1. Economics
March 17, 2023

Department stores continue to close up shop

What does store closures for Germany's largest chain mean for the future of city department stores?

By Johannes Novy

When Galeria Karstadt Kaufhof – Germany‘s last remaining major department store chain and one of the largest in Europe – announced earlier week that it would close 52 of its remaining 129 branches, it did not really come as a surprise. The company had been in trouble for years, having already filed for insolvency twice and swallowed hundreds of millions in state aid. However, it still came as a shock – for the approximately 5,000 employees whose jobs are on the line, and not just for them. 

department stores
A woman walks past a shop window of a Galeria Karstadt Kaufhof department store in Munich. The Galeria Karstadt Kaufhof department store group announced on 13 March that it will close 52 stores in Germant. (Photo by Christof Stache/AFP via Getty Images)

When department stores depart, it is not only employees who lose out. Shoppers lose out too, and so do our cities. As crown jewels of our high streets – towering cathedrals of consumption as they were often referred to, where consumers could find everything from the latest toaster to an evening dress and matching shoes, department stores were for a long time an integral part of urban life.

They were more than just places to shop; but spaces that reflected and shaped the urban experience, providing a sense of place and identity for individuals and communities alike and allowing them to come together and share experiences. Whether it’s enjoying a meal at a restaurant, attending a book signing, or simply taking in the festive decorations during the holidays. 

Times have changed for department stores

Today, department stores everywhere, not just in Germany, are struggling to stay afloat – the UK being a good example. Here, department stores have been experiencing declining sales and market share for years, leading to the closure of hundreds of locations across the country – estimates suggest that 80% of all department stores were lost between 2016 and 2021 alone – as well as the disappearance of many household names such as Debenhams and BHS.

Similarly, department stores in the US are in an ongoing crisis, with the number of shops declining from 7,885 in 2015 to 6,297 in 2020, and a further drop to 4,678 projected until 2025, and a contraction in market size averaging 3.6% per year between 2018 and 2023.

The reasons for department stores’ decline in these and other countries are as varied as they are complex, stemming from both external and internal factors, including changing consumer preferences, the rise of e-commerce, increased competition from discount retailers and fast fashion brands, broader economic pressures, inflexible store footprints, high rents, and a failure to adapt to changing market conditions, among other challenges.

The exodus of these once ubiquitous retail giants from city centres can have profound and lasting negative economic impacts that go far beyond the direct loss of jobs and tax revenue. It usually means the loss of a major anchor retailer attracting footfall and contributing to the overall vibrancy of the local economy, as well as the prospect of abandoned and boarded-up shop windows blighting central retail locations and potentially causing a further economic decline.

This begs the question of how to respond to the crisis of department stores so as to prevent or at least limit further decline and address the void left by those that have already been lost or are yet to disappear. It is doubtlessly a complex one, but fortunately, experts have been working on it for quite some time. Recent years have seen a range of innovative solutions emerging, both from the industry and from planning professionals.

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Responses can be grouped into two main areas: what department stores themselves ought to do to adapt to changing market conditions and stay relevant in today’s rapidly evolving retail landscape, and what can be done in planning terms, including the reimagining of department stores’ physical spaces to serve new needs and purposes.

As for the former, there are several key strategies that have been identified by industry experts and to some extent also already been taken up by department stores. In addition to working on their balance sheets, that is optimising space and operations to increase efficiency, for example. These include diversifying their offerings to appeal to a wider range of customers and local demand, exploring partnerships with innovative retailers and brands to generate buzz and offer new products, incorporating more experiential elements such as entertainment or dining, enhancing their digital presence and omnichannel capabilities, and tapping into department stores as places for social interaction and community, creating a more engaging and dynamic environment.

What’s in store

However, even with more department stores adopting these and other measures, challenges remain, and many stores will continue to face decline. This raises the question of what to do with existing or future excess physical space, which includes not only vacant department stores but also those that will need to shrink to stay afloat. This challenge is particularly pressing given the specificities of department store buildings, which often have deep floor plans, making repurposing a complex task.

Additionally, many of these buildings are architecturally significant, and demolishing them would be culturally and environmentally detrimental, for instance, because of the embodied carbon within their structures. However, despite the challenges that come with reusing and rethinking department store buildings, approaching the task with creativity and innovation can lead to exciting new possibilities. 

With online shopping on the rise and brick-and-mortar retail dwindling, converting department store buildings into mixed-use spaces is not only an environmentally sustainable choice. It can also help to change the character of shopping areas and create more dynamic and diverse urban environments by accommodating additional uses such as housing, community or cultural facilities that can breathe new life into our cities while preserving the historical and architectural significance that characterises many department store buildings for future generations. 

Furthermore, while the decline of department stores in recent years has been a cause for concern, it is not all doom and gloom. Some department stores have successfully reinvented themselves and brought about extra value for cities as part of their redevelopment.

Take for example the La Samaritaine Department Store in Paris, which underwent a renovation by the Japanese architecture firm SANAA in 2020. The redevelopment of its iconic building on the Seine included a complete overhaul of the department stores itself, while adding a luxury hotel, offices and numerous flats, all of which, remarkably, is intended for low to middle-income tenants.

The project has been praised for its blend of old and new, and for the added value it brings to the city. In addition, new department stores are also being built. One highly anticipated example is the upcoming Lamarr department store in Vienna, designed by the renowned architecture firm OMA. Though not yet open to the public, the store has generated significant buzz for its innovative and sustainable design and approach to retail and is expected to be a major draw for the city.

True, both of these examples are unashamedly high-end, but there is a wider lesson here and that is that irrespective of all challenges, there is also room for innovation and growth. At this stage, it is too early to sing the death knell for department stores. With the right strategies in place, they can continue to be important drivers of economic activity and contribute to the vibrancy and cultural life of our cities.

[Read more: How Battersea Power Station became a palace of consumerism]

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