Will the demise of department stores be good for small retailers?

department store

The department store model has been a staple of American retailers for the past five decades. We’ve been experiencing a change in consumer behavior in the last years, as ecommerce and Amazon took a huge slice of market share, but the coronavirus pandemic helped to accelerate this trend. Mammoth companies like Macy’s lost 92% of their stock value in the last five years, now being considered a junk bond. Will they be able to somehow revert this trend, or will it open a great opportunity for the small retailers that survive this economic crisis to attract new customers?


We’re all in the same boat

Right now, it really does not matter if you are large or small, if you are in retail, you are fighting for survival in 2020. Department stores have a huge problem with high fixed costs and huge debt. Small brick-and-mortar shops are struggling to pay rent and their employees without customers coming through the door.

And it’s not as simple as just saying that everyone buys from Amazon and this would happen anyways. Physical retailers were getting better the last couple of years on providing an amazing shopping experience to consumers. The problem is that most of these experiences are not compatible with a contactless society and they need to be reimagined.

So, let’s look at the gaps that can be filled by small retailers for those customers who will miss going to a JCPenney or Nordstrom if they really go bankrupt.


Inventory optimization

One of the cool things about a department store has always been the variety of brands and products under one roof. We understand that is almost impossible for small stores to recreate this environment. However, you can closely follow consumer trends and your own category sales to ensure a replenishment strategy that puts the product your customer wants on the shelves.

The idea here is to walk the thin line and maximizing your physical space to provide the largest number of the latest trends but ordering the right amount, thus avoid having to just burn excess inventory later on and hurt your margin.


Sustainable brands

Millennials and members of Gen Z, in addition to caring about the final products, are concerned about business behavior and origin of raw materials. Therefore, if you serve younger customers, switching to products from smaller companies that follow this trend is a great way to differentiate from the mainstream brands sold at department stores.

As usually these products have a higher price tag, it is imperative to use your social media strategy and educate your customers on the benefits related to quality and the environment as well. Using your social media channels to make live videos with product demos is a great way to share the whole story about these products and show the consumer base interested in this topic that you also embrace this idea.

For an example on this trend is changing the market, we can use Tula as an example. When sales of prestige beauty products fell 14% in 2020, this skincare company focused on the clean beauty market saw its sales skyrocket by 400% during the same period.


Online presence

You cannot run away from this reality anymore. Regardless of the size of your physical business, you must sell online. This means that you have to go beyond the basics of having a Facebook Business Page or Instagram profile. Of course, there is no successful small business today without an online marketing strategy; however, that is not enough.

With robust and user-friendly platforms like Shopify, Squarespace and Wix, you can quickly and securely build your online store to complement in-store sales. We live in a period that people are afraid of contact and crowds, so migrating part of your business online can ensure you don’t miss sales.

Another important item in your online checklist is establishing a reliable communication channel with your customers. You want to make it easy for them to ask any questions about their orders or product specifications during the shopping journey.


The Number: 92%

The Action: Don’t be afraid of Amazon. If department stores are reduced to a minimum, people will try to find other sources for their shopping. Even if you must have an online presence, remember that the combination of a local store, part of the community, with an online platform can attract more loyal customers when compared with the giant online marketplaces. Create the structure that is ideal for your market and your budget.


And if you need any help, we are here. Check out more content in our blog.

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