Debenhams, the UK’s largest and longest-standing department store chain, can trace its history back to a drapers shop on London’s Wimpole Street in 1778. During the mid-late 1800s many of the big department store names that are still in force today (albeit only just in some cases) such as House of Fraser, Harvey Nichols, Harrods, John Lewis, Liberty and Fenwick emerged to serve a growing middle class and would go on to become part of our national fabric. Selfridges, established by the colourful US entrepreneur Gordon “Harry” Selfridge, was a latecomer, arriving on Oxford Street to great fanfare in 1909.
Since these great cathedrals of shopping began to arrive in our town and city centres, the country (and they) have lived through, and survived, the Napoleonic Wars, two World Wars, three depressions (of which one was “Long” and one was “Great”), seven recessions plus one “Great Recession” and a global pandemic in the form of the Spanish Flu. Most of them never lost an official day of trading throughout.
But then, in 2020, COVID-19 arrived and they were forced (along with all non-essential retailers) by Government order, to shut up shop for almost three months. It was a shock to say the least. In a communication to customers just before lockdown was ordered towards the end of March, Fenwick, which is still controlled by its founding family, said: “The doors of Fenwick have been open to customers for almost 140 years – it goes against everything in our nature to close them. But these aren’t normal times and we find ourselves in the unique situation where shutting our doors, for the time being, is the right thing to do for our customers, our colleagues and our communities.”
Could it be that this virus does for our department stores what dozens of other seismic national and world events could not do, and bring about their demise? In some cases, it may well happen, but there’s no point in pretending that the problems some of these businesses faced began on 23 March 2020 when Boris Johnson order them to close. Debenhams, for instance, has been in a Great Depression all of its own for years, having been battered by changes of ownership, too much debt, too many shops, the online revolution and increased competition from far more interesting rivals.
As it stands, with 124 stores reopened since lockdown, a second administration in as many years, a sale process underway, liquidators on standby just in case, and rivals already measuring some of its sites up for curtains, Debenhams seems the least likely of our department store chains to make it through the COVID crisis. Or at least it’s unlikely to make it through intact anyway.
Richard Hyman, who has been watching and analysing retail for the past 35 years and has his own consultancy Richard Talks Retail, says Debenhams is only still with us thanks to the financial relief provided by the Government and landlords to help keep businesses afloat through the crisis. “When the cost holiday is over, Debenhams is going to be unviable. It is, effectively, trading cost-free,” he says.
This week’s latest chapter in the store’s long-standing fight for survival sees it entering into battle with Swansea City Council to fight a business rates rise on its store there. If it wins, it says, it will be a test case for stores around the country. It doesn’t want to see its hard-won rent reductions be eaten up by business rates rises but even if it wins that particular battle, its problems go far deeper than that.
Fashion and beauty brands are pulling out of department stores and focusing on selling through their own channels, big high street names are going to the wall and closing concessions and that’s before we get to the investment needed in the digital channel and the question of whether shoppers will return to the high street in meaningful numbers any time soon.
It does seem unlikely that Lazard, which is handling the sale process, will find anyone willing to take it on in its current form. There is one man who springs to mind, of course, and that is Frasers Group chief Mike Ashley. Ashley had been desperate to wrest control of Debenhams at the end of 2018 and early 2019 making multiple overtures to its investors, which were all rebuffed. The investors, led by Silverpoint Capital, formed an entity called Celine which bought the business out of administration in a pre-pack deal, which enraged Ashley. He dubbed it a “national scandal”.
One has to wonder whether Celine has rued the day it didn’t snap Ashley’s hand off and it’s questionable whether his hand will be extended again. Word has it, he’s cooled on the idea of buying the chain but may be interested in up to 30 stores. He has, also, got a challenge transforming (or “elevating” as he prefers) his own department store House of Fraser, acquired out of administration in the summer of 2018.
House of Fraser, to put it bluntly was a basket case, and the fall out from its administration was felt far and wide in the industry with brands, landlords and suppliers left millions out of pocket. At the beginning he couldn’t even operate its website as the logistics company had effectively gone on strike and brands were seen entering stores and seizing their stock. Only someone of Ashley’s unique constitution would have been prepared to take it on and, some months after he bought it, he claimed its problems were even worse than he’d imagined.
Nonetheless he says he’s in it for the long term and wants to create a mini chain of “elevated” stores, called Frasers, within the House of Fraser estate. He’s started with the Belfast store, which contains a branch of his group’s luxury fashion chain Flannels for instance. However there are 48 stores in the House of Fraser empire now, with five having been closed in the last financial year, is he really going to be able to keep all of them?
Hyman, for one, thinks not. “I see no elevation in House of Fraser,” he says. “Eventually there will be very few of them. There is a big gap between what they say [about elevation] and what they do.”
GlobalData head of apparel Sofie Willmot agrees that both Debenhams and House of Fraser continue to “look lost and forlorn, hoping their customers will one day return”. And that’s the million dollar question isn’t it? Will customers return to high street in huge numbers this side of a vaccine?
Those highly organised queuing systems retailers conceived prior to reopening with social distancing stickers on the floors outside on the pavement look like wishful thinking now as there hasn’t exactly been a stampede to the shops and the centre of London has been emptied of office workers and tourists.
The latest data from Springboard shows that footfall was up +4.1% week on week from 16-22 August, largely driven by rises in footfall of +6.8% in Greater London and +7.1% in the South East. So, that’s an improvement, but we are still looking at a near -40% drop in high street footfall year-on-year nationally, with central London down more than -60%. How long before equilibrium returns? And will it ever?
“I think we’ve hit a brick wall,” says Hyman. “From the beginning of July people who were going to go back [to physical stores], who were ready to go non-essential shopping, did. People who didn’t want to go non-essential shopping continue to resist it, and will continue to resist it until there is some major reassurance, such as a vaccine.”
On top of that behaviour has changed; customers of all ages have now been forced to use online shopping services and many will now stick with it. Data from TheIndustry.fashion’s brand and retail tracker The Index shows that pre-COVID in January 2020, just 18% of consumers said they had shopped online only for fashion in the prior three months. In June 2020, some 63% said they had shopped online only for fashion in the prior three months.
That makes sense since most of that period was covered by lockdown (with only supermarkets able to sell clothes in-store) but when we asked the question again at the end of July, when the stores had been open for six weeks, some 44% still said they had shopped online only. What’s particularly interesting is that the most enthusiastic online shoppers are now older, flipping prior consumer trends on their head. In July some 48% of over-55s said they had shopped online only for fashion in the prior three months, compared to just 15% in January. This group is the most likely to stay at home, as much as possible, until a vaccine is sought and it’s hard to imagine a trip to Debenhams or House of Fraser would be the thing to tempt them out of their cocoon.
But they might be missing John Lewis. Of the major mainstream department stores, John Lewis looks like it has the most potential but it’s not without its challenges (see our feature “Knowingly Fixing John Lewis” here). However, new chairman Dame Sharon White – who knew she had her work cut out even before a global pandemic struck – does, at least, seem prepared to make some tough decisions. The “Never Knowingly Undersold” pledge – which had been a bit of a liability, looks set to be dropped/”improved” – it’s closing eight stores, it’s talking to landlords about converting stores into residences, it’s pulling back on fashion (a shame but more on that shortly) and it’s embracing new retail models such as rental.
“Joining the partnership six months ago amidst tough times in retail and for department store players in particular, Dame Sharon White has had more to deal with than she could have imagined but she has proved she is willing to make drastic changes and steer the retailer in a new direction in order to survive. Unlike its department store competitors Debenhams and House of Fraser which continue to look lost and forlorn, hoping their customers will one day return, the John Lewis Partnership is taking steps to adjust to changing consumer shopping habits to try to safeguard its future,” says GlobalData’s Wilmott.
White is indeed being bold in closing eight stores – including the Birmingham store which was the Grand Oeuvre of former MD and now West Midlands Mayor Andy Street – and she has proved she is prepared to slay a few sacred cows (and put a few noses out of joint – Street is not happy to say the least). But is it brave enough and is the company prepared to move quickly enough?
“In 2011 the forecasting people within the company said that 40% of sales would be online by now. And they were right. Meanwhile they opened 20 new stores… They need an integrated single, coherent view of their strategy. The new stores are dragging the whole business down,” says Hyman.
Industry commentator and TheIndustry.fashion contributor, Marcus Jaye agrees: “Many people might think John Lewis’ huge retail estate was a legacy left over from a previous era, but it is worth noting nearly half, 24 of its 50 John Lewis shops, were opened after 2000.” He points out too that it hasn’t been afraid to close stores in the past, such as the historic Knight & Lee department store in Southsea, which closed in 2019.
Given that John Lewis’s online sales are forecast to hit 60%, the other big challenge for the company is replicating its famous in-store service online, which in Hyman’s view, it has never quite cracked. Nor has it ever quite cracked fashion and White’s response to that seems to be to row back on fashion in favour of more emphasis on home. In recent years its efforts in fashion have been hit and miss with projects such as the designer collaboration Modern Rarity looking strong and the John Lewis & Partners range looking ordinary and expensive. And, really, was that the best they could come up with on the name front?
“The branding has been questionable,” says Hyman. “It was a mistake to brand the biggest part of the clothing offer John Lewis & Partners – it was like giving it no name. It wasn’t good enough. The quality/price relationship wasn’t right. It wasn’t really defined by the crowded market it was entering; they didn’t know who they were trying to take business off.”
Hyman is right, fashion is crowded but it’s not as if home isn’t either, so however it strikes the balance on its product offer, it is going to have to be good. And, likely as not, closing eight stores may not be enough. But, it is a store that would be missed by consumers, and if it’s prepared to move quickly enough it should stay the course (though as Hyman points out a few more retailers in senior management positions might be helpful).
But not all department stores are doomed to dramatic cuts and restructures to survive. The luxury end of the market provides a shining example of best in class retail (on a global scale) and a business that breaks all the rules and defies all the business trends, which say that trying to make money from selling other people’s brands these days is a fool’s errand. And that business is Selfridges.
At just 111 years old, it is a relative newcomer in department store terms and, like everyone else in the market it is having a tough time. It’s heavily reliant on its London store and with a 60% drop in footfall in the West End, that’s a problem. It’s having to lay off staff and its Group MD Anne Pitcher has described trying to sell luxury goods to an empty London as one of the toughest gigs in the world right now.
She told The Sunday Times last weekend: “It’s tough — it’s super-tough. I can’t pretend it’s anything else. I am actually quite heartened by [trading at Selfridges’ stores in] Birmingham and Manchester, but it’s tougher in London than anywhere else. The predictions for international travel are bad until the end of this year, with maybe some recovery into next year.”
But how is Selfridges responding to the crisis? Not by having public rows over business rates, but by innovating. It’s just announced “Project Earth” which aims to transform the way we shop by 2025 with a focus on more sustainable consumption. And, of course, it will be doing so in the energetic and exciting style we have come to expect from what, most experts agree, is the best department store in the world. It’s bound to struggle with footfall in London so low, but its owners, the Weston family, take a long-term view and the business will bounce back.
“Selfridges is an example of the sum of the parts being greater than the whole,” says Hyman. While it has been apparent to department stores for years that brands would rely on them increasingly less than they once did for a route to market, they will still want to be in Selfridges. Who wouldn’t?
“They can do what a brand on its own can’t do. However simple that might sound, that is the essence of it. The are extremely proactive. I say this to a lot of landlords. If you want to know what the future of retail landlords is, look at Selfridges. It is like a very, very proactive landlord that really understands retail. It thinks about its offer holistically, thinks about the components and how they fit together and it is constantly shuffling the pack,” Hyman adds.
Harrods, similarly, should ride out the crisis – not without some blood letting (750 staff are to go) – as it remains a great retailer that offers brands an environment and a customer base that they would be hard pushed to achieve off their own backs. It has also innovated with the opening of its first outlet store in Westfield London and will be opening stand-alone beauty halls around the country in the coming months.
But being in luxury alone, of course, is not enough in itself. Harvey Nichols has not opened four of its stores since lockdown, with Dublin, Bristol, Birmingham and Liverpool all still closed. Advisers from PwC have been appointed to review the business and the “viability of its store estate”, so there is perhaps a chance those four stores will remain closed.
“Harvey Nichols is more worrying,” says Hyman. “It had already lost its way. It needs to redefine who and what it is. It has never developed a decent own brand or online business. Without its own brand, it has no guts around which to build an online offer.”
The brands Harvey Nichols sells all have their own online businesses or are all served by online experts such as Matchesfashion.com or Net-A-Porter.com and, unlike Selfridges or Harrods (or, say, Liberty which does have its own, world renowned brand and a distinctive store), it doesn’t offer a particularly unique store experience, though it has invested in its Knightsbridge flagship. Harvey Nichols will have its work cut out to re-establish itself as a cutting-edge destination in a market with such strong competition and, moreover, a market that is shrinking.
Britain’s historic department stores
|Debenhams||Began life as a drapery on Wimpole Street in 1778||124 stores. In administration. Sale process underway with liquidators on standby|
|Harvey Nichols||Opened in Knightsbridge in 1831||Eight stores, four remain closed. Advisers appointed to review its options. In consultation over job cuts.|
|House of Fraser||Founded in Glasgow in 1849||Part of Mike Ashley’s Frasers Group. 48 stores with some set to be converted to high end “Frasers” stores|
|Harrods||Founded in Knightsbridge in 1849||Additional stores in Heathrow T5 and Westfield London (Outlet). Set to open a chain of beauty halls nationally. Laying off 750 staff|
|John Lewis||Founded on Oxford Street in 1864||50 stores with 8 set to close. Revamping its proposition to include models like rental. In consultation over job cuts.|
|Liberty||Founded in London in 1875||Sold to a PE consortium last year, ramping up its own label. Remains a single store with a website. In consultation over job cuts.|
|Fenwick||Founded in Newcastle in 1882||Nine stores nationally. Recently appointed a new CEO John Edgar and posted losses of almost £50m in year to 31 January|
Who survives and in what form is not a straightforward prediction to make. There’s much talk of the state we are in now as being the “new normal” but to base long-term forecasts and strategies on the market remaining as it is now would be mistake. We don’t yet know what the new normal is. “It’s human nature that the majority of people are really sucked into thinking that whatever is in front of them is the way things are. This is not the new normal, this is the interim normal,” says Hyman.
What it feels safe to say is that we will have far fewer department stores in future. But what is to be hoped is we will have fewer, better ones, fit to survive yet more seismic events, though let’s just hope we get a bit of a break from those for a while. We’ve got another recession (possibly even one that is both “Long” and “Great”) to get through first…