John Edgar has been busy overseeing a team of builders as they punch a hole through five floors of Fenwick’s flagship Newcastle store to allow light to spill through from above.
“It’s a huge undertaking . . . but it’s just the right thing to do, it gives you a better aesthetic,” said the chief executive, who is also installing more windows and revamping the floor.
The department store chain, which has nine UK sites, is spending £40mn on the makeover of the Northumberland Street shop, a mainstay in the North East since John James Fenwick, an ambitious shop assistant, bought part of the building in 1882.
But the longevity of department stores has been put in doubt by recent high-profile collapses — from Debenhams and House of Fraser to smaller chain Beales and Edinburgh’s Jenners, along with Fenwick’s sale of its store on London’s New Bond Street, which is due to close its doors in 2024.
Heightened competition from online retailers, weaker disposable incomes among customers and elevated day-to-day business costs are prompting department stores to refine their strategies to ensure their brands live on.
Over the five years to 2023-24, department stores’ revenue is forecast to have contracted at an average annual rate of 2.7 per cent to £35.6bn, according to research group IbisWorld, despite expected growth of 0.7 per cent in 2023.
Department stores risk extinction without investment or reinvention, warned Edgar, who previously worked for Selfridges and Harrods.
“When I first started working at Selfridges . . . it was like a stage set being reset every morning for the performance of the day and that’s a different mentality to somebody just unlocking the door and saying ‘Right, now we’re open, can we take some money?’,” said Edgar.
“That’s what we try and do in this type of business and that’s what department stores are about — it’s about a performance for the day to entice people to excite themselves.”
Fenwick reported a 31 per cent rise in gross sales to £315mn in the year to January 2023 as people sought to spend more time in stores.
“We’re putting as much blue water as we can between ourselves and the likes of John Lewis,” Edgar said. “Because that’s not where we want to trade. That’s a difficult place to be and you end up trading on price.”
John Lewis shut 16 stores during the pandemic, cutting the total to 34 as it implements a protracted turnaround plan. High street rival Marks and Spencer has been closing dozens of unwanted stores to prioritise new branches in more profitable locations.
“We’re trading on experience . . . exclusivity, uniqueness, and hospitality,” Edgar added. “Of course it’s difficult to provide a unique experience every day in every location but this [store] is a good example of it.”
Tom Athron, chief executive of luxury food and gift retailer Fortnum & Mason, believes the role of department stores has changed dramatically over the past decade.
“The reality is that they have to work much harder to have a reason to exist,” he said. “The idea of being a convenient place to shop has disappeared with the advent of shopping centres and the internet.”
Athron is seeking to harness the boom in user-generated social media content to create “Instagram moments” and convert new visitors into shoppers.
“It’s all about video, not pictures. There has to be sound as well,” he said. Fortnum’s atrium featured giant Christmas puddings over Christmas that levitated in tandem with festive sounds.
He believes “there has to be an element of theatre” in stores and that its offering should be distinct.
“We are super clear what we stand for now: it’s all about extraordinary food and drink. Everything we do is in concentric circles around that core belief,” he said.
Without patient backers, however, plain sailing is not guaranteed. The Fenwick family sold its 130-year-old store in London for an estimated £430mn in 2022, partly to unlock investment for the remaining sites but also to repay debt, expand its ecommerce business and pay money into its pension scheme.
“The fact that we’re family-owned — which means you have a slightly longer view on the world — means that we’re able to weather the storms a bit more,” said Edgar. “You know, businesses like this, they’re not ‘get rich quick’. Anyone who says there is a version of that is dreaming.”
Adil Mehboob-Khan, chief executive of Liberty in London, spent £9mn during the pandemic on restoring the building, with investors’ blessing. Roughly 300 windows had to be removed for repair from the century-old timber-framed store, which is owned by private equity firm Glendower Capital and other private shareholders.
“We have private investors that understood that this is a 150-year-old business and we all have a duty to think about what we do for the next 150 years as opposed to the next quarter,” said Mehboob-Khan. Group revenue for the year to 28 January 2023 was up almost 20 per cent to £184.9mn on pre-Covid levels.
Meanwhile, Thai conglomerate Central Group, which controls rival Selfridges, had to offer assurances in November that it was a financially stable custodian after its Austrian partner Signa was hit by a financial crisis.
A flurry of department stores that suffered under-investment have fallen by the wayside as they failed to excite shoppers.
Almost two-thirds of Debenhams stores were still empty as of August with larger urban centres hit hardest by vacancies, laying bare the difficulties of finding a new function for such spaces.
Tom Whittington at real estate company Savills, which markets some of the Debenhams sites, said that despite the UK having “a quarter too much retail space . . . there is a huge opportunity to refresh and rebrand our high streets with the things that come next”.
Late last century major retail brands fuelled by debt gobbled up local players or put independents out of business, giving rise to so-called clone cities.
“The fact that Debenhams . . . went down in the pandemic, that was just a coincidental point,” Whittington said. “The pandemic has nothing to do with what is happening and shaping this market.
“Most of the retail failures that we have seen in recent years have been those that have lacked investment, which has resulted as much as anything in them losing their point of difference.”
A year after buying House of Fraser from administration in 2018, retail tycoon Mike Ashley said the purchase may have been a mistake as it weighed on the group’s core earnings and proved difficult to integrate.
But Michael Murray, Ashley’s son-in-law and chief executive of his Frasers Group, which owns brands from Sports Direct to Game, is now more optimistic about its prospects having closed some sites while he overhauls others.
The new Frasers “is probably the modern department store if you look at what we’re doing . . . we’re combining our group’s businesses”, he said. “We can carve the old department stores up into a much more effective and productive space.”
Steve Henderson, a director at Savills, believes investment breeds investment and is a boon for local economies.
“The new Fenwick plans for Newcastle have changed the potential for the surrounding tenants,” he said. “If people like Fenwick are investing in it, other retailers are believing in it.”
His views were echoed by Peter Silverstone, chief commercial officer at Newcastle United football club, which in December announced a sponsorship deal with Fenwick.
“They’re two local businesses with over 270 years of history and heritage coming together for the good of the region and the city.”
