With many department stores now operating at a loss – and several seemingly impenetrable chains like Barneys New York, Lord & Taylor and House of Fraser collapsing completely – it’s easy to forget that department stores were the Amazons of their time.
Placing a fixed price on luxury goods, and offering attention-grabbing bargains to draw customers inside, the glossy, gold-smeared halls of department stores have charmed the pants off of consumers for the last century and a half.
Yet, to the detriment of department stores the world over, this is the exact approach e-commerce brands like Amazon are using to draw in the (virtual) crowds – blending product range with value for money.
Running a department store is very expensive and, nowadays, often no-longer profitable. But Bernard Arnault, the Chief Executive and Chairman of luxury goods maker LVMH, has high hopes for his department store La Samaritaine when it reopens early next year.
LVMH’s strength is in its supply chain
Last month LVMH bought luxury jewellery and specialty brand Tiffany & Co. for $16.6bn, prompting a few immediate questions about the strategy of the multinational conglomerate.
Firstly, why buy a brand with struggling sales margins and a youth perception problem? And secondly, why spend €750m restoring a department store that’s been operating at a loss since the 1970s and has had its doors closed since 2005?
Perhaps the answer is hidden in plain sight behind the organisation’s name – LVMH is the combination of world-renowned luxury fashion house Louis Vuitton, champagne producer Moët & Channon and cognac manufacturer Hennessy. And these are just some of 75 separate houses that sit under the LVMH umbrella – Givenchy, Christian Dior, Marc Jacobs and Bulgari, to name a few more.
Owning a collection of luxury brands and department stores puts LVMH in a unique and considerably stronger position than its competition – Mr Arnault’s vertical integration model means rather than having to fill La Samaritaine with luxury products and attempting to turn a profit, he already owns a wide selection of luxury clothes and jewellery brands.
The LVMH website states: “Vertical integration fosters excellence both upstream and downstream, allowing control over every link in the value chain, from sourcing and production facilities to selective retailing.”
LVMH is not alone in its approach – Zara, for instance, is an excellent example of how vertical integration can allow brands to move quickly and keep pace with fast-changing consumer demands.
Owning several links in the supply chain also allows retailers to demonstrate sustainable and ethical sourcing – one of the key challenges retailers will come up against in the immediate future, according to the KPMG and Ipsos Retail Think Tank.
“By 2025, continued scrutiny into supply chains, working conditions and provenance will lift the pressure for retailers to be lowest cost at any cost,” said Martin Hayward, founder of consultancy firm Hayward Strategy and Futures.
Become a destination to capture the consumer’s imagination
Instead of trying to compete with the likes of Amazon, department stores need to play to their strengths.
When department stores first emerged on the retail scene in the second half of the 19th century, they attracted attention because of their ability to capture the consumer’s imagination.
In his 1909 Romance of Commerce book, Harry Gordon Selfridge wrote: ”Imagination urges on. It is the yeast of progress. It pictures the desirable.” And, given that Selfridges opened a three-screen cinema in its Oxford Street store, these words still clearly ring true for the retailer.
To succeed, department stores need to go back to their roots, but in an even grander style, by reinforcing the excitement of being in a department store.
Turn your store into a destination that blends shopping with entertainment, says Forrester’s Principal Analyst, George Lawrie, advising department stores to enable “customers to try locally available products and local services while sharing their experiences on social networks.”
Examples of innovative approaches include Neiman Marcus’s fashion shows, VIP styling lounges and arcade games, Galeries Lafayette’s employment of over 300 personal stylists through Instagram, and Nordstrom’s in-store fittings and tailorings, manicures and coffee shops.
Responsive and reactive: providing a personalised service
While all LVMH brands operate autonomously, its unified structure means all houses have access to the same technology and marketing capabilities, allowing them to be extremely responsive to their customers and react in real-time.
Bernard Arnault says: “Our business model is anchored in a long term vision that builds on the heritage of our houses and stimulates creativity and excellence. This model drives the success of our group and ensures its promising future.”
Modern customers expect department stores to recognise them across multiple channels and locations – and they expect the same highly personalised customer journey in-store that they would receive online.
To foster real-time relationships, department stores need to manage and integrate data from numerous sources and blend physical and digital experiences together.
Younger generations of consumers expect store associates to be experts in their field, and are eager to capitalise on in-store advice. Department stores have an advantage in their existing reputations as knowledge hubs – they need to play to that strength by upskilling store associates and investing in their product knowledge and quality of service.
While the refurbished La Samaritaine might not become the money-making machine it once was, LVMH’s innovative model will showcase how department stores can capture the attention of a new generation of consumers.
For more information on creating powerful in-store experiences, here’s how we’ve helped department store Brown Thomas increase footfall and sales, and capture highly quality data.