NEW YORK – July 23, 2024 – Sales among North American department stores are declining at increasing rates. While some have initiated measures to try and revive business, these efforts have not achieved the impact needed to change shopper behavior. New research from Bain further confirms that department stores must reset and refocus, taking advantage of their existing advantages, to stay afloat.

Shoppers no longer finding the value they seek in department stores

In 2018, Bain ranked women’s clothing retailers by Net Promoter Score® (NPS®), Bain’s proprietary metric used to measure customer loyalty, and four department stores were in the top ten. By 2023, only one department store remained in the top ten, trailing significantly behind. Looking at shopper loyalty to department stores in the key category of women’s apparel, Bain found that shoppers who maintain a positive perception of department stores tend to be over 45, a stalwart demographic that can no longer be taken for granted as digital penetration grows among all age groups. In this same category, perception among Gen Z shoppers took a sharp decline. These stores are struggling to win over this demographic, who show more loyalty to specialty retailers and online specialists. This decline isn’t limited to just women's apparel; department stores are struggling across categories, including children's clothing, home goods, and beauty products.

Initiatives launched saw momentum, but not enough to stand out on their own

Amid a challenging environment, and backdrop of layoffs, declining mall traffic, store closures, inventory volatility, and activist investor scrutiny, department stores have attempted to rejuvenate their businesses in recent years. Some current attempts like repositioning the brand and creating boutique concepts have shown promise, but have not been sufficient on their own, given their relatively limited size compared to the overall business. The real issue is that none have yet generated a big enough improvement for shoppers to notice and appreciate the enhancement, then alter their behavior accordingly because these changes have been too incremental and too slow to scale.

Taking stock of existing consumer-level advantages

Department stores’ current approach won’t create the visible and habit-changing impact that’s needed to win back shoppers. Yet it’s not too late to shift gears. While the competitive outlook remains challenging, a fresh transformational push could capitalize on a few industry trends that offer these stores relief. For instance, some disruptive e-commerce pure plays that once lured shoppers from department stores are now struggling due to the high costs of shipping and returns and unsustainably low profit margins. Similarly, some brands that went big on selling directly to consumers have realized that this channel brings its own capital and cash flow challenges.

Department stores can also build on the consumer-level advantages they already have. The squeeze on spending created by inflation and rising interest rates has tended to affect their core demographic of older and more affluent shoppers less than younger shoppers. Furthermore, consumers still value the opportunity to shop across brands, which is core to the department store value proposition. Years of existential threat have highlighted other cards that department stores still hold, such as the breadth of shopper data in their loyalty programs, cheap rents, knowledgeable store associates, and their strategic importance to vendors, many of whom can’t afford to let the format fail. These are existing assets that department stores need to be strategically utilizing while rethinking and resetting their customer value proposition.

“Once the cradle of retail innovation, US department stores have entered survival mode. Despite the odds stacked against them, many retailers have defied early predictions of their demise,” said Aaron Cheris, partner in Bain & Company’s Retail practice. “They are in a moment of reckoning, and while the current environment is challenging, there is a ripe opportunity for these retailers to innovate, rethink, and reset to meet the needs of today's consumers. Winning retailers will use this moment in time to refocus on the customer value proposition and take advantage of the consumer insights at their disposal.”

The path forward: restore innovation and create differentiation in assortment, experience, and value

• Betting on innovation. Retailers should implement fewer but larger bets on innovation and adopt a cross-functional approach to testing and scaling new ideas. They should also consider freeing up cash, reinventing the cost base, and unlocking new profit pools through diversification in retail media and data monetization and leveraging new technologies, like generative AI.
• Improving merchandise assortments. Bain found that 23% of consumers cited assortment-related concerns as primary reasons for giving department stores a lower NPS® score. A core of the department store value proposition and consumer appeal is that these stores offer the opportunity to shop across brands. Revamping merchandise assortments to address consumer concerns will involve retailers being more selective with inventory, reducing product overlaps, and eliminating underperforming brands.
• Ensuring exceptional service. Hiring and retaining top talent and training them with tech-enabled tools can offer credible expertise and personalized service to today’s shoppers.
• Simplifying complex pricing structure. Research found that 22% of consumers say expensive prices are a key reason they do not recommend shopping at US department stores. Simplifying pricing strategies by reducing layers of markdowns, coupons, and loyalty deals can help department stores compete with off-price retailers.

Editor's Note: For more information or to arrange an interview, please contact: Katie Ware, Bain & Company, tel. +1 646 562 8107, email: katie.ware@bain.com.

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