Whenever major commercial organisations collapse, those that suffer the most are, invariably, those that can least afford it, the majority of its employees. In 2005, through a merger with Kmart, there were 3500 stores. When it filed for bankruptcy several days ago it was down to under 900. Another retailer collapses only to illustrate that the problem is not confined to the U.K. High Street.
Galeria Kaufhof, is a German chain of mid market department stores. There were over one hundred stores in the chain . In 2015 it was purchased by the Canadian organisation ‘The Hudson Bay Co ‘. In September of 2018 , it merged with Karstadt another German mid market department store. Immediately, five thousand employees lost their jobs. Why has this happened? For very similar reasons to that of Sears in the USA and House of Fraser in the U.K.
What are these reasons ? Senior management of all of these organisations lays the blame fair and squarely on the changing habits of the consumer and the increasing level of purchasing from online operators.
I believe that hides an underlying laziness and negligence on behalf of these organisation’s senior executives. I am quietly confident that they were well rewarded through the good and not so good years and the consequences of their actions (or inaction) is rather less than those on the shop floor.
Whilst online competition, increasing costs, and a changing consumer, undoubtedly, has an impact , the question has to be asked ‘what is the purpose of a department store ?’.
The simple answer would probably be they offer a variety of product and brands all under one roof. Yes they do. However, the variety and the extent of each brand’s range is very generally very limited. And what does today’s consumer want ‘ Choice ‘ .
Could the executives of these organisations have done anything about it?
It beggars the question as to what the Directors of both Kmart and Sears were thinking back in 2005. The former was a chain of discount stores and Sears a mid market department store. It’s a bit like merging John Lewis and Lidl. It just didn’t make sense. The merger meant an immediate loss of jobs and the consequences are even more job losses.
Kaufhof & Karstadt
This all makes a little more sense , they are similar operations and a lot of synergies, but the question has to be asked , if Department store Shopping is falling out of fashion in Germany, why do two mid-sized chain think they will be anymore successful as a giant chain? Karstadt was bought out of insolvency in 2009 and Kaufhof were saved by HBC (Hudson Bay-who in turn are owned by Metro AG).
House of Fraser et al
By ‘et al’ I mean the likes of Debenhams, John Lewis is a little different even though it has not had a good financial start to the year. Debenhams has just announced nearly half a billion in losses and plans to close fifty stores over the next three to five years. The question facing both the House of Fraser and Debenhams, is are they wanted by the consumer and what have the boards of both companies been planning over the last ten years. Initially, it seemed that opening more stores was the option of choice. But I wonder whether these were project vanity or project growth . Many of the stores of both chains looked like they had not had a lick of paint since the millennium. In my opinion they sought growth above investment within their existing estate. Perhaps, what is more to the point is that over recent years they have both undergone various management changes , ensuring lack of continuity or long-term planning , but no lack of senior executives with ever-growing bank accounts.
The over arching question is there a future for this type of store ? I think the reality is with the exception of a few speciality aspirational stores like Harrods and Selfridge in the UK and maybe Neiman Marcus and Macy’s in the US, not really. They try to sell lots of product, but with not with any range or any level of service and invariably not especially competitive. Could the management have done anything to change this , in my opinion ‘yes’ . But it should have been done ages ago. Instead of constantly look for growth through more stores, they could have invested in a far smaller number of existing stores making them special places to shop, a truly destination store, a place to spend time and money and have an ‘experience’ , not just a big place selling the same as everyone else. They should have invested in staff and staff training and finally invested heavily in their online offering, which is generally poor and too late.
Apart from the loss of jobs by employees and creditors , the biggest effect of these type of store closures is the impact they have on local independents. Despite the drop in footfall in the likes of House of Fraser they still bring shoppers into that High Street or shopping centre. When they are gone it frequently leaves a gaping hole and the remaining independents are made to struggle even more . There are, also, quite literally structural problems as ween a Department closes down the property stays idle for a long time. They are large, usually over more than one floor and because of the layout cost an arm and a leg to reconstruct so that it can be re-let.
Retailing ain’t easy, never has been, never will be . The old cliché is that if it was that easy everyone would be doing. I, sort, of think that is what happened in the early 2000’s . Loads of big retailers thought they could make money just by opening new stores. They were wrong but those who made those decisions generally did not pay the price…..
any amount of political meddling, central or local,whatever form of taxation , no matter how well intended will not have had any impact upon these retailers past present our future. Much of what has happened has been down to poor and short-sighted management . I repeat a figure I posted a few weeks ago…Amazon’s budget for R&D for 2019 is well over £20 billion. I am not sure whether any of the above have had a R&D budget of any amount in any year !