Farewell department stores

Posted on October 2, 2011 · Posted in Co-operative News

The decision of the Anglia society to give up on department store retailing is significant for the sector. Anglia was one of the last societies to persist with high street department stores – and had invested heavily to try to make it succeed. The reality is that a style of trading that was once synonymous with co-ops is now all but dead.

“I set my stall a couple of years ago to make this work and we invested a good two million to make it work,” says Anglia chief executive John Chilcott. But the society was unable to overcome the legacy, competition and historic under-investment factors that have led most societies to abandon department store retailing.

Chilcott explains:We have been trying to make the best of it, but the market is against us, especially since Christmas. It is where we have historically found ourselves, with a lack of investment over the years, and it is difficult to turn around.”

Anglia has reached a pragmatic deal with JE Beale PLC, which is taking over Anglia’s Westgate department store business. Beale’s is an established department store operator, which expects to make the stores profitable through its greater scale and ability to invest in the premises.

Society members will still be able to earn points and redeem dividend at Westgate stores and Anglia will continue to operate the furniture, travel, optical and hairdressing departments within the stores. The society retains what it calls “a significant investment interest” in the Beale’s group and will be in a better position to invest in the rest of its trading portfolio.

Anglia says that despite the Co-op Group entering into an arrangement to, in effect, gradually dispose of its travel group to Thomas Cook, the Anglia travel operation remains profitable by focusing on a different market niche. “Our travel business works well,” says Chilcott. “We are the top end of the independent travel operators.”

Chilcott is certain that the deal with Beale’s makes sense for both operations. “The advantages are that it creates more scale [for Beale’s] and as a PLC they have access to equity investment that we don’t. Their business model stacks up. It’s a very friendly and transparent deal between the two businesses.”

But it is important to recognise that it is not the department store sector itself that has collapsed, but that there is something significant about the way that retail societies have lost market share and profitability. After all, the John Lewis Partnership is one of the most successful retailers in the UK and both Marks & Spencer and Debenham’s are showing signs of having turned round failing operations in the sector.

Some hints of the problems can be gleaned from the Chelmsford Star Co-operative Star Society – which has two department stores trading profitably in Essex and is now the only society with a department store presence in the wider East Anglia region. Part of the region for Chelmsford Star’s success is that has invested substantially in the last five years and has attracted an expanded offer of brands.

Vanessa Howard, marketing manager at the society, explains: “Chelmsford Star has two department stores. We own the Chelmsford store and part own the Braintree store. Chelmsford has an AB profile. There are no other independent department stores in the town.

“We rebranded about 22 years ago as Quadrant, so there is no [visible] link with the Co-op. The look of our stores is not typically Co-op and we have brands that you would not normally see in Co-ops, like Viyella. It has given us a certain level – maybe a bit higher than the average co-op store. We are not at the bottom end of the market.

“About 10 years ago Bolingbroke closed and we took on some of their brands. They moved out of town for furniture and then closed. To a certain extent we have invested: it would be nice to invest the millions that the stores need. People come in here and don’t assume it’s part of the co-op.

“It has become more difficult because the high street is struggling. We were doing particularly well until early March. Chelmsford is very geared to the 45 plus customer. In Braintree we are competing with another department store, so there we are aiming for the young customer, and we are also moving younger in Chelmsford, though we won’t go completely young.

“Our success is down to good makes of brands and being at the quality end of the market. Even though there has been a recession, Chelmsford has not really been hit. Other societies have under-invested and found themselves at the bottom end of the market. The area in which we are living is not classic co-op land.”

The contrast with other societies is stark – even with Anglia, which tried hard to turn round its struggling operation. Chilcott explains: “We have been left in sites that are not always premium. Consumers are moving away to specialists. It [retention of the department stores] would need to involve substantial investment and that is difficult to finance. I think there is a specialist business for the high street [that would be sustainable] if we had invested over the last 30 years, perhaps. We hung on to our big historical headquarter buildings really for emotional reasons. It is easy to say with hindsight.”

And these comments help make it clear why John Lewis, in particular, is doing so well in a market where the co-op societies are, in general, failing. John Lewis has made a massive investment in stores, in particular in those that are either out-of-town, or else are in new city centre shopping developments.

In that sense, the John Lewis investments are merely part of a wider investment in a retailing environment. An example is Leicester city centre, where on the site of what was once the local society headquarters there now sits the Highcross Shopping Centre, including a magnificent John Lewis store that appeals at the top end of the market.

Co-op societies have often been left instead to compete at the bottom of the market – where Tesco, in particular, has expanded its range and cut its prices, boosted also by popular out-of-town locations and operating on very high volumes and low margins.

If we could rewrite history it might – perhaps – have been possible to enable more societies to sustain department store retailing. But it might, equally, be true that whatever decisions had been taken in the past few decades, this is a style of retailing that has had its day – at least for those customers loyal to the co-op brand.