Can Instore Sex Therapists, Skate Ramps Save Luxury Department Stores?

BERLIN — As one attendee put it succinctly, there’s “buying” and then there’s “shopping.” Attendees at the World Department Store Summit, held in Berlin late last week, are definitely all about the latter.

Last Thursday and Friday, more than 310 delegates, many of them chief executive officers and senior managers, from 50 high-end department stores in 42 countries met here to debate “experiential retailing” — that is, how to make shopping an experience for customers rather than just a transactional process.

The summit was organized by the Switzerland-based Intercontinental Group of Department Stores, or IGDS.

“The experiences a luxury department store offers will become a critical factor in the future,” André Maeder, the president of the IGDS and CEO of Selfridges Group, explained.

But behind all the enthusiastic chatter about the joys of in-store sex therapists (such as the one U.K. store Selfridges offered visitors as part of a wellness package in 2022), beauty spas, skate ramps and ice cream parlors, lurked an unhappy truth: Department stores are not what they once were, neither in Europe, Asia nor the U.S. Many have been losing money, they don’t attract as many shoppers as they used to and, as noted in a presentation by Mastercard’s financial researchers at the summit, department stores are not recovering from the pandemic as quickly as retail overall is.

“The age-old department store model is under pressure from all sides,” Leonie Foster, chief operating officer at Selfridges Group, told delegates. “Most things a department store does are replicated in other places. So how do we make sure department stores mean something to customers?”

One answer to that question is to offer store visitors more in the way of “experiences.”

“The spend on experiences is growing faster than spending on essentials,” Rupert Naylor, senior vice president at Mastercard, told attendees, presenting results of recent research. “That’s something the pandemic changed. Coming out of the pandemic, people shifted away from goods and more into experiences.”

Much of that spending has involved travel and dining, Naylor pointed out. “But what I think is relevant for department stores is that the gap between spending on ‘things’ and ‘experiences’ is narrowing.”

Suggestions to evolve department stores from their traditional role as “palaces of consumption” into a wonderland of emotion-invoking experiences and spectacles differed.

They ranged from Turkish chain Boyner Group’s use of digital art and algorithms alongside under-90-minute delivery times, to Paris-based Le Bon Marché’s regular transformation from a store into a theater, art gallery or concert venue at night.

However, there were two common threads that ran through the discussion, no matter what your preferred route toward becoming more experiential. The first related to how best to use technology now because after all, if all your customers are online, they are not coming to shop in real life. The second saw both analysts and executives asking how to make spending more on the customer experience pay the bills.

Going Offline

“Offline is the new premium,” Marc Schumacher, managing director of Trendbuero, a leading German innovation consultancy, declared during his presentation.

“Consumers have changed more over the past three years than in the last 30,” he stated. “Over the last 20 years we haven’t found the right balance between the way that digital has been managed and our basic humanity.”

For example, more people work at home than ever since the pandemic, but at the same time more people are trying to find more reasons to leave the house, he said. Humans are lonelier than ever and at the same time, more overstimulated than ever. Thanks to Netflix, they also expect more personalization than ever, Schumacher said, listing problems presented by today’s internet-intensive world.

That is why, he said, “I am really passionate about the experience economy and about the renaissance of the tangible. 2025 will be the year of communities and the importance of a sense of belonging.”

Department stores are perfectly positioned to take advantage of that and to present remedies to some of those other complaints, too, Schumacher contended.

Le Bon Marché chairman and CEO Patrice Wagner took a more hardline approach to technology, telling attendees emphasizing experiences could even mean doing away with e-commerce altogether.

“We are not doing e-commerce and we are happy about that,” he said during his presentation. “The money [we saved on this] we are now investing in our customers and retail-tainment. I mean, you have everything you need at home — dozens of shirts, dozens of pants — and if you need another, you can go online and get it. So we need to give another [reason] for customers to visit the store. If you want to have this experience [at Le Bon Marché], then you have to come to Bon Marché.”

Germany luxury department store KaDeWe also recently curtailed its online shopping, albeit for rather different reasons. The store, among the hosts of this year’s summit, recently went through economic difficulties after one of its main shareholders, Signa Group, became insolvent. In June, Thailand’s Central Group, the other main shareholder, took the property over completely.

“We reviewed our e-commerce business, asking, ‘is it profitable, is it paying?’,” said Timo Weber, who has been the KaDeWe Group’s CEO since Aug. 1. “We saw it wasn’t and we had to make the decision to close it. We are now concentrating on the core business and on giving customers other reasons to come to the store. We believe we are competing for your time with the Italian restaurant next to your house, we’re competing with a Netflix series,” he continued. “As soon as you give us your time, we have to do our job and it’s not about commerce, it’s about fighting for your time.”

Speaking to WWD after his presentation, Weber did not disclose whether e-commerce would eventually return to KaDeWe.

Selfridges’ CEO Foster takes a more variegated view of the role of digital services and e-commerce. “We only have four stores, so for us, it’s a way to sell to people who can’t come to the store,” she told WWD. “But it’s also increasingly a way to keep people in the store with, for example [the new loyalty program] Selfridges Unlocked, where they can use their app to check out special offers and inventory. It’s more like the glue that brings the whole experience together.”

How to Make Experience Investments Pay?

Aside from how best to use technology in a more experiential retail environment, the other major issue summit attendees discussed was how to actually make spending on customer experiences pay.

It’s a tough trade-off, Bloomingdale’s CEO Olivier Bron conceded onstage. With underinvestment in stores and too much discounting on one hand, and pressure from shareholders and the financial markets on the other, it can be hard to justify that category of spending. He believes taking full advantage of all data streams will be key to “balancing between experience and profitability.”

“Our job is a balance of art and science and, for the financials, balancing the long and short term,” the Bloomingdale’s boss, who took on the role last November, explained.  

That can be very hard to do, Naylor of Mastercard confirmed. An anonymized survey conducted by Mastercard among retailers asked decision-makers how many of their “experiments” had broken even. “This year it was only 48 percent,” Naylor noted. “That’s not because the ideas were stupid. It’s because it’s really hard to know what does and what doesn’t work.”

Nonetheless, several speakers emphasized the fact that if you enchant and entertain your visitors enough, the payoff will most likely come from elsewhere.

David Schneider, one of the cofounders of Berlin-based e-commerce giant Zalando, which moves around 50 billion euros worth of merchandise annually, told the conference of the etailer’s success with this. Even though it is an online store, Zalando is also trying to add more lifestyle and entertainment content to its platform to differentiate itself from low-cost sellers like Shein.

“And almost all of our younger customers — 96 percent of Gen Z customers — are looking for inspiration online; 70 percent of their purchasing decisions are made while on that inspiration journey,” he said. Additionally, elevated content gets 10 percent more interaction, and the return rate also goes down a little, he added.

In fact, Sophie Florian, Google‘s head of insights and analytics for retail, said 28 percent of long-term variants in brand growth can be explained by positive reactions you get from your customers. “That also allows you to charge a higher price. Because whenever the consumer feels a very emotional connection, it reduces their price sensitivities.”

“When you create an emotion, he [the customer] is not looking at the price,” Wagner confirmed.

The Le Bon Marché CEO was adamant about how his store’s ongoing move into retail-tainment was paying off. “We have about 4,000 square meters [out of 35,000 altogether] dedicated to culture and experiences,” he said, adding that he didn’t know what the return per square meter might be for that space but that he didn’t mind.

What he did know, he said, is that with recent theater performances inside the store, thousands of visitors all paid 75 euros each for a ticket to the show. Stop inviting people to events, he stressed to the audience. Make them pay to come.

There was also other sorts of pay back, Wagner said, with things like a steady drumbeat of media coverage of Le Bon Marché because of all the events it puts on, and because customers continuously took selfies or posted pictures to social media of artworks or while at store events.

At Selfridges, a small team called Creative Vision is employed to keep everyone else aware of the zeitgeist, company chief operating officer Foster said. “We see [this team] as a cost of doing business,” she explained, one that pays off in different ways. For example, Selfridges’ futurists helped the store get ahead of the Barbie movie trend, Foster says. “They help us know what our customers want — before our customers do,” she enthused.

“We must continue to be the ultimate curators,” Foster concluded. “[At Selfridges] we think of ourselves as a programmable social destination now, rather than a shop.”

Other Trends in Department Store Retailing

New kinds of customers

A survey by tax-free shopping specialist Global Blue found department store shoppers are getting younger and that the post-pandemic recovery among Gen Z has been twice as fast as that of older age groups.

For 65 percent of all international travelers, department stores are a major destination, the company’s researchers reported, and 77 percent of these travelers stay there, shopping for more than one hour. Additionally, of international travelers, Global Blue discovered that South Korean visitors are returning to department stores much faster than any other nationality, including Chinese and American tourists.

AI and other digital technologies

Services like Netflix have seen consumers become accustomed to personalization, through the use of algorithms, Google’s Florian said. “But 76 percent are frustrated that it’s not happening [as fast, at retail].”

However advances in generative artificial intelligence, or AI, have the potential to change that.

We’ve been talking about personalization for a long time, Zalando’s Schneider said, but now it may finally happen as advanced computing is better able to assess hundreds of thousands of different data points about consumer behavior even faster.

Other speakers saw a future where there was more fluidity between various sectors of department store business and the data that could be collected from consumers.

“The ability to collect data both instore and online is going to be incredibly significant,” Naylor of Mastercard told attendees. “You are particularly well placed to exploit this in the future.”

Events and services

The leading department stores of the world have evolved way past the humble pop-up store.

At Turkish department store Boyners, customers can go to a refrigerated room to try out their winter jackets for warmth. Alongside all of their other unique experiences — they do around 350 pop-ups a year — Selfridges offers an ice cream parlor, a barber shop, a skate ramp and a DJ desk. They have also seen millions of customers watch movies at their in-store cinema.

At Le Bon Marché, there’s been everything from rock concerts to theatrical plays to orchestras and collaborations with some of the world’s best-known artists, who have created major spectacles in the store’s main hall.

In October, Berlin’s KaDeWe will open a 7,500-square-foot day spa on its third floor that will include new beauty brands and services, said Simone Heift, the store’s chief merchandising officer and buyer.

KaDeWe is also hosting a Halloween party later this year, at which it expects around 2,000 guests, all of whom have paid 300 euros for a ticket to party at the store’s famous sixth floor food department. The ticket price includes the cost of any food the partygoers want to sample there.