities in retail, please contact Corinne McCool - Manager, Retail to discuss further.

[hr]About the author:

Corinne has over 14 years’ experience in the property and retail industry. Corinne joined Macroplan as a Retail manager in February 2016. Prior to this role, Corinne held the position of Network Planning Manager at Coles which saw her providing advice around long-term property strategies for existing and new stores for supermarkets, liquor, fuel and online across Victoria, New South Wales and Queensland. Corinne has well established herself within the industry as a specialist in retail network strategies, retail supply and demand assessments, centre performance bench-marking, economic modelling for new and existing centres and economic impact assessments.