Another Department Store has lost its battle to stay open. “The end of Stuttafords: After 159 years, ‘Harrods of South Africa’ shuts shop” screams a headline in The Sunday Times.  Wow, so after almost 160 years of guts and glory, Stuttafords has decided to throw in the towel.

What a shame, some of us would think. However, think again. Most people probably didn’t even notice that they are gone… and that’s maybe the reason why they are gone…

Department stores around the world are closing down in heaps. Let’s consider why? The marketing mix (or 4Ps), which is a foundation model in marketing, may help us to explain what went wrong with Department Stores.

The Marketing Mix (4Ps) as a tactical marketing tool for a department store

In marketing practice, the 4Ps have endured because they provide the four fundamentals of marketing planning and management ¹. The 4Ps represent the following ²:

1. Product – this is the bundle of benefits that the seller offers and the customer receives. The particular set of benefits on offer will appeal to a specific group of customers;
2. Price – this is the total cost to the customer of adopting the product;
3. Place – is the location where the exchange takes place;
4. Promotion – is the marketing communication package used to make the offer known to potential customers, and persuade them to investigate it further.

When I did my reading on this subject, it was quickly evident that department stores start using the 4Ps as strategic marketing tool long before McCarthy ² introduced his 4P model to the world in 1960. In fact, since the opening of the first department stores in the nineteenth century, retailers had to decide what products to sell to their customers and where to make them available. A department store owner needed to sell her products at the right price and then motivate customers to visit their stores again or to buy more products.

So, after all these years of cumulated business experiences, what went wrong with department stores?

The Products of a department store

Products are at the heart of a department store. As a result, department stores usually are arranged into specific departments carrying lingerie, perfumes, men’s clothing, and so on. Thus, the stores have long aisles with shelves full of products that are arranged by categories. The shelve racks carry only a handful of products with recognizable brands e.g. Levi jeans, and masses of home brand products. But is this what their customers want? Not really.

Because of the lack of customer focus, department stores have lost share to specialty apparel retailers that offer narrower but more focused, easier-to-shop, lifestyle-relevant assortments ³. The growth of specialty stores targeting midlife, up-market women has been particularly problematic for department stores because they precisely target the department store’s traditional core customer…

Apart from losing customers, department stores have a 40% overlap. Same old, same old says Phil Wahba in Fortune: “A shopper can visit four department store “anchors” under one roof and it won’t take long for an expert eye to notice that they were selling much of the same merchandise.” Department stores failed lately to recognize what products their customers want.

Pricing with department stores

As far as the pricing of their products goes, most department stores found it hard to let go of their conventional habits. They accumulate masses of products every year only to sell them later at heavy discounted prices.

Maya Mikhailov, co-founder and CMO of GPShopper described in QUARTZ this discounting dilemma of department stores: “Focusing on meeting quarterly budget expectations has caused retailers to overload on sale-based strategies. This means that American shoppers are addicted to regular discounts, and retailers are paying a heavy price in the form of breaches of trust and brand dilution.”

But this’s not only the commodity-like products that department stores are discounting. The luxury brands are now also in the discount cycles of department stores.

“How desperate are department stores to get shoppers in the door and spending money?” asked Laura Northrup in Consumerist. According to Laura, department stores tried discounting prestige makeup for the first time. She wrote “Like drugs of abuse, discounts are addictive and can require ever-escalating dosages to get the same effect that you got when you first started using them. This has prompted established brands, like as Michael Kors to stop supplying department stores with their products.”

Rather than discounting themselves to obsolescence, department stores should think and do smaller. “Successfully selling a smaller line of products rather than letting a larger line linger into discount obscurity is the new way of doing business” suggested Maya Mikhailov (QUARTZ).

The Place where department stores do their business

The biggest problem with the place where department stores do their business at is that their customers are shopping elsewhere. Also, shopping malls, the bastion of department stores, are getting out of favor with retail customers.

“Shopping malls, once ruled by stores like Macy’s, J.C. Penney, and Sears, are seeing fewer visitors as consumers see them as overpriced and inconvenient. With many U.S. malls on a downward slide, some analysts predict nearly 33 percent will be closed within the next few years” wrote John Houck, contributor at Inquisitr. But closings shopping malls are not their only concern…

The online retail channel has ‘opened new doors’ for the competitors of department stores. Just like Amazon, who has been quietly putting pressure on retailers that specialize in apparel and fashion as it pushes into the market once dominated by brick-and-mortar stores (John Houck, Inquisitr). Some industry experts believe the online giant will own almost 20 percent of the U.S. clothing market in four years.

Now let’s consider the Promotion element of the marketing mix for department stores

Promotion at a department store

Not so long ago, a department store exploited its location, its quality of service and its quality range of products to convey its marketing message. However, the market environment of the department store has changed disruptively over the past decade or so. The bad news is that this changes will continue. Sadly, the department store failed to react to it.

During the past ten years the exponential growth of online shopping was facilitated by advances in ITC and digital technology. Just think of the impact that broadband WiFi and affordable smartphones had on the retail industry…

And it hurts department stores. They’re wondering where their customers have disappeared to, and they seem reluctant to go and find them. If you look at the numbers, you’ll know where their customers are – they’re shopping online. Though the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce (Jonathan Camhi, Business Insider).

Changes in the demographics of the department stores’ customers have affected them badly. The middle class, who in the good old days made up the bulk of a department store’s customers is contracting writes Helaine Olen in Slate. In fact, some of those former middle class folks are now upper-middle-class folks. And those whose income went the other way, are favoring more inexpensive options.

So department stores remained with the middle class – which is not visiting their stores. Well, the rest is history, as the saying goes…

Concluding

Bricks and mortar retailers, many that are now battling to stay open, can take note of what is happening with department stores. Using the 4Ps retailers may consider the following tactics:

1. Product – less is more, make them unique and part of a positive customer experience;
2. Price – know what your customer value and don’t sacrifice your brand – give your customer a reason to pay a premium price;
3. Place – know your customer’s preferences. Follow them where they hang out. Online presence is a must;
4. Promotion – know your customer better so that you can personalize your marketing message.

Remember that the principles of marketing stay the same, in spite of all the disruption that is taking place in the retail market.

Read also: The State of Retail 2017 – The Unstoppable Force of Change

Notes

¹ Donovan, R. and Henley, N. 2010. Principles and practice of social marketing: an international perspective, Cambridge University Press.

² Blythe, J. 2009. The Marketing Mix, In: Key Concepts in Marketing, SAGE Publications, Inc.

³ Whitfield, M.B. 2004. Department Stores: Smarter Strategies, Chain Store Age, 80(8):26A

Images

1. Business Live
2. StaticFlickr.com

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