In the novel by Émile Zola from 1883 To the Happiness of the Ladies, the department store that forms the backdrop for the intrigues grows as the story unfolds. If Zola was writing today, it would probably be dressing the windows of a closing sale.
Department stores are retreating across the world. The “cathedrals of commerce” erected at great expense in the 19th and 20th centuries are widely regarded as a concept whose time is past – hampered by their high fixed costs and unable to compete with the “endless aisle” of the Internet. The Covid-19 has only accelerated this decline.
Earlier this year, Debenhams closed the shutters of the last of its 124 stores in the UK, marking the end of more than 200 years of commercial heritage. Dozens of independent operators have closed. Even John Lewis, considered the most financially conservative of Britain’s major chains, has closed eight of its 50 stores since the pandemic and announced eight more closures.
This has left big holes in the cities of a country that has embraced the department store like few others.
“They were known as anchor stores and they gave character and status to the place,” says Professor Cathy Parker of the Institute of Place Management at Manchester Metropolitan University. “Having something like a Harvey Nichols puts you at the top of the retail hierarchy. “
In shopping centers, they generally pay low rents per square meter in recognition of their role as a driver of footfall; other tenants benefit from the pull of department stores, which offer everything from beauty to housewares. This same principle works in town centers and towns, where councils in the UK have gone to great lengths to keep department stores as tenants despite the state of local government finances.
And current evidence suggests that the biggest stores in the most prestigious locations will survive. At the time of this writing, the group which includes Selfridges London store was for sale with a potential price tag of £ 4bn, more than six times what its current owners paid in 2003.
Meanwhile, others will be converted to serve other business purposes including recreation, offices, residences and hospitality, especially when they occupied stand-alone buildings in important locations.
For example, the Jenners building on Princes Street in Edinburgh – ironically owned by one of Europe’s richest e-commerce tycoons – will become a hotel with a smaller department store on its lower floors.
Rackhams in Birmingham will also become a mixed-use facility, integrating office, retail, hotel and public spaces. In Exeter, the former House of Fraser will reopen as a hotel.
But such changes in use won’t work everywhere, even after the UK government recently changed the law to remove some planning barriers.
Michael Murray, who oversees real estate strategy at Frasers Group, says the cost of conversion is often prohibitive, especially when commercial property prices are lower. “You end up with a negative property value as a result. “
Mark Williams, of regeneration specialist Rivington Hark, says that if you draw a line from Bristol to The Wash, in the East Anglia region of England, “north of that line you will probably need some sort of intervention of the local authorities to make the sums. . . Doing something like a hotel conversion is very difficult even if the land is worth enough to make it worth it. “
Tony Brown, who ran regional department store chain Beales until its collapse in early 2020, agrees with Murray that the model can still work – if it’s drastically redesigned. For him, that means smaller stores – “not much over 30,000 square feet” – and lower costs.
“The capital intensity of the old department store model was just too high,” he says, due to the high operating costs and the working capital required to maintain clean purchasing inventory levels.
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Brown resurrected the Beales name, opening stores in Poole and Peterborough, but with major differences. The “beauty room” on the ground floor – long considered a staple in department stores – has disappeared. “The cosmetics economy, in particular, was appalling,” he explains, citing low profit margins and onerous terms imposed by beauty brands that are now under pressure from newcomers only online.
A less visible but equally important change is that almost all new store revenue comes from commissions on sales made by partner brands in their in-store sales spaces. This avoids tying up capital in stock – brands own the inventory – and the need to employ armies of buyers and merchandisers.
Brown says the model is scalable and that he plans to eventually have five stores in provincial towns. But he recognizes that the rapid store deployments of the past are well and truly over. “I don’t think you’ll ever see a 150-store chain like Debenhams again. But there will be operators like us, with a small number of small stores. “
For Parker, city centers need to be less retail oriented. “In the future, we have to build a more adaptable space, otherwise we will continue to end up with these white elephant buildings. “