B.C.’s road to recovery: Pandemic accelerates department stores' omnichannel uptake

When stores open, expect some great sales – but no stampedes

Hudson’s Bay may be closed, but you can place orders online for pickup | Rob Kruyt

Long before the COVID-19 pandemic hit, department stores were struggling against a decades-long tidal wave of competition and changing consumption habits: the rise of the shopping mall, followed by big box stores and Walmart (NYSE:WMT) and, more recently, Amazon (Nasdaq:AMZN).

There are a handful left in the Lower Mainland – Hudson’s Bay (TSX:HBC) Simons at Park Royal Mall in West Vancouver, and Nordstrom (NYSE:JWN) at Pacific Centre.

Several were already developing omnichannel retailing – an integrated approach to sales via multiple channels – and retail analysts say COVID-19 will accelerate that move. You can still shop at Hudson’s Bay, for example – you just can’t go into the store. You can place an order online and then go pick it up.

“Retail was shifting well before COVID,” said Kostya Polyakov, consumer and retail analyst at KPMG Canada. “In pre-COVID, there was a delineation being formed between truly omnichannel retailers – retailers who can sell in a variety of different ways – versus the old dinosaur bricks-and-mortar retail only. COVID has accelerated a lot of stuff that was already happening.”

The increased use of omnichannel retailing is just one of the changes shoppers are likely to see in department stores when they reopen.

They may also see more kiosks and digital checkouts. Stores may even hire escorts to help customers get in and out quickly. And aisles may no longer be two-way streets. Department stores may move to one-way aisles, similar to what is already being done in some grocery stores and at IKEA.

The big question for some department stores is whether they will reopen at all and, if they do, how long they might survive. Earlier this week, Jacqui Cohen, owner of five Army and Navy department stores, announced the permanent closure of all five stores.

“I think that they will be in existence in a couple of months, when this is all said and done,” said Craig Patterson, editor-in-chief of Retail Insider, said of some of the big players. “But there is a possibility perhaps they would file for some sort of creditor protection in order to close some stores.”

Polyakov agreed.

“They’re going to use this opportunity to trim the fat. I think there’s going to be less stores after COVID than before COVID.”

Patterson and Polyakov had no sooner made those predictions when Nordstrom Inc. (NYSE:JWN) announced last week that it will close 16 of its department stores. Much may depend on how quickly shoppers will be willing to risk going to department stores, and how much discretionary spending people will have when so many have been laid off.

Shopping patterns in China suggest that in-store customer traffic and sales in the first week or two of reopening are only about 30% of what they were before everything shut down, Polyakov said, rising to 60% about a month in.

“As people get more and more comfortable going to the stores, we’ve seen it go up to about 80%, 90%. We still haven’t seen retail in China go back to 100%.”

Analysts expect that when department stores do reopen, they will likely have shorter hours.

One challenge for clothing departments will be fitting rooms. Will shoppers want to try on something that someone else may have just tried on?

“I haven’t spoken to any retailers on how they’re going to deal with that,” Patterson said. “That’s going to be a huge headache, because I’m not going to jump in and try on clothing in a store next week if it was to open, that’s for sure.”

Polyakov said some department stores in the U.S. are now quarantining clothing that has been tried on, or returned, for 24 hours before putting it back on store shelves and hangers.One advantage big department stores have over smaller retailers is lots of floor space, which will aid in physical distancing. Some stores may start using technology that creates heat maps within a store. The technology was created to help store owners understand consumer patterns within a store. But it can also be used for traffic control.

Vancouver’s Halo Metrics has a platform, Ripple Metrics, that can create in-store heat maps using a variety of inputs – infrared sensors, Wi-Fi signals and CCTV.

“It’s going to quickly let you know where the bottlenecks are within the store,” said Halo Metrics marketing manager Ravinder Sangha.

To compete with Amazon, some retailers have tried to focus more on customer experience.  Polyakov thinks they may shift more to the Tesla (Nasdaq:TSLA) model. In other words, more floor space might be used for showrooms, rather than inventory, with purchases done online.

On the fashion side, David Ian Gray of DIG360 Consulting expects some department stores to have fire sales. Department stores may have managed to sell some clothing online, but there may still be built-up inventories of winter clothing.

“If you think about the inventory on hand, a lot of it’s seasonal,” Gray said. “I think in fashion, there’s going to be some deep, deep discounting across the board.”

Department stores and Big Box stores may also try some radical measures to draw buyers back into stores. But they will face a dilemma: how to have a Black Friday-type event without the Black Friday stampede.

“The big box stores are going to do something to attract us, and it’s not just going to be, ‘We’re open,’” Polyakov said. “Whether it’s a huge sale or some special benefit, there’s going to be something that makes us say, ‘You know what, I’m a little bit nervous about COVID, but I just can’t miss this.’” •

This story is part of a series on the next steps for B.C. businesses across a wide range of sectors as the province edges closer to the easing of COVID-19 safety measures. Check out all previous stories in this series, and stay tuned for further stories being published throughout this week.

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