Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

The troubles of department stores in the U.S. are vast. These days, Britain is joining in.

As my Gadfly colleague Shelly Banjo has documented, these stalwarts of the American mall are suffering from a toxic combination of sales migrating online and women falling out of love with new clothes. That's forcing them to close hundreds of stores.

British chains Debenhams Plc, John Lewis, House of Fraser and Marks and Spencer Group Plc -- a sort of own-brand department store --  face the much the same challenges. They must also confront a growing army of discount retailers, led by Primark, which are opening ever-bigger outlets that resemble department stores themselves. 

On Sale
With sluggish demand, department stores have been forced to offer discounts
Source: RAH Advisory

The U.K. fightback involves moving away from selling stuff to offering experiences. The collapse of BHS last year notwithstanding, at least they're not yet in as much of a pickle as some of their U.S. counterparts, partly because their shop estates aren't as extensive. But they should still take a leaf out of their books and trim their holdings, and fast. While some have started this process, more pruning is likely to be needed.

Mixed Fortunes
John Lewis has gained share but must adapt to changing shopping habits
Source: GlobalData
Marks and Spencer is clothing and home furnishings, excludes food.

Take Debenhams, for example. It said last week it would reinvent itself as a destination for "social shopping." In short, that means a trip to the store with friends, picking up a blouse and lipstick, a meal and even a blowdry, and documenting it all on social media.

The trouble is, that's an awful lot like the strategies being pursued by John Lewis and House of Fraser, which might even open yoga studios in some of its outlets.

Focusing on experiences is all well and good, but that's already a very crowded market, with coffee shops and casual dining chains having expanded aggressively. It's also a trickier proposition as faster inflation may make shoppers more thrifty.

A big push into beauty can't be a panacea either. Not only is it lower margin than clothing, but everyone is chasing sales, from big brands opening physical outlets to online specialists such as Feelunique. U.S. department stores have already gone down this route, with mixed results.

What the Brits really need to do is go back to basics. They face an uphill struggle to persuade customers to spend, particularly on clothing. But it's not impossible. Supermarket J. Sainsbury Plc has managed to increase its clothing market share over the past three years by having the styles that customers want, at affordable price points. It has even been able to make new frocks look appealing in a supermarket setting.

Surely improving what department stores already do is easier than a foray into a completely new market, such as sending beauty therapists to shoppers' homes for manicures and facials. And all this reinvention requires more investment from companies with already thin margins.

Tight Fit
Department stores' thin margins give them little room for big spending
Source: Company reports, Bloomberg
M&S is Bloomberg forecast, and includes food. Debenhams is six months to March 17. House of Fraser is EBITDA as a percentage of gross transaction values as full accounts not yet available.

Even if these strategies start to pay off -- which is a tall order-- they will have little choice but to close stores. 

There's one chain in decent shape here: John Lewis. While it may have a bloated cost base in other areas, its a desirable anchor in shopping malls so will have secured attractive deals from landlords. And it probably won't open any more shops from here.

But the others have room to cut. M&S will remove clothing and home furnishings from about 60 locations by closing 30 full-line stores and converting others to supermarkets. Debenhams could could close up to 10 outlets over the next five years. 

Storing Up Trouble
M&S and Debenhams are pruning their large estates but probably need to go further
Source: Company reports
M&S is clothing and home furnishing stores

But as the U.S. chains found, this level of closures is unlikely to be enough. They trimmed over the years with little success, and so recently had to take an ax to their store portfolios. 

Tackling too many shops isn't easy, particularly given that some chains will be tied into long leases. But to avoid the American department store nightmare, tinkering around with social shopping and a few shutterings just won't cut it. Seems like it's time to learn how to sell clothes again.

--With assistance from Gadfly's Shelly Banjo in New York.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net