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23 March 2022

Smart partnerships could create a new future for department stores

Concessions have been around for as long as our city centers and malls have featured department stores. The department store provided a space for all those other brands to all be collected into one space. Beauty products always relied on this format, until brands like Sephora started changing how these products are displayed and sold.

Department stores were suffering from a change in shopper behavior in recent years - even before the arrival of Covid. The huge growth in online shopping during the pandemic has also reinforced the behavior of many consumers who now want to have almost all their shopping delivered.

But the National Retail Federation recently reported how the brands that leaned into the pandemic and chose to rapidly adjust their business model are now coming out of the other side in better shape than ever. Including department stores.

One of the key differences is a focus on experience. If customers are going to leave their home, find a place to park, and then walk around your store then it needs to be an interesting experience. Stuff on shelves isn’t enough any longer. This is why some of the major retail brands in the US have been looking beyond the traditional idea of concessions to more strategic partnerships.

Take a look at Ulta Beauty inside Target stores. Beauty products are worth $42 billion a year just in the US alone. Last month, Ulta opened around 100 mini-stores inside Target stores. They are typically around 1,000 square feet and the staff are specially trained on Ulta products and can advise customers in person or via online chats. Even after one month, Ulta and Target are already talking about scaling up to over 800 stores.

Kohl’s has created a similar partnership with Sephora this year. Kohl’s took a slightly different approach by allowing Sephora to entirely take over the beauty department in the stores where they will operate. This partnership has already grown to over 200 stores and the partners plan to convert over 850 beauty departments by 2023.

When studying the first four Kohl’s stores to include the Sephora area they all registered a significant increase in customer traffic. On three weekends last August they averaged a 28.3%, 39.6%, and 12.5% increase in visits, respectively, when compared to a baseline of July 5. Visits to other Kohl’s stores also increased during this period, but nowhere near these numbers. Importantly, customers are also choosing to stay in-store for far longer than previously.

These strategic partnerships are not limited to beauty products. In August, Macy’s and Toys R Us announced a plan to feature the toy brand inside 400 Macy’s stores by 2022. Toys R Us declared bankruptcy in 2017, but the brand has been experimenting with a return using pop-up stores. This partnership with Macy’s allows a highly visible national comeback - and this remains a well-loved brand, so Macy’s is expecting it to become a major draw for more in-store footfall. The hot toy list for 2021 has already been published and is generating excitement for the Holiday season.

Macy’s in now in the process of trying to hire over 76,000 people to handle the Holiday season. It looks like quite a recovery when compared to the subdued season we all experienced in 2020.

There were many retail commentators that declared the death of the department store when the various lockdowns forced many to close their doors. It has been a challenging time for the retail industry, but it seems that the department store brands that really think carefully about the customer experience are going to be rewarded.

 

First published on LinkedIn by Katrin Langley, October 2021.