A long time ago, department stores meant something.
They evoked a sense of wonder in clothes shoppers: the idea that there was a place where the latest fashions could be found, where you could become a member of the upper class if you could just find the right outfit.
They meant something to designers, too: the promise that getting carried could change their business model from ‘small, intriguing brand’ to ‘fashion powerhouse.’
To its employees these stores represented job stability, to shareholders they represented great sales.
All of these ideas — the ideological heart of department stores — have died. They’ve been killed by the trifecta of a bad economy, a powerful e-commerce industry, and the fashion brands setting up their own stores.
So, in their current state, department stores are dying. Soon they’ll be dead, but it doesn’t have to be that way. Department stores can survive if they pivot quickly enough.
If you look at some of this century’s most successful businesses, you’ll see how quickly they adapt to change.
Netflix is the perfect example. It started out as a scrappy DVD mailing company, one whose paradigm was planted firmly in the 20th Century. It wasn’t designed to compete with Youtube, or to be some big streaming service. All it wanted to do was beat Blockbuster’s economic business model.
Of course, things were changing quite a bit, so soon it had to react to the ways in which the Internet was changing people’s content consumption habits. This was tricky, since getting people to pay for streaming video would cut into some of the revenue they got from getting people to use the DVDs.
So what’d they do? Did they ignore the changes and watch as their DVD business slowly died out?
Of course not! They figured out how to make a streaming business work — at a time when no one was streaming movies, and their closest competitor Youtube was still stuck on dog videos.
Netflix changed their business model to better reflect the realities of the market. In a word, they pivoted.
You can see that failure to pivot in the strategy of Netflix’s brick and mortar competitor, Blockbuster. Netflix founder Reed Hastings came to Blockbuster in the hopes of forging an alliance. Blockbuster had plenty of chances to buy the company or acknowledge their threat. But, given the lucrative nature of Blockbuster’s business at the time, they failed to look towards the future.
They failed to pivot.
Weren’t We Talking About Department Stores?
The parallels between Blockbuster and department stores couldn’t be clearer. They’re both huge businesses, who’ve had their business models upended by the internet.
At the same time, there are two important differences.
One: Far too much of Blockbuster’s revenue came from punishing its customers. People don’t like late fees, so they were bound to flee to a competitor that promise them another way.
Funnily enough, department stores are suffering from almost the exact opposite problem. They get their products as early as possible. So, according to Business of Fashion, “Pre-Fall clothes are delivered from April through July, while Autumn/Winter clothes are delivered from July through October.”
Because people don’t want to buy seasonal clothes so far in advance, the clothes sit in the stores until they eventually end up in clearance. This means they get marked down during the season when they should be sold at full price.
Essentially, the department stores are charging themselves late fees by getting clothes too early and thus keeping them for too long.
And Two: There’s nothing about Blockbuster’s store experience that gave it an advantage. No Unique Selling Proposition that protected it from the likes of Netflix. You could make an argument for the knowledge of the workers, but Netflix’s recommendation algorithms are at least analogous to this, if not better.
Clothes, on the other hand, are something people want to try on. They want to feel it, to know what they’re getting. E-Commerce sites can try to minimize this by allowing returns, but even then, shipping costs make this prohibitive.
What Does This Mean For the Future of Department Stores?
Honestly? They might still die out.
As many brick and mortar stores have found out over the past few years, the internet is a powerful destabilizing force. It’s hard to compete against something that has already caught so much of humanity’s attention.
But they do have a chance. If they start shipping their clothes in a little later, things will look better. If they build out their websites, they’ve got more of a chance. Take a look at what Amazon Go is doing, sell off some of their real estate so that you don’t have people wandering the stores looking for a sales rep.
Of course, it all comes down to that one word: they have to pivot.
I somehow doubt the department stores are reading this blog, but to the businesses that are reading? I think the department stores are a great example of how business works in the 21st century.
Which is to say: always look around you. Think about how the internet might disrupt your business model.
And most important? Don’t be afraid to pivot.
2 thoughts on “Are Department Stores Going the Way of Blockbuster?”
You miss the obvious in your Netflix analogy. Netflix did not so much “pivot” to streaming as use the existing system (physical DVD’s and US Mail) to provide a revenue stream that allowed them to start streaming when the technology allowed streaming to happen.
You’ll see it if you look at the name chosen for the company: Netflix -> Net Flix. As in “network Flix’s (movies).
If they had started the mailed DVD business without thinking about streaming someday, their name would have been unlikely to have been “net” flix. The name indicates that they always knew they would go streaming, and they just waited it out playing in the old methods until the time was right to go the route they always intended to go in the first place.