The era of department stores is over

The patient has been wasting away for a long time. The disease, which progresses in phases, repeatedly causes a stir in the German press, but it has long since shocked no one. Because department stores have been ailing since the 1970s, shopping malls are on the verge of extinction, and the fashion retail sector as a whole is in a state of upheaval. The fact that two pieces of bad news this month, one from Galeria and one from P&C Düsseldorf, caused a sensation, makes one sit up and take notice.

The current flare-up is killing a good third of the remaining Galeria Karstadt Kaufhof branches. According to the current status, a total of 47 of the remaining 129 branches are to close. Who is to blame? A cocktail of inflation, rising living costs and online and offline competition that the target group understands better.

Peek & Cloppenburg also sees the pathogen in “changed market conditions”. The Düsseldorf-based company cites the Corona-related slump in sales in 2020 and 2021 as a specific reason, which weighed on the company’s liquidity. “We are sticking to our multi-brand omnichannel strategy. Our focus is now clearly on our core business in brick-and-mortar retail and thus on our stores.

The young target group ticks differently

Millennials and Gen Z prefer to shop online — 43 percent of Millennials and 38 percent of Gen Z shop online regularly, according to a survey by Stylight Insights — and prefer to shop directly from brands. According to Capgemini, two-thirds (68%) of Gen Z and more than half (58%) of Millennials ordered products directly from brands in the second half of 2021, compared to 41% on average across all age groups. What’s the point of paying middlemen and women if they don’t offer any added value?

Only 37 percent of Generation Xers — born between 1965 and 1980 — and 21 percent of Boomers — born between 1946 and 1964 — have ordered directly from a brand in the last six months. Of those who have bought directly from brands, nearly two-thirds (60 percent) cite a better shopping experience as the reason for buying direct, and 59 percent cite brand loyalty programs as the reason. Customers used to come to department stores because they needed something from the bathroom or kitchen department. They went with clothes. In the heyday of department stores, it was housewives who had time to visit a department store, linger there and leave some money. Those times are long gone. There are hardly any ‘housewives’ today, 76.6 percent of all women in Germany are employed – for comparison: the rate for men is around 84 percent. Anyone who needs something from the kitchen department today lets their voice assistant know while they are cooking and it is delivered to their home the next day. When the need to go to the department store is gone, it must be replaced. For example through an experience.

The mass market is dead

“In the past, the traditional wholesalers served as bouncers. They offered scaled distribution to apparel labels with sufficient brand awareness and sales, and limited competition to the largest and most well-known suppliers,” according to the Boston Consulting Group (BCG). “Today, e-commerce has removed the barriers to distribution, leading to an explosion in competition.”

There are about 20,000 direct-to-consumer fashion brands worldwide, and BCG estimates that new brands are launching every week. These labels have it easier than a long-established department store because they have hardly any costs and can target just the right clientele via Instagram and do niche marketing. They can explain their history, values ​​and visual identity in a fun Insta-Reel and engage the target audience with imagery and a product. Today, retailers have to compete with exactly that. But that’s difficult if you’re pursuing a multi-brand omnichannel strategy and marketing with a watering can.

Department stores and large retail chains have one major disadvantage: they offer a lot for everyone. Their strategies and processes are focused on a mass market that no longer exists because it has long differentiated itself. They are aimed at several fundamentally different clientele that, by definition, they cannot reach or even inspire with one and the same message.

Retail needs courage, expertise and concepts to remain competitive

It is worthwhile to look to other countries to see how this is done. French department stores such as La Samaritaine, Le Printemps or Le Bon Marché are always worth a visit, not only because of the lovingly designed architecture. Events, art installations, new labels that fill the space with pop-up shops – there is always something new on offer here. But not only luxury department stores, also medium-priced segments know how to inspire with new product ranges and attractive shopfitting. Just like boutiques and concept stores, which keep attracting customers with new discoveries. This element of surprise is completely missing in most branches of the last department stores in Germany, instead there is an outdated range and a fluorescent tube-induced depressive mood. Why not use the resources that are already available in-house? The expertise of sales staff has been underestimated for too long, especially in Germany. The specialists who are in the areas every day know their clientele best of all. You know what is being searched for and what is being bought. They live in the respective cities and can estimate what people would buy there if it were offered, or which events would interest them. Centrally controlled purchasing makes many things easier, but not necessarily better. If the houses were allowed to act a little more autonomously, a lot might have been gained.

Because department stores and large retail chains also have a decisive advantage: they offer a lot for everyone. They can be a center for art and culture, especially in smaller towns that might otherwise not have so much of it and bring people together who otherwise never meet in their niches. But there seems to be a fundamental lack of will, at least in the case of Galeria, to give back to the community that has been subsidizing the business for years.