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Department Stores - UK - April 2018

“The UK department store sector remains challenging, with a number of the leading players struggling to carve out their niche in a crowded retail market. Innovation has been centred on creating a compelling in-store environment and whilst this is important, research suggests that department store retailers should be doing more to ensure both their products and in-store merchandising resonate with consumers. Going forward, those that show a real understanding of their customers and can differentiate their offer accordingly will be best placed to succeed.”

- Samantha Dover, Retail Analyst

This report will look at the following areas:

  • The pricing challenge continues as discounts erode price integrity
  • The importance of creating a compelling multichannel experience
  • Exclusive and own-label ranges increasingly essential to growth

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Table of contents

  1. Overview

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

          • The market
            • The UK department store sector forecast grow 10% by 2022
              • Figure 1: Best and worst case forecast for department store sector, 2012-22
            • Continued growth in consumer spending, despite decline in real incomes
              • Companies and brands
                • Premium department stores buoying growth in the sector
                  • Mid-market retailers losing market share
                    • Figure 2: Leading department stores’ estimated market shares, 2017
                  • Innovation remains focused on stores
                    • Brand research reveals a lack of trust in premium department stores
                      • Figure 3: Attitudes towards and usage of selected brands, January 2018
                    • The consumer
                      • Geographical reach influences where people shop
                        • Figure 4: Department store usage in-store and online in the last 12 months, by channel, February 2018
                      • Fashion drives volumes within the department store sector
                        • Figure 5: What consumers bought from department stores in the last 12 months, February 2018
                      • Online increasingly part of the shopping journey
                        • Figure 6: Online shopping behaviour, February 2018
                      • Products and in-store displays are more important than leisure
                        • Figure 7: Important factors when shopping in-store, February 2018
                      • Department stores need to rebuild trust in pricing
                        • Figure 8: Attitudes towards department stores, February 2018
                      • What we think
                      • Issues & Insights

                        • The pricing challenge continues as discounts erode price integrity
                          • The facts
                            • The implications
                              • The importance of creating a compelling multichannel experience
                                • The facts
                                  • The implications
                                    • Exclusive and own-label ranges increasingly essential to growth
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Growth remains flat in 2017
                                            • Core department store categories continue to grow
                                              • Pressure mounting on UK consumers
                                                • Increased inbound tourism boosts sector
                                                • Market Size and Forecast

                                                  • Department store sector up 1.5% in 2017
                                                    • Figure 9: Estimated UK department store sector sales, 2012-17
                                                  • Market forecast to reach £17.8 billion by 2022
                                                    • Figure 10: Best and worst case forecast for department store sector, 2012-22
                                                    • Figure 11: Forecast for department store sector, at current and constant prices, 2012-22
                                                  • Methodology
                                                  • Consumer Spending

                                                    • Continued growth in core department store categories
                                                        • Figure 12: Consumer spending on key department store categories, 2013-17
                                                    • Market Drivers

                                                      • An ageing UK population
                                                        • Figure 13: Trends in the age structure of the UK population, 2016-26
                                                        • Figure 14: Breakdown of trends in the age structure of the UK population, 2016-26
                                                      • Growth in inflation puts consumers under pressure…
                                                        • Figure 15: Real wage growth – Average weekly earnings vs inflation, January 2014-December 2017
                                                      • …but on the whole consumers remain confident about their finances
                                                        • Figure 16: Consumer confidence: current financial situation vs sentiment for the coming year, January 2013-February 2018
                                                      • Fashion and the home continue to be popular discretionary categories
                                                        • Figure 17: Trends in what extra money is spent on, February 2018
                                                      • Value of Sterling falls following Brexit vote
                                                        • Figure 18: Selected international currency exchange rates, annual averages, 2003-17
                                                        • Figure 19: Sterling exchange rate versus selected currencies, annual averages, 2013-17
                                                      • Inbound tourism boosted by weak Sterling
                                                        • Figure 20: Total overseas residents’ visits to the UK, 2009-18
                                                      • Uplift in inbound tourism spend boosts sector
                                                        • Figure 21: Total spend by overseas residents in the UK, 2008-18
                                                      • Private renting increases
                                                          • Figure 22: UK household tenure status, 2012-16
                                                      • Companies and Brands – What You Need to Know

                                                        • High-end department stores outperform
                                                          • Debenhams and House of Fraser losing market share
                                                            • Online now accounts for a quarter of the sector
                                                              • Innovation continues to centre around in-store experience
                                                                • Greater trust placed with mid-market retailers
                                                                • Leading Retailers

                                                                  • Note on department store sales
                                                                    • Mid-market department stores struggle
                                                                        • Figure 23: Leading department stores’ net revenues, 2013-17
                                                                      • New stores emphasise the importance of experience
                                                                        • Figure 24: Leading department stores’ outlet numbers, 2013-17
                                                                      • Like-for-like growth strongest at the higher end of the market
                                                                        • Figure 25: Leading department stores’ estimated sales per outlet, 2013-17
                                                                      • Ongoing investment dents profits for leading players
                                                                          • Figure 26: Leading department stores’ operating profits, 2013-17
                                                                          • Figure 27: Leading department stores’ operating margins, 2013-17
                                                                      • Market Shares

                                                                        • John Lewis set to become the market leader
                                                                            • Figure 28: Leading department stores’ estimated market shares, 2017
                                                                            • Figure 29: Leading department stores’ estimated market shares, 2012-17
                                                                        • Online

                                                                          • John Lewis also dominates online
                                                                            • Figure 30: Selected leading department stores’ estimated online revenues, 2013-17
                                                                            • Figure 31: Estimated online share of selected leading department stores’ total revenues, 2013-17
                                                                          • Online increasing its share of the sector
                                                                            • Figure 32: Total estimated online department store revenues, 2013-17
                                                                          • Digital developments
                                                                            • Debenhams experiments with click, try and buy…
                                                                              • …and also upgrades its mobile site
                                                                              • Launch Activity and Innovation

                                                                                • John Lewis invites customers for an in-store sleepover
                                                                                  • Figure 33: The Residence at John Lewis, 2017
                                                                                • Developments in experiential retailing
                                                                                    • Figure 34: Debenhams’ Stevenage Store, 2017
                                                                                    • Figure 35: John Lewis Westfield London Store, 2018
                                                                                  • Music matters at Selfridges
                                                                                    • House of Fraser launches localised pop-up scheme
                                                                                      • Debenhams and Selfridges experiment with in-store gyms
                                                                                        • Figure 36: The Boxing Gym at Selfridges, 2018
                                                                                      • Selfridges invests in bespoke beauty pioneers
                                                                                        • Figure 37: Selfridges’ Bespoke Beauty Department, 2017
                                                                                      • John Lewis collaborates with PATTERNITY on exclusive collection
                                                                                        • Figure 38: PATTERNITY + John Lewis Collaboration, 2018
                                                                                      • Debenhams revives its brand mix
                                                                                        • Figure 39: Debenhams’ Scandi Brands, 2018
                                                                                      • Ongoing focus on menswear
                                                                                        • John Lewis’ Home Solutions
                                                                                          • House of Fraser opens new sustainable store
                                                                                            • Figure 40: House of Fraser Rushden Lakes Store, 2017
                                                                                        • Advertising and Marketing Activity

                                                                                          • Advertising spend up 10% in 2017
                                                                                            • Figure 41: Recorded above-the-line, online display and direct mail total advertising expenditure by selected leading UK department stores, 2013-17
                                                                                            • Figure 42: Recorded above-the-line, online display and direct mail total advertising expenditure by selected leading UK department stores, 2013-17
                                                                                          • Digital the most favoured media type
                                                                                            • Figure 43: Recorded above-the-line, online display and direct mail total advertising expenditure by selected leading UK department stores, by media type, 2017
                                                                                          • Key campaigns
                                                                                            • The battle of the Christmas campaign
                                                                                              • Figure 44: John Lewis’ Moz The Monster Christmas Campaign, 2017
                                                                                              • Figure 45: Debenhams’ You Shall Christmas Campaign, 2017
                                                                                            • M&S shifts its advertising strategy
                                                                                              • Greater focus on specific product categories
                                                                                                • Lingerie campaigns look to promote body positivity
                                                                                                  • Figure 46: Debenhams’ SS18 DD+ Lingerie Campaign, 2018
                                                                                                • Nielsen Ad Intel coverage
                                                                                                • Space Allocation Summary

                                                                                                    • Space allocation overview
                                                                                                      • Figure 47: Department stores: summary of estimated in-store space allocation, February 2018
                                                                                                    • Detailed space allocation estimates
                                                                                                      • House of Fraser multimillion-pound refurbishment programme
                                                                                                        • Debenhams focused on making its stores more of a destination for social shopping to increase frequency of visits
                                                                                                          • Selfridges’ flagship Oxford Street store revamp almost complete
                                                                                                            • Fenwick’s new 80,000 sq ft next-generation department store
                                                                                                              • John Lewis’ experience-led Oxford store
                                                                                                                • M&S repurposing its stores
                                                                                                                  • Figure 48: Department stores: detailed space allocation estimates, February 2018
                                                                                                              • Retail Product Mix

                                                                                                                • Methodology
                                                                                                                  • Sales
                                                                                                                    • Figure 49: Leading department stores’ estimated sales mix, 2016/17
                                                                                                                  • Sales density
                                                                                                                    • Figure 50: Leading department stores, Estimated sales density by broad product category, 2016/17
                                                                                                                • Brand Research

                                                                                                                    • Brand map
                                                                                                                      • Figure 51: Attitudes towards and usage of selected brands, January 2018
                                                                                                                    • Key brand metrics
                                                                                                                      • Figure 52: Key metrics for selected brands, January 2018
                                                                                                                    • Brand attitudes: Debenhams offers value
                                                                                                                      • Figure 53: Attitudes, by brand, January 2018
                                                                                                                    • Brand personality: Harrods seen as exclusive
                                                                                                                      • Figure 54: Brand personality – Macro image, January 2018
                                                                                                                    • M&S viewed as reliable
                                                                                                                      • Figure 55: Brand personality – Micro image, January 2018
                                                                                                                    • Brand analysis
                                                                                                                      • John Lewis has a broad appeal
                                                                                                                        • Figure 56: User profile of John Lewis, January 2018
                                                                                                                      • Marks & Spencer shows bias towards older women
                                                                                                                        • Figure 57: User profile of Marks & Spencer, January 2018
                                                                                                                      • Debenhams’ value proposition helps it to stand out
                                                                                                                        • Figure 58: User profile of Debenhams, January 2018
                                                                                                                      • Harvey Nichols popular with affluent
                                                                                                                        • Figure 59: User profile of Harvey Nichols, January 2018
                                                                                                                      • Fenwick attracts affluent Millennials
                                                                                                                        • Figure 60: User profile of Fenwick, January 2018
                                                                                                                      • Harrods garners more positive perception among young
                                                                                                                        • Figure 61: User profile of Harrods, January 2018
                                                                                                                    • The Consumer – What You Need to Know

                                                                                                                      • M&S benefits from wide geographical coverage
                                                                                                                        • Most department store shoppers buy clothing
                                                                                                                          • A third now compare prices whilst in-store
                                                                                                                            • In-store product displays are important
                                                                                                                              • Discounting continues to erode price integrity
                                                                                                                              • Where They Shop

                                                                                                                                • Almost half shop with M&S
                                                                                                                                  • Figure 62: Department store usage in-store and online in the last 12 months, February 2018
                                                                                                                                • Debenhams and John Lewis also popular online
                                                                                                                                  • Figure 63: Department store usage in-store and online in the last 12 months, by channel, February 2018
                                                                                                                                • Men more likely to shop with luxury department stores
                                                                                                                                    • Figure 64: Department store usage in-store and online in the last 12 months, by gender, February 2018
                                                                                                                                  • House of Fraser attracts younger shoppers
                                                                                                                                    • Figure 65: Department store usage in-store and online in the last 12 months, by age and income, February 2018
                                                                                                                                  • Almost half are loyal to one or two department stores
                                                                                                                                    • Figure 66: Repertoire analysis of department store usage in-store and online in the last 12 months, February 2018
                                                                                                                                • What They Buy

                                                                                                                                  • Clothing most purchased category
                                                                                                                                    • Figure 67: What consumers bought from department stores in the last 12 months, February 2018
                                                                                                                                  • Women more likely to shop most categories
                                                                                                                                    • Figure 68: What consumers bought from department stores in the last 12 months, by gender, February 2018
                                                                                                                                  • Stationery important to young department store shoppers
                                                                                                                                      • Figure 69: What consumers bought from department stores in the last 12 months, by age, February 2018
                                                                                                                                    • House of Fraser and Debenhams popular for BPC
                                                                                                                                      • Figure 70: What consumers bought from department stores in the last 12 months, by where they shopped, February 2018
                                                                                                                                    • Most shop for multiple different types of product
                                                                                                                                      • Figure 71: Repertoire analysis of what consumers bought from department stores in the last 12 months, February 2018
                                                                                                                                  • Online Shopping Behaviour

                                                                                                                                    • A third research online before shopping with a department store
                                                                                                                                      • Figure 72: Online shopping behaviour, February 2018
                                                                                                                                    • Omni-channel experience important to 25-34s
                                                                                                                                      • Figure 73: Online shopping behaviour, by age, February 2018
                                                                                                                                  • Important Factors When Shopping In-store

                                                                                                                                    • Product displays should be a priority
                                                                                                                                      • Figure 74: Important factors when shopping in-store, February 2018
                                                                                                                                    • Men more likely to want product demonstrations
                                                                                                                                      • Figure 75: Important factors when shopping in-store, by gender, February 2018
                                                                                                                                    • Testing areas important to young shoppers
                                                                                                                                      • Figure 76: Important factors when shopping in-store, by age, February 2018
                                                                                                                                    • BPC buyers most attracted by exclusive products
                                                                                                                                      • Figure 77: Important factors when shopping in-store, by what they bought, February 2018
                                                                                                                                  • Attitudes towards Department Stores

                                                                                                                                    • Consumers see department stores as a discovery tool
                                                                                                                                      • Figure 78: Attitudes towards department stores, February 2018
                                                                                                                                    • Men have stronger opinions of department stores’ product mix
                                                                                                                                      • Figure 79: Attitudes towards department stores, by gender, February 2018
                                                                                                                                    • Young shoppers are price-sensitive…
                                                                                                                                      • Figure 80: Attitudes towards department stores, by age, February 2018
                                                                                                                                    • …but also show more loyalty to department stores
                                                                                                                                        • Figure 81: Attitudes towards department stores, by age, February 2018
                                                                                                                                    • Target Groups

                                                                                                                                        • Figure 82: Attitudes towards department stores, target groups, February 2018
                                                                                                                                      • Key characteristics
                                                                                                                                        • Experience Seekers
                                                                                                                                          • Apathetic Shoppers
                                                                                                                                            • Price Sensitive
                                                                                                                                              • Content Consumers
                                                                                                                                              • Debenhams

                                                                                                                                                  • What we think
                                                                                                                                                    • Digital sales growth momentum fuelled by mobile site enhancements
                                                                                                                                                      • Making its stores more of a destination for social shopping
                                                                                                                                                        • Consolidating position as a preferred destination for beauty
                                                                                                                                                          • A more compelling fashion proposition
                                                                                                                                                            • Using digital to reach territories that would not support a store
                                                                                                                                                              • Company background
                                                                                                                                                                • Company performance
                                                                                                                                                                  • Figure 83: Debenhams: group financial performance, 2012/13-2016/17
                                                                                                                                                                  • Figure 84: Debenhams: outlet data, 2012/13-2016/17
                                                                                                                                                                • Retail offering
                                                                                                                                                                • Fenwick

                                                                                                                                                                    • What we think
                                                                                                                                                                      • Expected to launch a full online proposition in 2019
                                                                                                                                                                        • Experiential stores to drive footfall
                                                                                                                                                                          • Company background
                                                                                                                                                                            • Company performance
                                                                                                                                                                              • Figure 85: Fenwick Ltd: group financial performance, 2012/13-2016/17
                                                                                                                                                                              • Figure 86: Fenwick Ltd: outlet data, 2012/13-2016/17
                                                                                                                                                                            • Retail offering
                                                                                                                                                                            • Harrods

                                                                                                                                                                                • What we think
                                                                                                                                                                                  • £200 million revamp to increase appeal to shoppers from China and South East Asia
                                                                                                                                                                                    • Enhanced in-store experiences
                                                                                                                                                                                      • Boosting brand awareness in China
                                                                                                                                                                                        • Expanded payment options to accommodate global customers
                                                                                                                                                                                          • Company background
                                                                                                                                                                                            • Company performance
                                                                                                                                                                                              • Figure 87: Harrods Ltd: group financial performance, 2011/12-2016/17
                                                                                                                                                                                              • Figure 88: Harrods Ltd: outlet data, 2012/13-2016/17
                                                                                                                                                                                            • Retail offering
                                                                                                                                                                                            • Harvey Nichols UK

                                                                                                                                                                                                • What we think
                                                                                                                                                                                                  • Menswear becomes more intimate and intuitive in-store
                                                                                                                                                                                                    • A more inspirational digital shopping experience boosts online conversion rate
                                                                                                                                                                                                      • New cardless loyalty scheme
                                                                                                                                                                                                        • Company background
                                                                                                                                                                                                          • Company performance
                                                                                                                                                                                                            • Figure 89: Harvey Nichols UK: group financial performance, 2012/13-2016/17
                                                                                                                                                                                                            • Figure 90: Harvey Nichols UK: outlet data, 2012/13-2016/17
                                                                                                                                                                                                          • Retail offering
                                                                                                                                                                                                          • House of Fraser

                                                                                                                                                                                                              • What we think
                                                                                                                                                                                                                • Refinance package, rent reductions and credit cover pulled
                                                                                                                                                                                                                  • E-commerce sales down, despite website relaunch
                                                                                                                                                                                                                    • Flagging womenswear offering
                                                                                                                                                                                                                      • Pop-up concessions that match the local demographics
                                                                                                                                                                                                                        • Lifestyle-led in-store experiences to drive footfall
                                                                                                                                                                                                                          • Company background
                                                                                                                                                                                                                            • Company performance
                                                                                                                                                                                                                                • Figure 91: House of Fraser: group financial performance, 2012/13-2016/17
                                                                                                                                                                                                                                • Figure 92: House of Fraser: outlet data, 2012/13-2016/17
                                                                                                                                                                                                                              • Retail offering
                                                                                                                                                                                                                              • John Lewis

                                                                                                                                                                                                                                  • What we think
                                                                                                                                                                                                                                    • More than just a shopping experience
                                                                                                                                                                                                                                      • Personal shoppers for men
                                                                                                                                                                                                                                        • Reducing the pain points in-store
                                                                                                                                                                                                                                          • Record Black Friday sales
                                                                                                                                                                                                                                            • New home maintenance service
                                                                                                                                                                                                                                              • Extended fulfilment options
                                                                                                                                                                                                                                                • Enhanced m-commerce proposition
                                                                                                                                                                                                                                                  • Company background
                                                                                                                                                                                                                                                    • Company performance
                                                                                                                                                                                                                                                      • Figure 93: John Lewis Plc (department store): group financial performance, 2013/14-2017/18
                                                                                                                                                                                                                                                      • Figure 94: John Lewis Plc (department store): outlet data, 2013/14-2017/18
                                                                                                                                                                                                                                                    • Retail offering
                                                                                                                                                                                                                                                    • Marks & Spencer

                                                                                                                                                                                                                                                        • What we think
                                                                                                                                                                                                                                                          • Closing ‘full-line’ stores and pushing online clothing sales with new personal shopping service
                                                                                                                                                                                                                                                            • Utilising data from Sparks to gain customer insight and boost customer engagement
                                                                                                                                                                                                                                                              • Boosting financial services offering to offset struggling clothing sales
                                                                                                                                                                                                                                                                • Capitalising on the success of its food offering
                                                                                                                                                                                                                                                                  • New 495,000 sq ft Clothing & Home distribution centre
                                                                                                                                                                                                                                                                    • Company background
                                                                                                                                                                                                                                                                      • Company performance
                                                                                                                                                                                                                                                                          • Figure 95: Marks & Spencer: Group financial performance, 2012/13-2016/17
                                                                                                                                                                                                                                                                          • Figure 96: Marks & Spencer: outlet data, 2012/13-2016/17
                                                                                                                                                                                                                                                                        • Retail offering
                                                                                                                                                                                                                                                                        • Selfridges Retail

                                                                                                                                                                                                                                                                            • What we think
                                                                                                                                                                                                                                                                              • Compelling in-store experiences driving footfall
                                                                                                                                                                                                                                                                                • Becoming a key Christmas shopping destination
                                                                                                                                                                                                                                                                                  • Embracing the mantra of ‘buying better’
                                                                                                                                                                                                                                                                                    • Company background
                                                                                                                                                                                                                                                                                      • Company performance
                                                                                                                                                                                                                                                                                        • Figure 97: Selfridges Retail Ltd: group financial performance, 2012/13-2016/17
                                                                                                                                                                                                                                                                                        • Figure 98: Selfridges Retail Ltd: outlet data, 2012/13-2016/17
                                                                                                                                                                                                                                                                                      • Retail offering
                                                                                                                                                                                                                                                                                      • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                                                                                                                                          • Abbreviations
                                                                                                                                                                                                                                                                                            • Consumer research methodology
                                                                                                                                                                                                                                                                                            • Appendix – Market Size and Forecast

                                                                                                                                                                                                                                                                                              • Forecast methodology

                                                                                                                                                                                                                                                                                              Department Stores - UK - April 2018

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