Supermarkets – France

HEADLINES

Market value sales increased by 1% in 2008, to reach €47 billion

Supermarkets have suffered from harsh competition from discounters

ITM Entreprises SA leads the format, with 33% of value sales in 2008, through its fascias Intermarché and Ecomarché

Value sales are expected to decrease by an annual average of 2% in constant value terms between 2008 and 2013

Department stores must adapt to survive

It missed its step during the boom years, but the change of pace resulting from the global credit crunch could give the troubled department stores channel a chance to finally find its feet.

A decade of disappointment for the department stores channel

Over the past decade the department stores channel has been consistently outperformed by store-based retail as a whole, despite the growth of consumer spending. Every new trend seemed almost custom-made to take sales away from the local department store – the premiumisation of mass merchandisers, the widening of the non-food offer in grocery stores, the exodus of fashion and cosmetics brands to their own stores, the rise of discount fashion specialists and outlet stores and the growth of TK Maxx/TJ Maxx, not to mention the coming-of-age of internet retailing.

Market size growth: Department stores vs total store-based retail

 

 

 

 

While premium department stores were able to move away from most of the competition by going further upmarket, mid-market, local department stores found their options limited. In the UK, for example, high street regulars Beales, BHS and even the venerable Marks & Spencer saw the lowest rates of compound annual growth over 2004-2008, and upscale or ultra-premium brands Harvey Nichols, John Lewis, Liberty and Harrods saw the highest.

Could a change in consumer buying habits mean long-term survival?

For the retailers that survive, they may be looking forward to a brighter future. If outgoing Wal-Mart CEO Lee Scott is correct, the financial shock of the current downturn could reshape the buying habits of today’s consumers, resulting in a shift away from the rapid acquisition of cheap, expendable goods towards a ‘new frugality’. This could result in consumers returning to department stores for established, reliable brands or even private label, rather than hit-and-miss purchasing at discounters.

In addition, the rampant discounting that has affected retail over the past six months should ease as mainstream retailers control inventory levels more rigorously in order to protect their margins, easing downward pressure on prices.

Focus on the 40s – younger consumers may not be the answer

Frequently losing out through trying to be all things to all shoppers, department stores may find that their wide revenue base becomes more of an advantage as specialist retailers in difficult channels such as clothing and footwear and furniture and furnishings scale back their operations, and consumers look to their local department stores to satisfy more of their demands.

Product selection and inventory control will be key, and department stores may always be at a disadvantage with younger consumers – the constant reinvention that is the stock-in-trade of the fast fashion chains requires a flexibility that is difficult for a larger, more diverse store to achieve.

However, if Lee Scott is correct, the frenzied consumption that has characterised this group in recent years will soften, making attracting young buyers less crucial to retail survival. Meanwhile, older consumers of 40 and upwards are a highly affluent consumer group that department stores should focus on – not just gaining and retaining them now, but keeping their offer fresh so as to attract the 40 year olds of the future. In the past week, Marks & Spencer has targeted precisely this group with the launch of a new womenswear brand, Portfolio, aimed at the mid-40s and above.

An accelerating pace of change …

The seriousness of the current downturn is also spurring department store retailers on to take unpalatable decisions, such as closing underperforming stores, slowing expansion and streamlining administrative staff or, alternatively, investing in much-needed store and staffing improvements, which should make them more efficient and more effective organisations for the future.

Sales strategies also seem to be moving more rapidly and more adventurously, from Hyundai department store in South Korea hiring 40 foreign-language speaking shop assistants to maximise spend from shoppers taking advantage of the weak Korean won, to Saks unveiling a new drive-through concept, MyGofer, where internet sales can be picked up by consumers without leaving their cars.

…but more progress to be made

More options are available, for example by offering small concession spaces to businesses or brands which have a local following but can no longer support stores in the area; teaming up with internet retailers to offer a collect-in-store option that would drive footfall and generate peripheral purchases; even by offering services such as weight-loss or hobby classes that would, again, drive footfall as well as create demand for related products.

A better future for stores that survive

Premium or mid-market, few department stores have escaped the downturn. There are reports of falling sales from Tokyo to Moscow, Stockholm to Sydney. Smaller-scale mid-market chains Mervyn’s and Gottschalks have already been two of the earliest retail casualties in the US, while Beales must be on the critical list after seeing falling sales in four of the past five years.

Better times may lie ahead, but the question is whether department stores, especially mid-market chains weakened by years of difficult trading, will have the resources to last long enough to see them.