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Department Stores

Department Stores - A Bit of Background

Department stores are in the news these days, unsurprisingly in view of the travails of the House of Fraser, Debenhams, John Lewis Partnership and some of the smaller giants.

This webpage gives information about the rise in department stores, the creation of department store chains, news about a merger of German department stores, and the recent history of Habitat a department-store like household chain. What is surprising is the way that rather than pursue a consistent strategy many department stores have had multiple owners in the past 50 years, who have sometimes neglected them, sometimes robbed them of their assets.

WHY DEPARTMENT STORES?

At one time department stores were the driving force in British retailing. Most British towns and cities might have had as many as five or more department stores in the 1880-1920 period, although most were smaller than modern department stores. However department stores' recent history has involved retail chains gobbling up each other and the closure of many stores, particularly in what were no longer busy suburban shopping destinations and in high-cost town centres. The major department stores chains now are: Debenhams, the House of Fraser and John Lewis Partnership, with smaller chains such as Fenwicks, Harvey Nichols and Hoopers which operate in very selective locations. Harrods and Selfridges run successful operations that focus on high net-worth households and prosperous foreign tourists.

Former Pearsons of Nottingham Department Store
Former Pearsons of Nottingham Department Store

Here is a comparison of the department store experience in Nottingham and Norwich, two mid-ranking, long-established English towns that dominate their regions, whose official/unofficial mottos are Queen of the Midlands and A Fine City respectively, and start with the letter 'N'.

Department Store comparison - Nottingham and Norwich

Department stores did not necessarily have a large combined market share, but their stores dominated the high streets of cities and towns creating problems for local drapers and fashion stores. They were the go-to places to see the latest fashions and new merchandise and conferred status upon their customers.

Jarrold's department Store, Norwich, art nouveau building, Christmas 2017
Jarrold's department Store, Norwich, art nouveau building, Christmas 2017

Their proprietors were important citizens. Department store leaders like H Gordon Selfridge (Selfridges), John Speedham Lewis (John Lewis), Marshall Field (Marshall Field), Rowland Hussey Macy (Macy's) and Aristide Boucicaut (Au Bon Marche) in France were recognised as business people of national importance. Boucicaut claimed to be the man who invented the modern department store, consisting of many different departments selling a wide variety of non-food merchandise previously only sold in separate specialist stores, predominantly clothing, textiles and cosmetics, all aimed mainly at women and designed to be key signifiers in their lives. Zola even wrote an early Sex 'n' Shopping novel about Boucicaut, 'Au Bonheur des Dames' (The Ladies' Paradise or Happiness). Amongst other merchandising and marketing innovation including fixed prices and extensive advertising, Boucicaut established a men's reading room in Au Bon Marche, where bored males could congregate while their womenfolk were shopping the store.

Dames de France former department store, Bourges, France
Dames de France former department store, Bourges, France. Dames de France made it clear what they regarded as their main demographic


THE CREATION OF NATIONAL CHAINS

The histories of department stores, such as Selfridges in Oxford Street, Griffin & Spalding in Nottingham or Whiteley's in Bayswater tend to be about starting as a drapery business in the early nineteenth century, expanding into different product areas, sourcing from an ever- greater number of suppliers, particularly foreign, adding new departments, and buying up nearby stores (or moving to a fabulous building on a new site) to expand their principal department store.

Department store chains spread out into other towns and cities by opening new stores and acquiring existing department stores. Since WWII however patterns of constant changes in ownership and periods of comparative neglect followed by Generic-Business-School growth strategies are typical of the department store sector and mean that their assets are often exploited and the retailers become debt-ridden and lack any sustained long-term strategic focus.

Debenhams

Debenhams started as a draper in 1778, and by the end of the nineteenth century had three department stores and a large mail order operation. It purchased Marshall & Snelgrove (1919), Harvey Nichols (1920) and in 1928 bought The Drapery Trust (60 stores including Drages, Swan & Edgar, Bobby & Co and Bon Marche). The stores maintained their separate identities until the 1970s. In 1985, the Debenhams chain was bought by the Burton Group, a large clothing multiple (that later became Arcadia). Debenhams became an independent group again in 1998.

However five years later, in 2003, private-equity firms CVC Capital Partners, TPG Capital and Merill Lynch raised £1.7bn of which £600m was equity to take Debenhams private again. This 'equity' was made a debt charge on the business, which sold and leased back the stores it owned, signing long leases with property companies to raise the funds. Within three years, the partners had trebled their capital investment and floated the much-diminished company again in 2006 (Chambers, 2018). To reduce debts Debenhams started a programme of new store development, again often involving long leases, and became the anchor of many new shopping malls. Its current difficulties relate particularly to the debt problems inherited from the private-equity episode and the strategies followed subsequently.

Chambers, S. (2018) 'Debenham's Woes: High Rents, Debts and Ashley', Sunday Times, 16 Sept., B&M p.8.

Harrods and The House of Fraser

The Harrods store (whose old telex address was omnia ubique (everything everywhere), acquired other department stores such as Dickens & Jones (1914), Kendal Milne in Manchester (1919), Swan & Edgar (1920), D H Evans (1928) and Birmingham's Rackhams Group (1955), but was itself bought by the House of Fraser in 1959.

The House of Fraser started as Arthur & Fraser in Glasgow in 1849 and remained a predominantly Scottish Group run by the Fraser family for more than a century. In 1936 Fraser & Sons purchased competitors Arnott & Co and Robert Simpson & Sons. Between 1936 and 1985 more than seventy companies were acquired, including The Scottish Drapery Corporation (1952), Binns (1953), Barkers of Kensington (1957) (including Derry & Toms, later to become Biba), Dickins & Jones, Harrods (1959), Howells (1972) and Army & Navy Stores (1973). In the 1970s alone, 50 different stores were acquired. It went public in 1994 (excluding Harrods which remains a separate company). In 2005, the House of Fraser bought the Edinburgh department store, Jenners, and the west midland regional chain, Beatties.

In 2014, the Chinese Group Sanpower purchased the House of Fraser Group. They installed a CEO and several executives with little previous retail experience. House of Fraser went into administration in 2018, and was bought pre-pack by Sports Direct. Although Mike Ashley is a successful retailer, the jury is still out on whether this type of entrepreneur can successfully turn around the House of Fraser.

Smaller Department Store Chains

Not everything went well. Selfridges in the 1930s set up a disastrous chain of 16 provincial department stores (that Gordon Selfridge magic at work again) which were ultimately sold to the John Lewis Partnership and Lewis's. The Lewis's department store chain started in 1856 in Liverpool, opening substantial stores in Manchester, Birmingham, Glasgow, Leeds and Leicester by the 1930s. The Birmingham store was opened on the suggestion of Joseph Chamberlain. Lewis's became part of Charlie Clore's empire, bought Selfridges in 1951, launching the Miss Selfridge chain in the swinging London period (1966), but collapsed into administration in 1993. Some of its branches were bought by Owen Owen (which itself collapsed in 2007) and sites were closed. Only the Liverpool flagship remained, purchased by Vergo (set up to operate former Owen Owen department stores such as Joplings of Sunderland and Derrys of Plymouth and subsequently Co-operative department stores in locations such as Norwich, Ipswich and Colchester). Vergo went bust in 2010 and most of the stores were closed.

Co-operative Department Stores

It tends to be forgotten that the Co-operative Movement once ran a large number of department stores, at least one in every town, as part of their 'from-cradle-to-grave' merchandising policy, thus forming the largest UK department store chain (though run by separate societies). These were very successful until the late 1950s, when competition from specialist multiples and an unwillingness to adopt modern merchandising practices led to their decline. The Movement mostly abandoned its department and other non-food stores in the 1990s-2011.

Former Co-operative Department Store Doncaster in art deco meets 1950s Modernist style
Former Co-operative Department Store Doncaster in art deco meets 1950s Modernist style

THE DECLINE OF THE DEPARTMENT STORE. The reasons for their decline are:

Abandoned modernist end of Huddersfield Co-operative Society department store
Abandoned modernist end of Huddersfield Co-operative Society department store. The Victorian end (not shown) is a Wilkinsons.

But we are not alone.

GERMANY: Some German Insights into Running Department Stores

Germany is not yet suffering all the problems of UK stores, but the signs are there.

Karstadt

Karstadt: at one time the market leader in department stores. Karstadt's first store opened in 1881, selling at fixed prices. By 1914 Karstadt had already opened many department stores. He bought the Althoff chain in 1920 and by 1931 Karstadt operated 89 full-range department stores and 52 low-price department stores. The economic problems of the 1930s meant that many of his stores had to close. After WWII, Karstadt's East German (GDR) stores were expropriated, but the company acquired several other West German department stores and merged with Neckerman Versand AG in 1977 making it Germany's largest retailer.

Following German reunification, the company took over a number of East German Centrum department stores and merged with mail-order giant Quelle forming KarstadtQuelle in 1999 in order to reap operational synergies. By 2004 the new company was in crisis and sold 74 smaller Karstadt branches (later forming Hertie GmbH, which later became insolvent) and 52 other branches. The other property assets of Karstadt were sold to an outside property consortium.

Arcandor, the ultimate holding company of retailer KarstadtQuelle, was unable to pay the rents on the Karstadt properties and declared bankruptcy. The company was then bought by financier, Nicolas Berggruen, who was regarded as well-motivated, even saintly. He brought in a lot of UK experience with a House of Fraser orientation, but had little retail background himself. The company's new MD spoke only basic German. The strategy was to develop three separate branches: Premium (flagship, upmarket). Sports and Warenhaus (traditional department stores). Losses mounted and in 2013 part of the group was sold to Austrian Signa Holding to fund store improvement and development: the next year Signa bought the remainder of Karstadt, around 114 stores as well as the shares of the Premium and Sports stores that it did not already own. Karstadt became profitable again in 2017, emphasising local brands, regional partnerships and e-commerce.

Kaufhof

Karstadt's major competitor is Galeria Kaufhof, acquired by the Hudson Bay Company (which also owns Saks Fifth Avenue and Lord and Taylor as well as the HBC-branded Canadian department stores. Before 2015 it was owned by Metro AG, a group owning cash-and-carry (Metro and Makro), the Real 265-unit hypermarket chain and Media Markt and Saturn consumer electronics.

In September 2018, it was announced that Galleria Kaufhof and Karstadt would merge, forming a new group employing 32,000 staff, sales of €5.4bn and 243 stores in Germany, Belgium and the Netherlands. The new group, if permitted by German regulators, would be owned 49.99% by Hudson Bay and 50.01% by Signa.

Habitat: A Digression

1964 - Habitat was set up by Terence Conran to market his Summa furniture range, but the first store was opened by first-wife Caroline Conran along with Philip Pollock and Pagan Taylor. As a store oriented towards the bohemian middle-classes wanting to escape from parental 1950s chintz and seemingly made for the Sunday Times Colour supplement it became an immediate success. Everyone was talking about the Conran chicken brick in the mid-60s. The launch of a Habitat catalogue allowed people to buy by mail order. The first overseas store was opened in 1973.

Habitat Store in Bourges, France, 2018
Habitat Store in Bourges, France, 2018

1968 - Ryman Conran. Habitat was then merged with stationery-chain Rymans (which needed a greater design focus) and next year bought furniture supplier and manufacturer Lupton Morton and in 1970 stationers and office equipment suppliers Straker-Bedser (part owned by the cricketing twins, Eric and Alec). Conran, who thought that Ryman Conran was focusing too much on stationery and office supplies, then bought Habitat and Lupton Morton from Ryman Conran, although he left the Conran Design Group and the Thetford Habitat factory with Ryman Conran. Conran Design was purchased by Rodney Fitch in 1972 to become Fitch & Co and the Rymans sold Conran Ryman to the Burton Group.

1981 - Habitat becomes a public company.

1982 - Habitat Mothercare is created when Habitat merges with the cradle-to-toddler maternity care company, Mothercare. Habitat Mothercare buys upmarket furniture group Heals followed by the Richard Shops female fashion chain. Terence Conran is now seen as a major player in revolutionising retail.

1986 - Storehouse PLC is formed by Habitat Mothercare merging with ageing variety-chain British Home Stores (BHS) on the basis that Conran's legendary design and merchandising skills would modernise BHS and bring in new demographics as customers. However this proved overoptimistic and the financial returns were poor. Conran was ousted as CEO in 1998 to become a restaurateur and design guru, but remained chairman of Storehouse Group. I have an interesting video from the early 1990s in which Conran is interviewed at length and explains to the BBC that investors and banks initially saw him as a marvel, they wanted mergers, re-structuring and growth and provided the financing for larger and larger companies, then turned on him when the results did not come up to spec.

1992 - Habitat was bought from the Storehouse Group by IKANO, the private investment vehicle of the Kamprad family, who own IKEA. Richard Shops were sold to the Sears Group of companies, Children's World is acquired from The Boots Group. After BHS was sold in 2002 to Philip Green's wife, (who owned the Arcadia Group - Burtons, Dorothy Perkins, Evans, Miss Selfridge, Wallis, etc), the Storehouse Group was renamed Mothercare once more. In its early years, BHS provided Arcadia with substantial dividends, before being sold again and collapsing in 2016.

2009 - Habitat is purchased by Hilco, the private equity firm, after the Kamprads write off all the debts and provide €50 million of working capital.

2011 - Habitat placed in administration. Home Retail Group (owners of Argos and Homebase) bought the intellectual property, trademarks and brand, the three best London stores and the UK website. All other Habitat shops were closed. Home Retail introduced mini Habitats in its Homebase DIY stores and sold some Habitat ranges through Argos and Homebase. Including their websites. The foreign stores and overseas rights (Groupe Habitat) were bought by Cafom, a French group-buying company who brought in some new designers to stimulate the European business.

2016 - Home Retail Group (including Habitat) was acquired by Sainsbury's. Homebase DIY (originally founded by Sainsbury's and GB-Inno-BM) was bought by Australian retailer Wesfarmers to convert to their Bunnings concept. As Habitat was no longer part of the same group as Homebase, the mini Habitat stores in Homebase were closed and the stock sold. Bunnings wanted anyway to create a more hardnosed DIY trade-oriented business and cleared out the fabrics, cushions and homeware which it so despised. Unfortunately those were the bits UK customer quite liked and UK Bunnings operation was a failure and was sold to Hilco in 2018.

2018 - UK Habitat now has 17 stores, mostly in the South of England but with branches in Edinburgh and Leeds, and stores within Sainsbury's and Argos units, including Manchester, Solihull, Reading and Newcastle on Tyne. It opened its first stand-alone store for many years in 2018 in Westfield.

The Cafom-owned Groupe Habitat seems to have had more success than the UK operations, with 29 stores in France, seven in Spain and five in Germany plus franchises in most European countries, parts of Africa, Bangkok and Hong Kong.







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