Daily Research News Online no. 3821 - Hard Times for Department Stores

Hard Times for Department Stores

February 21 2005

Life is increasingly tough for Europe's department stores, according to the latest research from MINTEL, which claims that poor performers in the sector are key targets for property developers. Combined sales of mixed goods retailers in seven major markets studied rose by just 1% or 0.7 billion Euros in 2004.

'Department Stores in Europe' estimates that 2004 sales for Mixed Goods retailers, of which department stores account for up to half, totalled around 67.5 billion Euros in the six largest European economies (the UK, France, Germany, Italy, Spain and The Netherlands) plus Ireland. This is c.70% of the European total.

In 2003, a worrying number of department stores posted lower sales than the previous year and conditions showed little improvement in 2004. The liquidation of Allders in the UK and the problems of Karstadt in Germany demonstrate just how difficult things have become.

'Some businesses have responded better than others to changing consumer demands, but those who have performed less well are, increasingly, falling victim to property developers' comments Richard Perks, Director of Retail Research at MINTEL. 'Even when the town centre has shifted, department stores typically occupy large, well-placed sites... It appears that, given the way the retail property market has performed in recent years, a department store has to do particularly well if it is not to be more profitable to sell the site for redevelopment'.

Latest sales figures (2003) show that Europe's top department store operators by sales are Marks & Spencer (65 'department stores' UK), Karstadt (Germany) and El Corte Inglés (Spain), with a gap to fourth placed Kaufhof (Germany) and John Lewis (UK). So far this century, smaller chains have generally grown faster, particularly in the UK - including TJ Hughes, Fenwick, Beales, James Beattie and Harvey Nichols. Larger exceptions are El Corte Inglés and Debenhams, both of which have continued to grow strongly, thanks to ongoing physical expansion. M&S is a hybrid operator in that its proposition is exclusively own brand (unusual for a department store), and the 65 branches classified internally as department stores are only part of a much larger store portfolio.

'Very few of these companies have performed consistently well in recent times' says Perks. 'Indeed there are far more examples of struggling businesses - Allders, Beatties, Coin, Karstadt, Kaufhof, Vroom & Dreesmann - to name a few'. The more exclusive operators - luxury stores with high transaction values - are generally faring better. These include Le Bon Marché, Selfridges, La Samaritaine, Harvey Nichols, Harrods, Printemps and Galeries Lafayette.

In recent years retailers have adopted new strategies to cope with competition, flexing the product mix in favour of higher margin categories, versus slower moving, lower margin areas, like floorcoverings, furniture and household appliances; and pro-actively courting younger shoppers by boosting the selection of contemporary brands. The latter has often been successful - around 70% of 15 - 24 year olds in the UK and France and over 80% in Germany have visited a department store in the last three months. However Perks suggests this can go too far and that troubled House of Fraser may have put too much emphasis on the younger end of the range and on premium brands.

The report forecasts that sales through Mixed Goods retailers in the seven countries covered will rise very marginally between 2004 and 2009, from 67.5 billion Euros to 73.0 billion Euros - an increase of just 8% in five years. However, this varies hugely by country and is greatly influenced by a predicted 12% drop in Germany, driven in part by Karstadt's planned downscaling.

MINTEL expects Ireland's department store sector to remain the fastest growing, followed by Spain and the UK. A number of new stores are planned in all three markets, and Ireland is scheduled to see the arrival of two UK names, House of Fraser and Harvey Nichols, in 2005.

The company is online at www.mintel.com