Even before COVID-19 pandemic, most Western brands and retailers were struggling to survive. In the new millennium, brands and retailers increased their reach to new geographies by opening more and more stores, as sales were shrinking or stagnating in the Western world but that doesn’t seem to have worked well.
Mounting troubles and then a pandemic…
For a couple of years, they were increasingly facing a retail apocalypse, weakening consumer confidence, reducing sales through stores, consistently losing customers to fast fashion and value retailers. Add to that the growth of online retailers; increasing operative expenses like rentals, borrowings and coupled with thin or no profits, and then came the blow from a pandemic. COVID-19 is seems to be the last nail in the coffin for many big brands and retailers.
COVID-19, has swept the globe, forcing people apart and out of public sphere. By and large, only stores selling essential goods remain open, the current environment is no place for department stores. With physical locations contributing zero sales and e-commerce also feeble to make up for it, brands and retailers are taking desperate measures, pulling financial levers like draw-downs of their credit revolvers, hitting the brakes on growth plans, furloughing their workforce even potentially skipping on rent. However, it’s still not clear how much any of this will help ultimately.
The main problem of the retail sector was that there wasn't much of a place for department stores even before COVID-19. As devastating as it has been to retail as a whole and this segment specifically, the outbreak is only partly to be blamed for department stores' current woes or the predicament that awaits them once it subsides, analysts say.
The problem was that most store chains were running at too many locations, without regard for local culture or basic merchandising practices that makes any store a pleasant place to be, feels Thomai Serdari, a professor of luxury marketing and branding at New York University's Stern School of Business. "They brought it to themselves,” she told Retail Dive in an interview. “They can't blame either the economy or the virus for it."
The unlikely scenario of going back to business as usual
Trade experts now feel, only a few retailers will come out of this unprecedented moment unscathed but department stores are at a point of no return. None can go back to business as usual. Some may not come back at all.
Some players potentially face a decline of 30 to 50 per cent or even more, for many months if not a year or more, and some will be good, believes retail analyst Nick Egelanian, President of retail real estate firm SiteWorks. That makes their current cash crunch, in some ways, the least of their problems, and trimming their fleet a top concern. "Look for all department stores to use this virus as a catalyst to close, right size and/or reposition (with retention agreements with landlords becoming even more prevalent)," he told Retail Dive.
"This is the time to look internally, for these companies to really take a look at who they are, what they stand for — and does it have any correlation to what we’re going to care about after this.” Sanford Stein, Retail Consultant and Author of Retail Schmetail sums up.