Luxury department stores have had a tough go of late, as consumer and shopping preferences shift, but the changes are forcing a redefinition of the store and getting retailers to rethink what it will look like in the future.
According to a recent study, “The Future of the Luxury Department Store,” commissioned by luxury retail architecture firm Sybarite in cooperation with GlobalData, found that, regardless of familiar problems in the retail sector, global growth for department stores has posted “strong” growth in the last two years and is forecast to grow 33.9 percent to $656 billion between 2017 and 2022, according to GlobalData.
Growth will be rapid throughout Asia, Eastern Europe and the Middle East through 2022, while remaining flat or experiencing negative growth in Western Europe and North America. Asia—and China, in particular—will be leading the way with projected sales growth of 58.4 percent, to reach $342.9 billion in 2022.
The news is more dismal for departments stores in the United States. According to the study, department store sales in the U.S. are forecast to shrink 8.1 percent by 2022 thanks to a combination of a wilting middle class, the rise of specialty stores and digital-first retail.
Chris Sanderson, The Future Laboratory’s co-founder and CEO, said the marketplace in the United States likely will be defined by a “more restrained, resourceful version of luxury.“
The United Kingdom, despite housing three of the top five luxury department stores named in the study (Harrods, Liberty and Selfridges in the U.K.; France’s Le Bon Marche; and China’s SKP), is expected to show marginal department store sales growth of just 2.6 percent by 2022, and France is expected to top that rate at 5.8 percent.
“In contrast, Spain is growing at twice the rate of other European cities, with sales at department stores forecast to grow 19.6 percent by 2022 resulting, in part, from a spike in high-end tourism that has driven the sales of goods in destination cities such as Barcelona and Madrid,” the study noted.
However, it is possible European department stores will be divided by stagnation in Western Europe and growth in Eastern Europe. The former will likely continue to be affected by cautious spending brought on by Brexit and fears over growing problems facing the Eurozone, with sales expected to grow 9.8 percent by 2022, while Eastern Europe is expected to see department store sales growth jump 43.8 percent in the same time period.
North Africa and the Middle East, combined as a single region in the study, also are projected to experience department store sales growth during the next few years. The study estimates a 58.3 percent increase by 2022, representing $20 billion in annual sales.
Luxury sales have grown in recent years, outpacing mass market sales by 1.36 percentage points between 2014 and 2017, per the study, thanks to growing interest from developing economies. Luxury department stores are uniquely positioned to take advantage of those two growth areas, and the most successful stores have begun moving their focus from sales per square foot to “inspiration or experience per square foot.”
“Consumers are becoming less obsessed with brand and value, and measure luxury instead according to the ‘uniqueness’ of an experience and by the emotional impact it has,” the study noted.
One of the key factors facing the sector, is the influence online sales is expected to have on physical stores. And as such, according to researchers, the role of luxury department stores is changing, however cautiously, as retailers learn to tailor online experiences to high-end consumers. Stores that offer luxury beyond just products and services—like those with authentically exclusive experiences—will likely be successful both online and in the physical world as those stores get better at driving traffic to online channels.
“Consumers in the future will be able to shop wherever they want,” Sanderson said. “The retailer’s job will be to bring the world to them.”