Fashion Industry
The decline of the department store has been ongoing for a number of years. I agree with the general statement that department stores in struggling in part because they have facing a more competitive environment. Not only do department stores compete against each other, but they also must compete against discount stores, specialty stores and category killers. In essence, the department store is a generalist in an environment full of specialists. The department store must find ways to innovate its business model in order to succeed in the future.
Competition has taken its toll on department stores. Department stores essentially thrive in an era when there was a certain degree of information asymmetry for consumers, as they were relatively unable to comparison shop beyond more than a few stores. Consumers may have been price sensitive, but their price awareness was not as acute as it is today. Moreover, consumers were willing to sacrifice price to some extent for convenience. The shift towards discount stores has impacted on the competitive balance. Aggressive promotion on the basis of price has allowed discount stores to increase the price sensitivity of consumers, and this hurts department stores. The effect is enhanced by the ability of discount stores, with volume buying and supply chains into low-cost-production nations like China, to offer goods of slightly lower quality than department stores at significantly lower prices. For their part, department stores seemed unready for this challenge, and sought to maintain high margins.
Those high margins were necessitated by the high overhead costs faced by traditional department stores. While they have the same amount of space in their stores as the major discounter chains, those discount chains are more adept at merchandising, and that allows them to enjoy higher sales per square foot than traditional department stores. In addition, efficiencies throughout the supply chain and in management allowed the discounters to undercut department stores significantly. Most department store chains were unable to adapt to a more cost-conscious environment quickly enough. As a result, they were left with price conscious consumers no longer interested...
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