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How department stores can survive the retail crunch

Via Asia One : The secret to a successful department store is through the stomachs of shoppers.

Retail experts think that food is the key to survival for department stores in Singapore. But they say that these one-stop-shops must also find a niche and stay nimble enough to evolve with ever-changing shopper preferences.

The advice comes a little too late for John Little, Singapore’s oldest department store, which will shut its last outlet here by the end of the year after 174 years in operation.

The brand, which is managed by Robinsons Group, decided to shut “after evaluating the relevancy and sustainability of the John Little brick-and-mortar business”, it said in a press statement last week.

In its heyday in the early 2000s, John Little had seven branches, including its flagship store at Specialists’ Shopping Centre, which closed in 2007, after more than 20 years.

The department store’s exit is symptomatic of the wider malaise affecting the department store brands here and retail in general.

Retail segments mostly experienced drops in the last year. Estimated retail sales in August, excluding cars, fell 6.5 per cent compared with the same period last year. Sales for department stores dropped 3.9 per cent.

According to market research company Euromonitor, there are about 10 department store brands in Singapore, with a concentration of outlets along Orchard Road and a peppering of stores across the heartland.

Each of them is grappling with wider issues such as falling tourism spending, a manpower shortage, a slowing economy, the rise of e- commerce as well as high operational costs.

However, experts say that department stores are likely harder hit for two reasons: flagship fast-fashion stores offering more variety and the spread of malls into the suburbs which has chipped away at department stores anchoring the city malls.

Figures show as much.

Metro Holdings’ profits fell 12.6 per cent to $16.2 million in the second quarter this year. It closed two outlets – one at Sengkang and the other at City Square – last year and has only three remaining.

At its peak, Metro had five stores along Orchard Road in malls such as Far East Plaza and Lucky Plaza.

At Isetan, revenue slid 4 per cent to $68.61 million in the second quarter ending June 30 from the same period the previous year.

A spokesman admits that challenges faced here by the Japanese department store include a slowing economy and high rent, as well as shoppers who are “generally more price-conscious nowadays”.

It is a similar situation elsewhere. In the United States and United Kingdom, big names such as Macy’s, Neiman Marcus, Selfridges and Debenhams are also experiencing a crunch.

In June, The Wall Street Journal reported that luxury store operator Neiman Marcus Group recorded a profit of US$3.8 million (S$5.4 million), much less than the US$19.8 million a year before.

Its chief executive officer, Mrs Karen Katz, was reported saying that the strong US dollar had “chased away foreign tourists”.

UK department store Debenhams, according to the Financial Times, reported a 10 per cent fall in annual pre-tax profit last month as shoppers spent less on clothes. The store will shift its focus to beauty, gift and casual dining in an effort to boost sales.

Upmarket UK store Selfridges, which also saw profits drop this year, has pledged to invest £300 million (S$531 million) over five years from 2014 to revamp its online store and give its flagship London store a facelift that will include an expanded accessories department and a new entrance.

The good news is that experts here say that there is still a place for department stores in Singapore.

The bad news? They must evolve to survive.

Mr Steven Goh, executive director of the Orchard Road Business Association, says that the retail landscape is changing very rapidly and that department stores here are unable to catch up.

What makes the situation tougher is the rise of mono-brand, big format fast-fashion stores such as Uniqlo and H&M, or “category killers” as Mr Goh calls them, because of their ability to offer a much wider merchandise range within the same category.

He adds that it is important for department stores to find their niche as they run the risk of being “too predictable”.

All of them have a beauty hall on the first floor, for instance, he says.

“It’s quite predictable, unlike Nordstrom,” says Mr Goh, referring to his favourite US retailer.

“Because it started out selling shoes, the first thing you see when you walk into its store is a huge shoe department. That is its differentiation – it gives you a different experience.”

According to The New York Times, Nordstrom sales rose 8.9 per cent in the third quarter to US$3 billion, while profit rose to US$142 million from US$137 million for the same period last year.

Mr Goh also suggests incorporating lifestyle elements, such as offering yoga classes, to connect with millennials.

Mr Desmond Sim, head of research at property consultancy CBRE, warns that with the retail trade under pressure, Singapore could be facing a saturation of department stores. “Generally, I think department stores in Singapore are on the brink of saturation. We are a small country, but we have almost 10 department stores,” he says.

As for food, Singapore polytechnic senior retail lecturer Sarah Lim says: “This always attracts customers.”

The Straits Times takes stock of how the seven department stores are doing here and how they can improve.

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