The traditional department store is experiencing a significant transformation. While customers expected a department store to be exactly that, a physical store that offered products. That demand has changed from single-channel into omnichannel. Customers today are a lot less forgiving and expect to find what the brand is offering any way they desire.
Marketplaces are born
So what changed? As in many other cases, the Internet has been a significant catalyst when transforming everyday life for department stores. Traveling back to 1995 when Amazon sold its first book online is perhaps when marketplaces took their first steps to rock the very foundation on which the department stores are built. Where department stores once were the one-stop-shop place for customers, marketplaces started stealing market shares. The final nail in the coffin was when companies began to discover and leverage the power of paid search — being even more accessible than ever before.
Fading market shares and slimmer margins
So with these challenges at hand, what could the traditional brick and mortar stores do to stay competitive?
- Convey a unique atmosphere in the store
- Specialize and offer in-store competence
- Work smarter to cope with slimmer margins
- Start competing with the marketplaces in their own game
It would be naive to say that one of these options alone would turn the table. There's no silver bullet that can flip the table on its own. However, if you combine the four, it's a different ball game.
Well-known brands in a new setting
More often than not, there's a department store - or chain of department stores - well-known and respected by the consumers. So when they start competing with the marketplaces by becoming a marketplace, the tide has turned. Suppose that you're presented with two options when searching for that thing you've been aching to buy for quite some time.
Option 1: The department store you've visited countless times before.
Option 2: A startup marketplace that you have no previous experience with.
The choice is relatively easy in this scenario when only considering brand recollection. But the fact of the matter is that when purchasing online, there are more factors to consider. Delivery and returns being one of the most important ones. For some, even more important than pricing.
Efficient ways of working is a must
Being a marketplace does not only mean that you're visible online and that customers can buy without visiting the stores. The shift is more significant than that. You have to consider and analyze all the processes that come into place.
For example, returns from online-bought products are close to 70%. Comparing that same number with products bought in-store shrinks to just 9%. That's a significant difference, and department stores that have transformed into a marketplace have to apply streamlined ways of working to manage. And it affects Supply Chain as a whole.
We had the pleasure to talk with Svante Lindgren, former Supply Chain Manager at Åhléns, one of Sweden's most known department stores and brands. He provides his findings, insights, and learnings when moving from a traditional department store to becoming a marketplace in the first episode of season two in our podcast Automatiseringspodden.
P.S. The podcast is in Swedish.