The next generation of department stores

The shopping experience as we've known it in the past might not survive, but the future could be far more interesting for those that choose to adapt and innovate how we shop.
next gen department stores 16x9 hero

Department stores have traditionally been many things to many people. They offer one-stop shopping, from vacuums and feather dusters to tailored suits and perfume. They're shopping amusement parks where people can pick from endless fashion brands, eat lunch and pick up pantry items without ever leaving the building. ‘Classic department store structures were built to last and continually expanded to meet demand,’ says Michael Lisicky, a leading retail historian in the US. 

However, modern-day shopping behaviors have left many of these former cathedrals of commerce floundering. In-store sales for US department stores have been declining steadily since peaking at the turn of the century – down from $232 billion in 2000 to just $135 billion in 2019 (pre-pandemic), according to the United States Census Bureau. In 2020, that figure slumped to $112 billion. Research conducted by commercial property information specialist CoStar Group found that, in the UK, 83% of department stores had shut down in the five years since high-street chain BHS collapsed in 2016. 

But it's not all bad. Those that have stayed in the game are innovating fast to accommodate emerging retail trends; think: smaller, artfully curated selections of products, buzzy brand activations, tech-savvy spaces and independent business concessions. 

Purpose-built department stores are being blended with complementary uses alongside traditional retail. The former Dayton's store in Minneapolis reopened with a space dedicated to local makers, such as Larissa Loden jewelry and Pig's Eye Pottery, as well as a food hall and offices leased to companies including law firm Ernst & Young. The 14-storey former Marshall Field's in Chicago stills sells merchandise – as a Macy's – on its lower floors, but its upper levels have been converted into offices

After 16 years out of action, Parisian department store Samaritaine reopened in mid 2021, with a daycare nursery, offices and a Cheval Blanc hotel. Shopping is still its main attraction, though. Designed to mirror the ‘flâneur’ experience (someone who strolls around, observing modern life), islands of discovery and old-meets-new architecture guide shoppers through the store's seven floors and two interlinking buildings. 

Its beauty department is the biggest in Europe and features independent labels such as Pai Skincare, perfume brand 100BON and nail varnish from Nailmatic. ‘Redevelopment firms become caretakers of community cultures and traditions with these buildings – but it's more than a redevelopment, it's a responsibility,’ says Michael.

Once again emerging as shopper playgrounds, next-generation department stores are tapping into experience and discovery to cater to new audiences. Shopping app Shopkick polled Americans in March 2021 and found that 44% view in-store shopping as an event and something to look forward to. ‘People want a sensory experience in a fantastic environment, so department stores are well-placed to deliver on that,’ says Esther Pugh, a UK-based retail expert. ‘After Covid-19, there was a huge bounce back to physical shopping. We want to see something different that we wouldn't see in our normal everyday lives.’

What independent brands can get from it

From finding the perfect location to hiring and training floor staff, opening a standalone bricks-and-mortar store is a major operation for independent brands – and one that can feel too risky for many. Having a physical presence, however, comes with huge advantages – according to real estate giant British Land, opening a new store can increase traffic to a retailer's website from the surrounding area by more than 50% within six weeks of opening. 

Partnering with forward-thinking bricks-and-mortar department stores is helping previously online-only brands reach new audiences and trial concepts before taking the plunge with their own location. Sustainable casualwear brand Colorful Standard is stocked in 1,100 retailers, with several among them department stores, including Ludwig Beck in Munich and Samaritaine. 

‘When it comes to physical stores in general, we value having a space where customers can discover the product, experience the colors, feel the quality and see the difference,’ says Colorful Standard's founder and CEO Tue Deleuran. ‘Our standalone stores are a great way of displaying our whole universe, while department stores offer great exposure as they're full of international shoppers, tourists and employees that may be seeing your product for the first time.’ 

His advice for independent brands looking to partner with department stores is to stay true to your brand identity while creating an installment that will ‘stick out from the crowd and make passersby think: I need to check this out.’ 

Recognizing that there was a gap in the market to help guide online businesses into the physical realm, Tal Zvi Nathanel, Amir Zwickel and Katie Hunt launched their retail concept store Showfields in New York in 2018. Positioned as ‘the most interesting store in the world’, Showfields offers online brands a presence through pop-up stands, which the store designs with input from each featured brand. The brand has control over what it sells in-store, what it highlights on touchscreen displays and whether it has dedicated staff or shares with neighboring brands. 

‘We solve the problem of transitioning to an omnichannel strategy by allowing brands to unlock the power of physical [retail], with all the benefits of marketing channels, making it accessible, measurable and scalable,’ says Tal. ‘The end result is [that] brands from all over the world can experiment with physical retail [with] the same ease they start a campaign with Google – and with very low cost.’

Pop-up partners pay a monthly membership fee between $5,000 and $15,000 and they get to keep all sales revenues. With more than 1 million customers and collaborations with more than 500 brands – from small indies like skincare brand Afokoskin and bedding company Slumber Cloud to bigger names like pantry brand Acid League and whisky brand Johnnie Walker – this plug-in-and-play department store model has fetched $11.3 million in funding to date. As well as its Miami Beach and New York locations, a London branch is in the pipeline. 

Case study: Torsa

Activewear brand Torsa launched online in 2020 and started selling in UK department store Selfridges at the end of May 2022. Founder Seb Beasant tells us how it's going so far. 

‘The buyer at Selfridges reached out in early 2021, but we had to go back into production – we just didn't have enough stock to fulfill the order. Selfridges is aligned with our values [and is] a great marketing tool for brand exposure. Fabric, detailing and craftsmanship is hard to convey through digital space. We're among a handful of sportswear brands on the floor, alongside some globally recognized brands, so it's going to take time to establish a foothold in the market. We've just had our biggest month in sales, without increasing marketing spend.’ 

Think local 

Traditionally, department stores carried racks and racks of stock. Today, though, staying ahead of the game means streamlining and curating the experience a lot more thoughtfully. Reaching neighborhoods through smaller service-focused stores is one approach to complement larger sites. Nordstrom Local launched its first outpost in West Hollywood in 2017 and now has seven sites across the US, such as in Newport Beach in California and the Upper East Side in New York. 

Spaces are circa 3,000 square feet – compared with the average American luxury department store's 140,000 square feet – and there's no dedicated inventory. Instead, customers have access to personal stylists who call in merchandise for clients, which they can try on in a dedicated area while enjoying locally sourced beer, wine and coffee. Same-day pick-up, alterations and tailoring and manicure appointments are also available.   

Larger department stores are still adjusting to post-pandemic stock demand – stores like Macy's and Dillard's are at risk of what analysts from financial services company UBS called an ‘unprecedented’ level of merchandise, as people re-emerge wanting more ‘dressy’ clothing and less activewear. ‘People don't want to see stuff,’ says Esther Pugh. ‘They want to be helped by being shown less product and, instead, see a brand come to life and how it all coordinates together.’

Best in class: How Selfridges nailed event retail

Opening to great fanfare in 1909, Selfridges department store on London's Oxford Street has always pushed the boundaries. From the beginning, it had 100 departments, several restaurants, a roof garden, reading and writing rooms, a first-aid room and a team of expert assistants who helped guide shoppers in surveying its eye-popping range. 

Bought by Thai retail and property brand Central Group and Austrian real estate company Signa for £4 billion at the end of 2021, Selfridges has embarked on an ambitious and creative redirection, adding a layer of modern-day wellbeing and mindfulness to its already expansive landscape. ‘Lots of what Selfridges offers now is entertainment in its own right,’ says Esther Pugh. ‘Stores like Selfridges, which deliver innovative experiences that combine sustainability and technology, are going to get people to keep coming back.’ Its first foray into Web3 was in March 2022, when it unveiled a virtual department store as part of Metaverse Fashion Week.  

The latest pop-up is centered around sex and sleep, with acupuncture sessions from Pricc and hypnotherapy by House of Wellbeing. Experts will be on hand to guide shoppers through sexual wellness ranges by brands like LBDO and The Oh Collective. It'll also host the UK launch of sexual wellness startup Maude, which was founded by Éva Goicochea and boasts actor Dakota Johnson as its co-creative director. 

Permanent fixtures redefining retail therapy include confidence coaching, sex counseling and a run club hosted by community outfit Friendly Runners. Health-testing brand Omnos will also be in store, enabling customers to get consultation on their genetic, hormonal and fertility health. Esther notes that all of Selfridges' experiences come with a layer of education. ‘Its garden center, for example, features experts to talk to you about plants and help with queries,’ she says. ‘More and more, people are going to department stores to learn.’

Destination dining is back on the menu, too. In-store restaurants and food brands include a champagne and oyster bar, cult Taiwanese dumpling house Din Tai Fung, an eco-friendly outpost of Pizza Pilgrims, Instagram-favorite cafe EL&N and bubble tea specialists Bubble Magik. Adesse Restaurant's plant-based fine-dining menu demonstrates that department store feasting should be worth traveling for in its own right.

A version of this article was first published in Courier issue 49, September/October 2022. To purchase the issue or become a subscriber, head to our webshop.

You might like these, too