The insolvency of Galeria illustrates how department stores are seeing their expiry date approaching, although Belgium’s Inno does hold up remarkably, “like the Gallic village from the adventures of Asterix.”
Not only the mid-market segment is suffering
The persistent financial problems at department store chains like German Galeria and American Macy’s (which will now close about one-third of its stores in a new restructuring) indicate that the department store really is at the end of its life cycle, international retail expert Hans Eysink Smeets says in an interview with RetailDetail.
“Until a while ago, you could still cherish the illusion that only the mid-market segment was threatened, but now you see that upmarket department stores are also struggling. In Berlin, KaDeWe is terminal, while Galeries Lafayette is leaving. Selfridges is opening a cinema in London to get rid of its excess surface. Neiman Marcus in the United States has already narrowly escaped bankruptcy several times through restructuring. The old idea that you are still safe at the top of the market no longer applies.”
The “mad department store disease”
However, according to CEO Olivier Van den Bossche, candidates are queuing up to take over Galeria as a whole. “That seems a bluff to me”, Eysink Smeets is adamant: “The chances of them rectifying this are extremely small. Back in the 1990s, I was already talking about the ‘mad department store disease’. When I told famous Dutch department store chain V&D at the time that they would be eaten up by retailers like H&M, which were coming on strong at the time, Ton Dreesman replied to me: H&M is not a department store at all, so that is not competition. Guess how that ended.”
The expert is not impressed by what industry icons are putting up today. “Look at Galeries Lafayette on Boulevard Haussmann in Paris: that is a mess. Their smaller, provincial department stores – in a town like Amiens – no longer have the slightest relevance. La Samaritaine, while beautiful, acts mainly as a shop window for LVMH. For the luxury group, that is a marketing investment. I can understand that, but they are not going to repeat that in twenty-five places in France.” Italy’s La Rinascente lacks urgency, El Corte Inglés in Spain has far too large, outdated shops. The Coop department stores in Switzerland: “like going back to the 1960s.”
Lack of rotation
Department stores are being destroyed by the fast-fashion players on one side and online on the other, Eysink Smeets points out. The big shopping malls have also played a devastating role, with their much more attractive offerings. “We always look at rotation. In department stores, you see a lot of stuff hanging there gathering dust. No turnover: consumers can smell that. Even at Galeria, it seems to me that large parts of those shops have zero rotation. If you go to Primark or Zara, there is a whole block renewed every week, and when you come back six weeks later, the whole shop is different in terms of offerings.” At a department store, shoppers are not rewarded if they return more often: they saw the same the previous month already.
Once upon a time, the department store was a place where you were well looked after. That is over as well: “Walk around in any department store today, anywhere in the world. The chances of someone approaching you and saying ‘Good morning, can I help you?’ are extremely slim. They have a hard time attracting good sales people too: the good ones can easily find something else. In fashion, both in the Netherlands and Belgium, there are still real specialists, often family businesses that have been in business for generations. They are still able to attract good sales people, but that is very difficult for department stores. Especially if a department store starts to lose confidence: the good sales people are the first to leave. You have to be very attractive to attract good people, and not just in terms of money.”
Making choices
One of the issues is also that department stores today are no longer finding top people for management positions. “How many fellow department stores do you still have where you can attract experienced people from? If you have a supermarket chain, there are plenty of chains where you can get good people. But good managers with department store experience? If they are there at all, they don’t want to burn their fingers. People are not going to sacrifice their careers to this. Quick opportunists with exorbitant exit parachutes are then often the only option left.”
Department stores are also failing to curate their offer, like modern retailers do today. Eysink Smeets refers to Coolblue and Decathlon, which deliberately limit choice in their shops. “They make a clear selection, where each item meets a specific need. Department stores do not make that selection: you get a huge mess of products on offer – they often even have no say in what their brands offer, because the concessionaires do not share that data with the department store.” Modern retailers play that game much smarter.
Inno, the Gallic village
There is, remarkably, one exception: “I think it is very clever what Armin Devender has done at Inno in Belgium. He has done some good things, which is why they are still going strong. Inno is a bit like the Gallic village from the Asterix and Obelix comic books. I think Devender was lucky that Inno’s parent company is too occupied with itself, allowing him to do his own thing. He could run Inno more or less as his family business, in a certain isolation. He did that very well: the German parent company’s problems have stayed away from him. Besides, it is nice that Belgium is not such a big country: just sixteen stores, that is still manageable, on your own.”
“Luxury brands are no longer interested”
The Thai investment group Central Group, which owns Selfridges and KaDeWe, still believes in the sector, but do they have a vision with which they can save department stores? “They are not going to buy Galeria: they are opting for the upper end of the market. What may work in their favour is that they can still get the big brands. This is a problem for many department stores in decline: the luxury brands are no longer interested in doing business with them. Because of its international scale, Central Group can get brands that other players cannot.”
“One of the great things about a department store compared to luxury brand shops is that everyone dares to walk in without embarrassment. In a department store you are still allowed to look at the expensive brands, in a shop of a luxury brand itself the threshold is higher. But in how many shops of a department store chain are those luxury brands relevant? Even for Galeria, Bijenkorf and Inno, the ‘middle of the road’ brands make up the bulk of their business. The just slightly better brands, but not the absolute top brands: rather S.Oliver or Ralph Lauren than Prada.”
“In the provincial cities, it’s over”
Conclusion? “In the provincial cities, we have to accept that it is over. Zara and H&M are also consolidating their retail networks, as are sports brands. Smaller cities really will not get an Adidas brand store. In how many places in the world can you have a Nike flagship store? You can count those on the fingers of a few hands. I hope Central Group can make it in some big cities though, and I say that out of love for retail and inner cities. Because imagine a Meir without Inno? We would miss that. It is so much like the village shop: when it disappears, the whole village cries, but the years before they did not buy anything there.”
If department stores close, what should happen to those large, historic buildings in city centres? “That is the problem. Retail might still be possible on the ground floor and first floor, but not above. Those very large surfaces are less suitable to convert into housing, because you are soon away from the window. What are they going to do with that Lafayette building in Berlin? I wonder.”
