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Department Stores - UK - April 2016

“Department stores have reinvented themselves. They have become destination stores for younger customers offering aspirational brands, complemented by great own brands. The best department stores recognise that a store is much more than somewhere to just buy products, it should be a leisure destination with a retail offering that is stimulating and inspiring. So it is hardly surprising that John Lewis and House of Fraser are outperforming and M&S is in decline.”
– Tamara Sender, Senior Fashion Analyst

This report answers the following questions:

  • How have department stores performed over the last year?
  • What are the main growth opportunities for department stores?
  • How are department stores competing in a multichannel world?

In an increasingly competitive retail market there are many department stores that are outperforming. But sector growth is held back by the weakness of the largest company in our sector definition, M&S.

All retailing is becoming more demanding, but we think that the most successful in recent years – John Lewis and House of Fraser - provide a blueprint for successful stores in the future. They stand out for their great brands, complemented by strong own brands, combined with first-rate service in attractive, well maintained stores with plenty of places to take a break. But on top of that they have a slick online proposition which must be as compelling as the physical outlets.

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Table of contents

  1. Overview

    • What you need to know
      • Areas covered in this report
      • Executive Summary

          • The market
            • Growth slows in 2015
              • Figure 1: Best and worst case forecast for department stores sales, 2010-20
            • Consumer background unhelpful
              • Companies, brands and innovation
                • John Lewis leading the sector
                  • M&S bringing up the rear
                    • Figure 2: Top department stores’ market shares, 2014 and 2015
                  • John Lewis vs M&S
                    • The future of all department stores rests on integrating their online and in-store operations
                      • Figure 3: Online share of leading department stores sales, 2013-15
                    • Space allocation
                      • Figure 4: Department stores: Summary space allocation, March 2016
                    • Retail product mix
                      • Figure 5: Leading Department Stores: Estimated share of sales by broad product category, 2015/16
                    • Brands
                      • Figure 6: Attitudes towards and usage of selected brands, November and December 2015
                    • The consumer
                      • M&S drops in popularity among women
                        • Figure 7: Department stores purchased from in the last six months, whether in-store or online, February 2016
                      • John Lewis gets high scores for delivery and returns
                        • Figure 8: Department stores purchased from in the last six months, in-store or online, February 2016
                      • Customers happy with quality, but scope for improvement in availability of sizes and fashionable clothing ranges
                        • Figure 9: Satisfaction with last purchase from a department store, by different factors, February 2016
                      • M&S no longer seen as value for money
                        • Figure 10: Overall satisfaction with last department store shopped at, February 2016
                      • What would encourage shoppers to spend more?
                        • Figure 11: What would encourage consumers to shop more at a department store, February 2016
                      • Is it worth paying extra for anything?
                        • Figure 12: Willingness to pay extra for specific delivery options when shopping online at department stores, February 2016
                      • Interest in innovations
                        • Figure 13: Interest in innovations when shopping at department stores, February 2016
                      • What we think
                      • Issues and Insights

                        • How have department stores performed over the last year?
                          • The facts
                            • The implications
                              • What are the main growth opportunities for department stores?
                                • The facts
                                  • The implications
                                    • How are department stores competing in a multichannel world?
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Department store sales £15.4 billion, with modest growth expected.
                                            • Most product sectors performing well
                                              • Ageing population
                                                • Consumer confidence holding up well
                                                  • Tourism boost
                                                  • Sector Size and Forecast

                                                    • Definitions
                                                      • Growth slows in 2015
                                                        • Figure 14: Department stores: sector sales, 2011-15
                                                      • Outlook
                                                        • Figure 15: Best and worst case forecast for department stores sales, 2010-20
                                                      • Forecast – The data and methodology
                                                        • Figure 16: Department store sales in current and constant prices, 2010-20
                                                      • Methodology
                                                      • Consumer Spending

                                                            • Figure 17: Consumer spending on key department store categories, 2011-15
                                                        • Market Drivers

                                                          • Aging population
                                                            • Figure 18: Trends in the age structure of the UK population, 2010-20
                                                          • Consumers remain cautious, but high earners prosper
                                                            • Leisure activities prioritised over retail spend
                                                              • Visitors to the UK on the rise
                                                                • Figure 19: Overseas residents’ visits to the UK, by area of residence, 2014 and 2015
                                                            • Key Players – What You Need To Know

                                                              • Creating exciting places to shop
                                                                • Fortnum & Mason the top performer
                                                                  • M&S bringing up the rear
                                                                    • John Lewis vs M&S
                                                                      • The future of all department stores rests on integrating their online and in-store operations
                                                                        • Space allocation
                                                                          • Retail product mix
                                                                          • Launch Activity and Innovations

                                                                            • John Lewis invests £35 million in new Birmingham store
                                                                              • Figure 20: John Lewis’ new store in Grand Central, Birmingham
                                                                            • New ‘department-less’ concept
                                                                              • Selfridges launches Body Studio
                                                                                • Figure 21: Selfridges’ new Body Studio department, April 2016
                                                                              • Harrods dedicates October to menswear
                                                                                • Harvey Nichols’ beauty launches
                                                                                  • Department stores expand dining experiences
                                                                                    • New boutique department store for Sheffield
                                                                                    • Advertising and Marketing Activity

                                                                                      • Leading department stores cut back on advertising spend
                                                                                        • Leading department stores’ advertising spending
                                                                                          • Figure 22: Recorded above-the-line, online display and direct mail total advertising expenditure by the leading department stores, 2012-15
                                                                                        • Television is now the favoured media type
                                                                                          • Figure 23: Recorded above-the-line, online display and direct mail total advertising expenditure by the leading department stores, by media type, 2015
                                                                                        • Campaign highlights in 2015
                                                                                          • A note on adspend
                                                                                          • Leading Specialist Retailers

                                                                                            • High-end department stores suffer slowdown
                                                                                              • Figure 24: Annual segment growth: Mid-market versus high-end, 2011-15
                                                                                              • Figure 25: Major retailers’ annual sales growth (some estimated) versus average segment growth, 2015
                                                                                            • Leading retailers by sales
                                                                                                • Figure 26: Leading department stores: Net revenues, 2011-15
                                                                                              • Consolidated sales versus gross transactional values
                                                                                                • Store numbers
                                                                                                  • Figure 27: Leading department stores: Outlet numbers, 2011-15
                                                                                                • Sales per store
                                                                                                  • Figure 28: Leading department stores: Annual sales per outlet, 2011-15
                                                                                                • Total sales area
                                                                                                  • Figure 29: Leading department stores: Total sales area, 2011-15
                                                                                                • Sales densities
                                                                                                  • Figure 30: Leading department stores: Annual sales per sq m, 2011-15
                                                                                                • Operating profits and margins
                                                                                                  • Figure 31: Leading department stores: Operating profits, 2011-15
                                                                                                  • Figure 32: Leading department stores: Operating margins, 2011-15
                                                                                              • Market Shares

                                                                                                • John Lewis leading the sector
                                                                                                  • M&S bringing up the rear
                                                                                                    • Figure 33: Top department stores’ market shares, 2014 and 2015
                                                                                                  • John Lewis vs M&S
                                                                                                    • House of Fraser strong recovery
                                                                                                      • Figure 34: Leading department stores’ market shares, 2011-15
                                                                                                  • Online

                                                                                                    • Leading retailers’ online sales
                                                                                                      • Figure 35: Leading department stores, estimated online sales, 2012-15
                                                                                                      • Figure 36: Online share of leading department stores sales, 2013-15
                                                                                                      • Figure 37: Department store sales, 2012-15
                                                                                                    • Click-and-collect
                                                                                                    • Space Allocation Summary

                                                                                                      • Overview
                                                                                                        • Figure 38: Department stores: Summary space allocation, March 2016
                                                                                                      • Detailed space allocation
                                                                                                        • House of Fraser refurbished beauty halls
                                                                                                          • Debenhams introduces more third-party clothing concessions and eateries
                                                                                                            • Selfridges welcomes The Conran Shop
                                                                                                              • John Lewis’ in-store home hub
                                                                                                                • Food occupies a quarter of M&S in-store space
                                                                                                                  • Figure 39: Department stores: Detailed space allocation, March 2016
                                                                                                              • Retail Product Mix

                                                                                                                  • Figure 40: Estimated Space Allocation of Broad Department Stores Product Categories, 2015
                                                                                                                  • Figure 41: Leading Department Stores: Estimated sales by broad product category, 2015/16
                                                                                                                  • Figure 42: Leading Department Stores: Estimated share of sales by broad product category, 2015/16
                                                                                                                  • Figure 43: Leading Department Stores: Estimated sales density by broad product category, 2015/16
                                                                                                              • Brand Research

                                                                                                                  • What you need to know
                                                                                                                    • Brand map
                                                                                                                      • Figure 44: Attitudes towards and usage of selected brands, November and December 2015
                                                                                                                    • Key brand metrics
                                                                                                                      • Figure 45: Key metrics for selected brands, November and December 2015
                                                                                                                    • Brand attitudes: Marks & Spencer is highly trusted
                                                                                                                      • Figure 46: Attitudes, by brand, November and December 2015
                                                                                                                    • Brand personality: Harrods boasts the most exclusive image
                                                                                                                      • Figure 47: Brand personality – Macro image, November and December 2015
                                                                                                                    • Brand personality: Selfridges seen as cutting-edge, yet expensive
                                                                                                                      • Figure 48: Brand personality – Micro image, November and December 2015
                                                                                                                    • Brand analysis
                                                                                                                      • John Lewis is highly regarded by consumers
                                                                                                                        • Figure 49: User profile of John Lewis, November 2015
                                                                                                                      • Harrods the most differentiated department store
                                                                                                                        • Figure 50: User profile of Harrods, December 2015
                                                                                                                      • Selfridges is a fun brand, but could do with customer service improvements
                                                                                                                        • Figure 51: User profile of Selfridges, December 2015
                                                                                                                      • Marks & Spencer enjoys a position of strength
                                                                                                                        • Figure 52: User profile of Marks & Spencer, November 2015
                                                                                                                      • House of Fraser’s online service is an area of strength
                                                                                                                        • Figure 53: User profile of House of Fraser, December 2015
                                                                                                                      • Debenhams associated with accessibility, but store experience is lacking
                                                                                                                        • Figure 54: User profile of Debenhams, November 2015
                                                                                                                    • The Consumer – What You Need to Know

                                                                                                                      • M&S drops in popularity among women
                                                                                                                        • John Lewis gets high scores for delivery and returns
                                                                                                                          • M&S no longer seen as value for money
                                                                                                                            • Own-brands are main draw
                                                                                                                              • Creating a leisure and retail destination
                                                                                                                                • Most demand for same-day delivery charges
                                                                                                                                  • Millennials most drawn to innovations
                                                                                                                                  • Where They Shop

                                                                                                                                    • M&S drops in popularity among women
                                                                                                                                      • Figure 55: Department stores purchased from in the last six months, whether in-store or online, February 2016
                                                                                                                                      • Figure 56: Department stores purchased from in the last six months, whether in-store or online, February 2015 and 2016
                                                                                                                                    • John Lewis remains most popular online
                                                                                                                                      • Figure 57: Department stores purchased from in the last six months, in-store or online, February 2016
                                                                                                                                    • Debenhams draws more young women
                                                                                                                                      • Where consumers browse
                                                                                                                                        • Figure 58: Department stores where consumers have browsed in the last six months, either in-store or online, February 2016
                                                                                                                                    • Satisfaction with Department Stores

                                                                                                                                      • Customers happy with quality, but scope for improvement in availability of sizes and fashionable clothing ranges
                                                                                                                                        • Figure 59: Satisfaction with last purchase from a department store, by different factors, February 2016
                                                                                                                                      • Key driver analysis
                                                                                                                                        • Figure 60: Key drivers of overall satisfaction with department store last shopped at, February 2016
                                                                                                                                        • Figure 61: Overall satisfaction with department store last shopped at - key driver output, February 2016
                                                                                                                                      • How the department stores compare
                                                                                                                                        • Figure 62: Overall satisfaction with last department store shopped at, February 2016
                                                                                                                                      • How they perform on pricing and quality
                                                                                                                                        • Figure 63: Satisfaction with value for money, by department store last shopped at, February 2016
                                                                                                                                        • Figure 64: Satisfaction with product quality, by department store last shopped at, February 2016
                                                                                                                                        • Figure 65: Satisfaction with promotions/offers, by department store last shopped at, February 2016
                                                                                                                                      • How retailers score on fashionability and new product launches
                                                                                                                                        • Figure 66: Satisfaction with fashionable clothing range, by department store last shopped at, February 2016
                                                                                                                                        • Figure 67: Satisfaction with new product launches, by department store last shopped at, February 2016
                                                                                                                                        • Figure 68: Satisfaction with new product launches, by department store last shopped at, February 2016
                                                                                                                                      • Delivery, returns and click-and-collect
                                                                                                                                        • Figure 69: Satisfaction with delivery services, by department store last shopped at, February 2016
                                                                                                                                        • Figure 70: Satisfaction with returns process, by department store last shopped at, February 2016
                                                                                                                                        • Figure 71: Satisfaction with click-and-collect, by department store last shopped at, February 2016
                                                                                                                                    • What Would Encourage More Shopping at Department Stores

                                                                                                                                      • Own-brands are main draw
                                                                                                                                          • Figure 72: What would encourage consumers to shop more at a department store, February 2016
                                                                                                                                        • Creating a leisure and retail destination
                                                                                                                                        • Willingness to Pay Extra for Delivery Options

                                                                                                                                          • Most demand for same-day delivery charges
                                                                                                                                              • Figure 73: Willingness to pay extra for specific delivery options when shopping online at department stores, February 2016
                                                                                                                                            • Unwillingness to pay for click-and-collect
                                                                                                                                            • Interest in Innovations

                                                                                                                                              • Millennials most drawn to innovations
                                                                                                                                                  • Figure 74: Interest in innovations when shopping at department stores, February 2016
                                                                                                                                                • A third of under-25s drawn to visual search apps
                                                                                                                                                • Debenhams

                                                                                                                                                    • What we think
                                                                                                                                                      • Bolstered multichannel capabilities
                                                                                                                                                        • First price right price strategy
                                                                                                                                                          • Reduction in stock levels across weather-sensitive categories, particularly clothing
                                                                                                                                                            • Renting out under-used shop space
                                                                                                                                                              • Enhanced customer service programme
                                                                                                                                                                • Injecting fresh talent into its Designers at Debenhams and other own brands
                                                                                                                                                                  • Partners’ local market expertise driving international expansion
                                                                                                                                                                    • Company background
                                                                                                                                                                      • Company performance
                                                                                                                                                                        • Figure 75: Debenhams: Group financial performance, 2010/11-2014/15
                                                                                                                                                                        • Figure 76: Debenhams: Outlet data, 2010/11-2014/15
                                                                                                                                                                      • Retail offering
                                                                                                                                                                      • Fenwick

                                                                                                                                                                          • What we think
                                                                                                                                                                            • Shutters e-commerce site
                                                                                                                                                                              • Store investment attracting new brands
                                                                                                                                                                                • More store events
                                                                                                                                                                                  • Early house beauty service
                                                                                                                                                                                    • Company background
                                                                                                                                                                                      • Company performance
                                                                                                                                                                                        • Figure 77: Fenwick Ltd: Group financial performance, 2010/11-2015/16
                                                                                                                                                                                        • Figure 78: Fenwick Ltd: Outlet data, 2010/11-201/16
                                                                                                                                                                                      • Retail offering
                                                                                                                                                                                      • Harrods

                                                                                                                                                                                          • What we think
                                                                                                                                                                                            • Influential MD stepping down
                                                                                                                                                                                              • New Chinese visitor visa law boost
                                                                                                                                                                                                • Reaching out to affluent consumers
                                                                                                                                                                                                  • New Mini Superbrands concept
                                                                                                                                                                                                    • Company background
                                                                                                                                                                                                      • Company performance
                                                                                                                                                                                                        • Figure 79: Harrods Ltd: Group financial performance, 2010/11-2014/15
                                                                                                                                                                                                        • Figure 80: Harrods Ltd: Outlet data, 2010/11-2014/15
                                                                                                                                                                                                      • Retail offering
                                                                                                                                                                                                      • Harvey Nichols UK

                                                                                                                                                                                                          • What we think
                                                                                                                                                                                                            • Expanding online delivery coverage
                                                                                                                                                                                                              • A differentiated and compelling store proposition
                                                                                                                                                                                                                • Loyalty card app
                                                                                                                                                                                                                  • Company background
                                                                                                                                                                                                                    • Company performance
                                                                                                                                                                                                                      • Figure 81: Harvey Nichols UK: Group financial performance, 2010/11-2014/15
                                                                                                                                                                                                                      • Figure 82: Harvey Nichols UK: Outlet data, 2010/11-2014/15
                                                                                                                                                                                                                    • Retail offering
                                                                                                                                                                                                                    • House of Fraser Plc

                                                                                                                                                                                                                        • What we think
                                                                                                                                                                                                                          • Refurbished stores driving bricks-and-mortar like-for-like sales growth
                                                                                                                                                                                                                            • Multichannel investment boosts online sales growth
                                                                                                                                                                                                                              • Bricks-and-mortar overseas expansion
                                                                                                                                                                                                                                • Profitable own brand offering
                                                                                                                                                                                                                                  • Company background
                                                                                                                                                                                                                                    • Company performance
                                                                                                                                                                                                                                      • Figure 83: House of Fraser Plc: Group financial performance, 2010/11-2014/15
                                                                                                                                                                                                                                      • Figure 84: House of Fraser Plc: Outlet data, 2010/11-2014/15
                                                                                                                                                                                                                                    • Retail offering
                                                                                                                                                                                                                                    • John Lewis

                                                                                                                                                                                                                                        • What we think
                                                                                                                                                                                                                                          • Transforming the in-store experience
                                                                                                                                                                                                                                            • UK store expansion
                                                                                                                                                                                                                                              • Risk-averse approach to overseas opportunities
                                                                                                                                                                                                                                                • E-commerce international expansion
                                                                                                                                                                                                                                                  • Digital shopping experience driving sales through mobile devices
                                                                                                                                                                                                                                                    • Fashion credentials
                                                                                                                                                                                                                                                      • Company background
                                                                                                                                                                                                                                                        • Company performance
                                                                                                                                                                                                                                                            • Figure 85: John Lewis Plc (department store): Group financial performance, 2011/12-2015/16
                                                                                                                                                                                                                                                            • Figure 86: John Lewis Plc (department store): UK outlet data, 2011/12-2015/16
                                                                                                                                                                                                                                                          • Retail offering
                                                                                                                                                                                                                                                          • Marks & Spencer

                                                                                                                                                                                                                                                              • What we think
                                                                                                                                                                                                                                                                • New chief executive to breathe new life into M&S’ fashion range
                                                                                                                                                                                                                                                                  • New beauty ambassador and revamped beauty halls
                                                                                                                                                                                                                                                                    • New loyalty scheme launched
                                                                                                                                                                                                                                                                      • Working on improving the store experience
                                                                                                                                                                                                                                                                        • Expanding click-and-collect options
                                                                                                                                                                                                                                                                          • Company background
                                                                                                                                                                                                                                                                            • Company performance
                                                                                                                                                                                                                                                                              • Figure 87: Marks & Spencer: Group financial performance, 2010/11-2014/15
                                                                                                                                                                                                                                                                              • Figure 88: Marks & Spencer: Outlet data, 2010/11-2014/15
                                                                                                                                                                                                                                                                              • Figure 89: Marks & Spencer: Store portfolio, September 2015
                                                                                                                                                                                                                                                                            • Retail offering
                                                                                                                                                                                                                                                                            • Selfridges Retail

                                                                                                                                                                                                                                                                                • What we think
                                                                                                                                                                                                                                                                                  • 37,000 sq ft Body Studio
                                                                                                                                                                                                                                                                                    • Personalised shopping experience
                                                                                                                                                                                                                                                                                      • Shopping can and should be about more than just price or convenience
                                                                                                                                                                                                                                                                                        • Enhanced multichannel capabilities
                                                                                                                                                                                                                                                                                          • Company background
                                                                                                                                                                                                                                                                                            • Company performance
                                                                                                                                                                                                                                                                                              • Figure 90: Selfridges Retail Ltd: Group financial performance, 2010/11-2014/15
                                                                                                                                                                                                                                                                                              • Figure 91: Selfridges Retail Ltd: Outlet data, 2010/11-2014/15
                                                                                                                                                                                                                                                                                            • Retail offering
                                                                                                                                                                                                                                                                                            • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                                                                                                                                              • Forecast methodology
                                                                                                                                                                                                                                                                                                • Sector benchmarks
                                                                                                                                                                                                                                                                                                  • Department stores
                                                                                                                                                                                                                                                                                                    • Mixed goods retailers
                                                                                                                                                                                                                                                                                                      • Statutory revenues versus GTV
                                                                                                                                                                                                                                                                                                        • Financial definitions
                                                                                                                                                                                                                                                                                                          • Sales per store, sales per sq m
                                                                                                                                                                                                                                                                                                            • Key Driver Analysis
                                                                                                                                                                                                                                                                                                              • Interpretation of results
                                                                                                                                                                                                                                                                                                                • Figure 92: Overall satisfaction with last department store shopped at - key driver output, February 2016
                                                                                                                                                                                                                                                                                                                • Figure 93: Satisfaction with department store shopped at last, February 2016
                                                                                                                                                                                                                                                                                                              • Abbreviations

                                                                                                                                                                                                                                                                                                              Companies Covered

                                                                                                                                                                                                                                                                                                              • House of Fraser Plc
                                                                                                                                                                                                                                                                                                              • John Lewis Plc (department store)
                                                                                                                                                                                                                                                                                                              • Marks & Spencer

                                                                                                                                                                                                                                                                                                              Department Stores - UK - April 2016

                                                                                                                                                                                                                                                                                                              US $2,672.70 (Excl.Tax)