Department Stores Vying for Digital Relevance - eMarketer

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Department Stores Vying for Digital Relevance

July 15, 2015


Danielle Bailey
Principal
L2 Think Tank

Department stores are expected to grow their ecommerce businesses rapidly over the next five years, and effective digital marketing strategies will be critical to their success. Danielle Bailey, principal at research firm L2 Think Tank, spoke with eMarketer’s Lisa Barron about how the industry is evolving and which players are leading the way.

eMarketer: What are the major developments with department stores and digital commerce?

Danielle Bailey: One is the use of omnichannel. Ninety percent of department store sales still occur in-store, but 70% of those sales are influenced by digital.

The brands that are doing omnichannel really well are creating a seamless experience [for customers] and seamless customer identification whether they are in-store or online—actually allowing the customer to shop in the way that they want. That could mean ordering online and picking up in-store, researching online and going to the store to purchase, or offering extensive pay and shipping and collection options.

Amazon is thought to be the retail killer in some ways—from a price comparison standpoint and a research comparison standpoint. However, where department stores have an advantage is using and leveraging their physical locations as touchpoints to consumers. While people talk about the death of the mall and the death of department stores, you’ll see the retail brands that are doing omnichannel really well are able to keep themselves viable by providing a seamless digital experience.

“Where department stores have an advantage is using and leveraging their physical locations as touchpoints to consumers.”

eMarketer: Which department stores are doing the best job with digital?

Bailey: I would put Nordstrom and Macy’s in a class of their own, and I would say they’re almost in an arms race with each other digitally if you look at investments. Nordstrom is seeing the payoff from investments they made very early in the 2000s. Nordstrom made significant investments in consolidating their inventory and getting visibility across platforms, both online and in-store visibility, and made some streamlined investments organizationally that they’re starting to see pay off for them big time. And they were very early [taking these actions], so those investments were less expensive for them.

A brand like Macy’s is now having to spend a fair amount of money. Macy’s is making additional warehouse investments, laying off people and restructuring their organization to create a single merchandise organization instead of a separate retail vs. ecommerce merchandise organization. Macy’s is investing significantly in in-store technologies in order to facilitate that.

Nordstrom is also making significant investments in acquisitions. What they’ve done really well is recognizing what’s worked online or identifying digital brands that they want to bring in-house, so they’re developing this kind of “store-within-a-store” concept, whether it’s the work that they’ve done with the recent partnership with Shoes of Prey, customizing shoes that they’re bringing in-store, or the work that they’ve done with social platforms and bringing that to life in-store.

Nordstrom has an eye for what’s working well online and bringing that in-store—using trends that they’ve seen develop on Pinterest to determine their acquisition and merchandising strategy and also highlighting that inside their stores with signage and merchandising.

Sears, while visibly innovative, is really using digital as a life raft while they’re busy trying to determine how they’re going to keep the doors of the store open. But they aren’t able to capitalize, unfortunately, on digital investing.

You see Sears doing interesting things such as selling advertising inventory on their site to other brands, which would differentiate them. They’ve done a lot in terms of making click and collect a part of their strategy early on and have also done a lot in terms of back-end integration, making themselves a very open platform, encouraging people to build on their technology.

“Nordstrom has an eye for what’s working well online and bringing that in-store.”

However, although Sears has been very digitally innovative and forward-looking in some ways, they’re [still] just trying to keep the doors open, and I wouldn’t put them in the same category as Macy’s or Nordstrom.

eMarketer: What will be the key to success for department stores going forward?

Bailey: Not thinking about digital as something separate from their store operations is the model going forward. I think you’ll see the terms ecommerce and digital actually going away from how these retailers talk about their business, and it will just be the way that their business is done on an ongoing basis.

One of the opportunities that department stores are still missing in some ways is the ability to provide consumers with compelling content that will help them make better purchase decisions. Department stores have this unique historic relationship with consumers, and ways in which to build on that digitally could be important. The use of personalization technology going forward is going to be key—not just in department stores, but for retailers in general.

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