Australian department stores have struggled over the past five years. Real household discretionary incomes have declined while consumer sentiment has been negative for most of the period. These trends have discouraged consumers from spending at department stores, particularly at the high end of the market. At the same time, the Online Shopping industry has grown strongly as price-conscious consumers have migrated online where they can compare products and find lower prices more easily. As a result, department stores have developed online stores to complement their physical offerings, while also consolidating store networks.
Impact of COVID-19
The outbreak of COVID-19 in 2019-20 significantly affected the Department Stores industry. It exacerbated some of the negative trends that department store operators were already facing. During 2019-20:
- Consumer sentiment fell significantly
- Bricks-and-mortar stores were forced to temporarily close for extended periods
- Upon reopening, consumer numbers were limited as social distancing rules limited the number of people allowed in one area and some consumers were also disinclined to visit public areas during the height of the COVID-19 outbreak
- Online shopping increased by 21.3%
Changing consumer trends
The Department Stores industry is made-up of two kinds of operators: up-market department stores such as Myer and David Jones, and mid-market or discount department stores such as Target, Kmart and Big W. While revenue from both types of stores has declined over the past five years, mid-market or discount stores have fared better over the period. This has been due to the strong growth posted by discount department stores during the COVID-19 outbreak. As economic conditions declined during the COVID-19 downturn, consumers were more inclined to buy goods, particularly essentials and homewares, from discount department stores rather than their up-market counterparts.
Continued competition
Big W and Target have been the most high-profile examples of ongoing store consolidation. Big W is currently in the process of closing 30 stores over the three years through 2021-22. Wesfarmers announced in August 2020 that a mix of up to 90 small and large Target stores would be converted to its sister brand, Kmart.
However, some retailers are continuing to invest in bricks-and-mortar stores. In February 2021, Spotlight Group, which operators in the Department Stores industry via its chain, Harris Scarfe, announced plans to open 150 new stores over the next five years. These stores would include the group’s three brands: Spotlight, Harris Scarfe and Anaconda. Ironically, more than 20 Harris Scarfe stores were closed during 2019-20, while the chain was in receivership before being purchased by Spotlight Group. Dimmeys, a player in the Discount Variety Stores industry, has also recently opened a new store in Victoria, after closing more than 20 stores over the past five years.
IBISWorld Company and Industry reports mentioned in this release:
Online Shopping industry in Australia
Department Stores industry in Australia
Discount Variety Stores industry in Australia
Osiris Holdings Pty Ltd (trading as David Jones)
