The department store is turning to own label

Phased refurbishment programmes and finding new uses for old spaces are key drivers for the UK department store sector at the moment. They need to be, because the economic downturn has pushed property developers to defer completion of many new stores. Retail location specialist CACI calculates that 930 000m2 (10 million ft2) of planned UK retail space has been delayed or cancelled. In the absence of enough new property to allow conventional organic growth, department store groups are also following a strategy that has proved a success for food retailers: the development of ownlabel ranges continues apace.

All of this points to the potential for greater demand for the services of design consultancies. Interiors, signage, graphics, branding, packaging and visual merchandising are all involved whenever a significant change happens in a large department store.

‘Department store groups want their space to be more flexible than before, and we are seeing some trial new offers, such as food halls,’ says Paul McElroy, partner at Kinnersley Kent Design, which has developed formats for department stores in the UK and abroad. ‘And expansion in own-labels is very high.’

When Debenhams revealed its financial results in March, it credited its own-labels, especially the high-profile Designers at Debenhams range which stretches across product categories, as a key driver of growth.

‘We are pleased with the performance of our own-bought ranges, and, in particular, Designers at Debenhams, where design excellence and enhanced product quality at great value are continuing to prove popular with consumers,’ says Debenhams chief executive Rob Templeman. ‘This has led to further market share gains.’

But the success of own-brands may spell trouble for independent brands, which could find it increasingly hard to find floor space in department stores.

‘A department store can become a house of brands, and the brands can try to dictate what retailers do,’ says Paul Castledine, chief creative officer at branding consultancy Boxer. ‘So department stores have become very homogenised. You find the same brands and the same shopfit, because the brands can control that. Design of ownbrands can play a really important role in creating store design.’

‘Traditionally, department stores are full of other people’s brands,’ confirms Debenhams deputy chief executive Michael Sharp. ‘What that meant in the past was that all department stores looked the same and had no control of their own destinies.’

Debenhams began developing its own-brands in 1992, in a bid to regain effective and reliable control of its supplies and to differentiate its offer with exclusive ranges.

‘Department stores have a very broad range of customers in terms of age and demographics. You need to segment by brand to target these groups effectively,’ says Sharp.

An expanded own-label offer creates new challenges for department stores, not least in developing and then integrating a brand image. Retailers must also tread a fine line in terms of achieving standout, yet not overshadowing the remaining concessions that customers expect – large international brands, such as in the fragrance and cosmetics sectors, are still demanded by department store customers. ‘You are always balancing the demands of sales per square foot with the customer proposition,’ says Sharp.

In a long learning process, Sharp concedes that Debenhams oversegmented the market at first. ‘You can convince yourself that you need more brands than you do. The brands can stretch a bit more than you think. The danger of having too many brands is that you have them in too small an area in-store. Then they lack authenticity and are difficult to shop,’ he says.

Of course, own-brands also provide higher margins for retailers than third-party ones. Sharp says that Debenhams makes a 25 per cent margin on outside brands, but 55 per cent on the ones it develops itself. The retailer now plans further expansion of own-brands, so they account for ‘approaching 85 per cent’ of products.

Design groups may be rubbing their hands at the thought of the work that will be required across the department store sector if this expansive trend continues, but they will have one significant hurdle to overcome. The more own-brand ranges a department store creates, the more economically viable it becomes to establish a significant in-house design department.