Consumer attitudes are changing. In Australia, a recent survey by Canstar Blue revealed more than a quarter of shoppers feel they no longer need to visit brick-and-mortar department stores.
"n the epic “app vs website" debate, department stores with higher digital IQ's have invested in both platforms."
James Stewart, Partner at Ferrier Hodgson
Ominously, since the financial crisis, Australian department store revenue has contracted by 1.8 per cent annually and experts predict only marginal increases over the next five years (0.4 per cent compound growth annually).
Yet global comparisons suggest department stores which are advanced digitally also do better physically.
A report by L2, a US based retail think tank, suggests the success of department store brands is inextricably linked to digital competence. L2 have developed a 'Digital IQ Index' to assess the tech-savviness of global department stores which they believe equates to shareholder value.
Department stores in Asia generally, including Australia, lag however in the digital space. Indeed, some of Asia's largest department stores are surprisingly slow to adapt when it comes to online commerce, especially given the rapid adoption of mobile commerce by Asian consumers.
This doesn't have to be the case: some famous department stores are successfully evolving their models recognising, critically, online is vital if the bricks and mortar is to remain viable.
Source: L2
According to the L2 index, Nordstrom's significant investment in its digital platform has paid off. With online sales now representing 25 per cent of total sales, they were crowned 'Geniuses' with an IQ of 148, setting themselves apart from competitors by offering free shipping and a “No minimums. No kidding” promise in the United States. Runners-up include Macy's (147) and Sears (140).
In the L2 Index, David Jones (96) is considered 'Average' while Myer (85) is 'Challenged'. Some of the factors behind these results are a matter of functionality. For example, Myer's gift registry is not linked to its online store - shoppers need to print gift details and physically purchase in-store.
Of the 56 stores ranked, the top Asian department store came in at 33rd place. But even this one, Korea's Shinsegae, was classified as 'Challenged' (79). Shinsegae only launched its online shopping mall SSG.com in 2014, illustrating its digital IQ is still in its infancy. Other 'Challenged' contenders include Korea's Galleria (72) and Japan's Takashimaya (71). Daimaru Matsuzakaya (68) and Isetan Mitsukoshi (65), both in Japan, and Korea's Hyundai (66) all ranked as 'Feeble'.
Source: L2
Mobile-commerce has the biggest potential to reach consumers. In the epic “app vs website” debate, department stores with higher digital IQ's have invested in both platforms. The majority of iOS apps offer social sharing, e-commerce and push notifications but less than half offer ratings and reviews, coupons and bar code scanners.
This indicates that while department stores are on the right track, they are not quite hitting the mark. L2 argues tablet optimised sites are the greatest missed opportunity.
Search engine visibility is the real test of a digital IQ. Some department stores are purchasing paid ads to increase their visibility and brand, while other department stores already have strong organic visibility, appearing on the first page of Google results.
Recent media reports suggest the implementation of Google's "mobilegeddon" is likely to lead to the 'disappearance' of retailers from Google if they do not have mobile enabled websites, reinforcing that this should be an area of considerable focus for challenged contenders.
Despite the challenged ratings, Australian department stores are making in-roads to better their digital footprint. Myer reported strong online sales growth in its recent results announcement and highlighted its intention to build “digital capability off the back of the Myer One loyalty program to accelerate omni-channel.”
DJ's new CEO Iain Nairn has commenced the implementation of a fresh approach with a digital focus, suggesting the current DJ systems are archaic. He plans to introduce the same retail systems that Country Road and Woolworths in South Africa successfully use.
It's interesting to note that while the Asian brick-and-mortar department stores are deemed 'Challenged' and 'Feeble', e-commerce platforms such as Alibaba, Gmarket and Rakuten are booming.
Alibaba controls approximately 80 per cent of China's online market and is one of the world's largest e-commerce players, rivalling the likes of Amazon and eBay. E-bay's Korean subsidiary Gmarket, estimates smartphone penetration rate stands at almost 74 percent. In 2014, Rakuten was ranked #17 on the Forbes 'The World's Most Innovative Companies'.
As the digital world keeps expanding, Australian department stores and their Asian counterparts need to be on their A-game to maintain relevant and viable businesses. The most successful international department stores have invested heavily in mobile online platforms, adopting digital competence to the department compartment.
James Stewart is a partner at Ferrier Hodgson.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
04 May 2015
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