How Department Stores Can Win Back Millennial and Gen Z Shoppers, Report

US department stores, once pioneers of retail innovation, are at a critical juncture, facing declining sales, eroding customer loyalty, and an urgent need for transformational change, according to a new report by Bain & Company. The report, titled “US Department Stores: It's Time for a New Day One”, highlights the format's struggles and offers a roadmap for survival, emphasizing the need for innovation, improved assortment, enhanced customer experience, and value-driven pricing strategies.

The State of US Department Stores

The report paints a grim picture of the current state of US department stores:

• Sales Decline: North American department store retail groups experienced a 6% compound annual decline in sales from 2018 to 2023, accelerating from a 5% decline in the preceding five years.
• Customer Indifference: Many US shoppers are indifferent or averse to the format.
• Net Promoter Score (NPS) Lag: US department store operators are no longer NPS leaders in key categories. For instance, in the women's clothing category, their NPS among 18 to 24-year-olds is negative.
• Demographic Reliance: The shoppers who still recommend department stores tend to be over 45, a demographic that cannot be taken for granted.
• Innovation Engine Stalled: Innovation is now incremental and siloed rather than customer-centric and cross-functional, making it hard to change shopper habits.

Top US Department Stores Can Reinvent Themselves

To revitalize their businesses, Bain & Company recommends that US department stores focus on four key areas:

1. Restore the Innovation Engine

Department stores must make fewer, bigger bets and adopt a coordinated, cross-functional approach to testing and scaling new ideas. This requires freeing up cash through cost-based reinvention, sector consolidation, and unlocking new profit pools, such as retail media and data monetization. Generative AI can also offer productivity gains and revenue enhancements.

2. Assortment: Make Merchandise the Star Attraction

Department stores must reduce product overlaps, stock hot brands with consumer pull, and turn private-label ranges into genuine brands with world-class design and exceptional quality. They should also become effective partners to top brands by sharing data-driven insights on consumer behavior.

3. Experience: Start with Remarkable Service

Department stores should hire service-oriented employees who can offer credible expertise and retain them with competitive pay, career paths, and training. Tech-enabled tools should enhance customer experience and hyperpersonalize interactions. Fun bolt-on offerings (e.g., fast tailoring, styling workshops) can elevate the physical experience.

4. Value: Break Bad Pricing Habits

Department stores must simplify pricing policies by eliminating excessive markdowns, coupons, and loyalty deals. Transparent, consistent pricing is critical to regaining shopper trust eroded by constant sales events.

Seizing Opportunities in a Changing Retail Industry

While challenges are significant, Bain identifies advantages US department stores can leverage:

• E-commerce pure plays struggle with high shipping/return costs.
• Direct-to-consumer brands face capital and cash flow challenges.
• Core demographic (older, affluent shoppers) remains resilient to inflation.
• Valuable assets include broad shopper data, cheap rents, and strategic vendor relationships.

A “New Day One”

US department stores need to reset their customer value propositions to survive and thrive. By focusing on innovation, assortment, experience, and value, they can usher in a “new day one”—a differentiated strategy to attract and retain shoppers long-term.

As Bain concludes: “Department stores must rediscover their flair for innovation at scale or risk becoming relics of retail history.”