Online isn’t killing the American department store, they’re committing suicide

Once an icon of modern retail, American department stores now seem to be in terminal decline. The impact of the internet on shopping habits has been identified as the killer, but closer inspection reveals the culprit is somewhat closer to home.

American department stores are dying. Not a swift and painless death, but a lingering decay into irrelevance and oblivion. The numbers attest to their downward spiral: at their zenith in 1985, department stores took 14.5% of all US retail spend; last year that figure was 4.4%, and it’s still falling.

On the ground, death takes the tangible form of vacant shops in malls and cities. Once bustling landmarks teeming with shoppers have been replaced by empty, dispiriting voids. Last year Macy’s announced 100 stores, around 15% of its total estate, would close; by the middle of this year, 68 of them will be gone. Sears will end 2017 with around 60% fewer stores than it had back in 2011.

The popular diagnosis for this decline is the internet. Consumers, it is argued, have stopped or cut down their visits to department stores because they can more easily buy what they need online, often at a cheaper price. This mantra of ‘shifting shopping habits’ has now become a catch-all excuse for poor performance. For some, it has also resulted in fatalistic thinking: viewing the rise of online as an unstoppable, destructive tide that can neither be tamed nor harnessed for good.

There is no denying that online, which this year will account for around a tenth of all retail spend in the US, has been disruptive – but it is not the sole cause of the demise of American department stores. It is not even the primary reason. 

To make a proper diagnosis, we spoke to over 2,700 shoppers who spent less money at department stores in 2016 than in the previous year. 

Across almost every category, most of the spend department stores lost not diverted to online – it went to other physical shops. In fashion accessories, for example, 78% of the spend lost from department stores was diverted to other bricks-and-mortar fashion shops, most of them specialist brand stores and off-price outlets. 

If this demonstrates that the impact of online is more muted than is often believed, it also suggests that the question as to why department stores are losing trade is not fully answered by simply pointing to the internet. 

Consumers interviewed in the survey help reveal the underlying answer. The top three reasons for spending less at department stores in 2016 a lack of interesting products and services, uninspiring shops, and an unpleasant shopping experience. These are all factors fully within the control of department stores and are also the exact things that department stores have neglected over many years.

This lack of investment in products, store environments, and the general proposition is the real cause of the demise of the American department store and is the primary reason why they have become increasingly irrelevant to large swathes of shoppers. 

The internet did not kill department stores. They simply chose to stop living and evolving.