Are Department Stores Struggling As The Option of Online

Shopping Rises?
 OVERVIEW

In recent years, department stores have felt the decline in sales from customers shopping
in person as the ease of online shopping and shipping straight to your door becomes more and
more popular. Others have said the decline in department store shopping is due to the weather
getting colder and colder which makes it hard for customers to want to leave their homes.1 In this
day, people are getting more and more accustomed to online shopping which cuts out the
middleman, department stores, and makes in-person shopping unnecessary. The younger
generation does not see the attraction of having to visit a brick and mortar store to purchase
something like the generations that preceded us and it becomes harder as generations become
more technologically dependent.2 Although retail stores have felt the hit from the generational
change, there are still department stores who have embraced the changing environment and
implemented strategies to keep up with the ever-changing market.3

1Danielle, Kurtzleben. "The Decline of Department Store Sales." U.S.News & World Report, 02, 2014, 1,
https://login.ezproxy.langara.ca/login?url=https://search-proquest-com.ezproxy.langara.ca/docview/1511118649?
accountid=37673.

2 Rosie, DiManno. "Target's Demise is Not the End of Retail." Toronto Star, Jan 17, 2015.
https://login.ezproxy.langara.ca/login?url=https://search.proquest.com/docview/1646107165?accountid=37673.
3 David, Olive. "Embrace Change to Survive: Rapidly Declining Revenues made it Impossible for Sears to Reinvent
itself in Time." Toronto Star, Oct 14, 2017. https://login.ezproxy.langara.ca/login?url=https://search-proquest-
com.ezproxy.langara.ca/docview/1956115251?accountid=37673.
 PORTER’S FIVE FORCES
A. COMPETITIVE RIVALRY (HIGH RISK)

Rivalry determinants that contribute to intense competition in department store industry:

● Large number of companies in the industry (strong force)

● Large variety of competitors (strong force)
● Low switching cost (strong force)

Department stores face intense competition from international and local companies
supplying almost similar merchandise. They also compete with retail stores which are
easily accessible from consumers’ places and they can pay with cash or on credit.
Department stores compete not only for quality and price, but also service and products.
There are plenty of big names in the industry which already capture the market share. For
example, Walmart is a cost-leader in the industry with efficient operations, a large
distribution network ultimately drives distribution and operating costs below those of its
competitors.4 Additionally, products such as groceries and electronics are almost
undifferentiated among companies. Customers can easily change from this company to
other companies with low switching costs.

B. THREAT OF SUBSTITUTION (HIGH RISK)

The threat of substitution of the department store industry seems to be low because they
are primarily a supplier of branded merchandise. Their main threat of substitutes are
competitors offering alternative purchase methods and obviously ecommerce is the
greatest threat.

Most of the purchases that customers make are now done online. The emergence of
online shopping has happened for years but still significantly weakened companies tied to
a brick and mortar business model. Many Canadian shoppers prefer in-store shopping
because of the lack of this physical experience of merchandise and the waiting time to
receive the goods. However, online shopping makes shopping easier. Buyers no longer
venture to stores to buy things. Also, online stores tend to offer competitive prices
because they have lower operating costs. Online shopping sites help support the brand

4 Erika, Stankevičiūtė, Grunda, Rokas and Bartkus, Edverdas Vaclovas. “Pursuing a Cost Leadership Strategy and
Business Sustainability Objectives: Walmart Case Study.” Economics & Management 17, no. 3 (July 2012): 1203.
doi:10.5755/j01.em.17.3.2143, Business Source Complete
 name and boost the revenue of in-store.5 If the e-commerce platform works well, it will
make consumers go to the stores to physical check out the products.6

The e-commerce giants capture the market as they have lower overhead costs such as
Amazon whose influence is huge enough to be given the name “Amazon effect”. Amazon
has caused some business closures and become the place to come ahead in customers
mind when they want to make a purchase. Amazon is a leader in e-commerce with its
logistics network, applying AI in services along with significant bargains which bring
good experience for the purchaser.7

C. THREAT OF NEW ENTRY (MODERATE TO LOW RISK)

The threat of new entrants potentially low in department stores industries.

Department store who also offer online shopping platform provide a moderate threat to
existing department stores as it comes with new innovative and ultramodern ideas to ship
products across the globe instead of only domestically. Moreover, new entrants learn
from mistakes of existing companies and modify their products and improve their
strategies to attract customers. The new entrants can use a strategy of providing an user-
friendly interface for customers to use and give options of purchasing then picking up in
store or have different delivery options available. New entrants would essentially have
one flagship store which would keep costs low of having to pay retail rent or having to
hire many employees.

BARRIERS OF NEW ENTRY:

It is not easy to set up new business in existing competitive industry. There are barriers
that a new department store would have to overcome such as a retail location for set up, a
location for a warehouse for inventories, hire retail and warehouse staff, set up a
corporate team to manage staff, advertising, and hiring a team who would handle the
online set up for the department store. It would be hard to overcome the current
department store market as it is competitive and most customers already have certain
brand loyalty such as Hudson’s Bay or Nordstrom.

5 Insider, Retail. “Brick-and-Mortar Experience Is More Important than Ever For Canadian Retailers: Expert.”
RETAIL INSIDER. RETAIL INSIDER, September 30, 2019.
http://www.retail-insider.com/retail-insider/2019/9/brick-and-mortar-experience-is-more-important-than-ever-for-
canadian-retailers-expert.
6 Insider, Retail. “Brick-and-Mortar Experience Is More Important than Ever For Canadian Retailers: Expert.”
7 AJ, Agrawal. “The 'Amazon Effect': How Ecommerce Will Change in 2019 and Beyond.” Entrepreneur, January
3, 2019. http://www.entrepreneur.com/article/325556?fbclid=IwAR0U03vNCcBaPl96JB7VnUY9b1-
UxRDn_IYAL0jSNgUJ5tlhgbPDADryPOI.
 D. BARGAINING POWER OF SUPPLIERS (weak force)

Switching costs between suppliers in the industry (weak force)

Since department stores have so many options as to supply, it is easy for them to switch
around depending on which supplier sells the raw materials for a cheaper price. If one
supplier were to increase their price on a certain material, department stores can simply
go to a different supplier if they are selling the same material for a lower price.

Supplier Concentration (weak force)

With the ongoing developments with technology, online shopping has become a
substitute for shopping in a department store. There are many substitutes to shopping in a
department store, which renders suppliers with less power since they are unable to be in
control. "You don't necessarily like it, but as the number of large retailers you can sell to
in Canada decreases, you have to deal with it."8

8 Zena, Olijnyk. "Giant Retailers Wielding Enormous Power: Suppliers: [National Edition]." National Post, Feb 07
2000, p. C1 / FRONT. ProQuest. Web. 25 Mar. 2020. https://login.ezproxy.langara.ca/login?url=https://search-
proquest-com.ezproxy.langara.ca/docview/354621586?accountid=37673
 E. BARGAINING POWER OF BUYERS （High Force）
● Number of customers-----------high
● Size of each customer order-----------low
● Buyer’s switching cost-----------low
● Buyer’s ability to substitute------------high
● Differences between competitors-----------low
● Buyer’s information available-----------low

Generally speaking, department stores have a huge amount of customers visiting every day.
According to Walmart’s 2019 annual report, each week there are nearly 275 million customers
visit the 11361 worldwide locations, which rounds to around 3500 customers per day for each
Walmart store9. Also according to Wal-Mart's Annual Report, their 2019 annual sales revenue
was 520329 million, which means each customer only spent around 35 dollars per visit10. Which
is not a big amount.

Buyers’ ability to switch to competitors’ stores is high, they can easily find a substitute rival.
Buyers can just go to a different store which has similar products without incurring high
switching cost. One of the most powerful substitutes of shopping in a department store is on-line
shopping. Online Business Canada’s data shows that 78.4% of Canadian buyers have shopped
more than three years ago, and 67% of Canadian buyers, increased from 59% last year, have
memberships for online shopping sites11.

Usually department stores do not have savvy customers. Except for membership data,
department stores rarely have customers’ information. Customers do not need to have any
connection with the department stores when they want to visit the other stores, they have full
power to switch.

In general, although the number of customers in total is large, and the size of each customer’s
order is small, department buyers can switch to others easily, the Buyer’s Power is high.

9 Walmart, “2019 Annual Report,Defining The Future Of Retail”, Walmart, March 28,2019,
https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-2019-AR-Final.pdf
10 Walmart, “2019 Annual Report,Defining The Future Of Retail”, Walmart, March 28,2019,
https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-2019-AR-Final.pdf
11 Melody, McKinnon, “2019 Multi-Sources Report: What Canadian Shoppers Want”, Online Business Canada,
January 25,2019, https://canadiansinternet.com/2019-report-what-canadian-online-shoppers-want/
 Conclusion
Department stores were doing well back then, before the introduction of online shopping.
Now with it being available with just a few clicks, stores are seeing a heavy decline on
sales. Stores just aren’t bringing enough revenue nowadays.12 Competition is endless as
online markets make things easier for people to obtain products without ever having to go
into a store. Products are sold similarly over a vast number of online retailers so
customers can switch easily without the switching costs. Threat of substitution is low
since department stores offer substitute items for each product. Competitors offering the
option to browse online cause significant threat to brick and mortar department stores that
don’t.

Are department stores struggling with the rise of online shopping? It would definitely
seem so. With online shopping, everything is easier to access and much more convenient
than having to go into a store personally. Everything you can find at a physical store, you
can find it online as well. However, sometimes with online shopping, you may find a
coupon where are when you shop in person you may have to wait for sales. Brick and
mortar department stores should be prepared for the worse, with crisis management or
contingency plans if they are unable to change tactics to work with the changing demands
of consumers.

12 Insider, Retail. “Canadian Retail Sales Growth Headed for 10 Year Low.” RETAIL INSIDER, RETAIL
INSIDER, October 25, 2019 https://www.retail-insider.com/retail-insider/2019/10/canadian-retail-sales-growth-
headed-for-10-year-low
 Bibliography

Agrawal, AJ. “The 'Amazon Effect': How Ecommerce Will Change in 2019 and Beyond.” Entrepreneur, January 3,
2019. http://www.entrepreneur.com/article/325556?fbclid=IwAR0U03vNCcBaPl96JB7VnUY9b1-
UxRDn_IYAL0jSNgUJ5tlhgbPDADryPOI.

DiManno, Rosie. "Target's Demise is Not the End of Retail." Toronto Star, Jan 17, 2015.
https://login.ezproxy.langara.ca/login?url=https://search.proquest.com/docview/1646107165?accountid=37673.

Insider, Retail. “Canadian Retail Sales Growth Headed for 10 Year Low.” RETAIL INSIDER, RETAIL INSIDER,
October 25, 2019 https://www.retail-insider.com/retail-insider/2019/10/canadian-retail-sales-growth-headed-for-10-
year-low

Insider, Retail. “Brick-and-Mortar Experience Is More Important than Ever For Canadian Retailers: Expert.”
RETAIL INSIDER. RETAIL INSIDER, September 30, 2019.
http://www.retail-insider.com/retail-insider/2019/9/brick-and-mortar-experience-is-more-important-than-ever-for-
canadian-retailers-expert.

Kurtzleben, Danielle. "The Decline of Department Store Sales." U.S.News & World Report, 02, 2014, 1,
https://login.ezproxy.langara.ca/login?url=https://search-proquest-com.ezproxy.langara.ca/docview/1511118649?
accountid=37673.

McKinnon, Melody, “2019 Multi-Sources Report: What Canadian Shoppers Want”, Online Business Canada,
January 25,2019, https://canadiansinternet.com/2019-report-what-canadian-online-shoppers-want/

Olijnyk, Zena. "Giant Retailers Wielding Enormous Power: Suppliers: [National Edition]." National Post, Feb 07
2000, p. C1 / FRONT. ProQuest. Web. 25 Mar. 2020. https://login.ezproxy.langara.ca/login?url=https://search-
proquest-com.ezproxy.langara.ca/docview/354621586?accountid=37673

Olive, David. "Embrace Change to Survive: Rapidly Declining Revenues made it Impossible for Sears to Reinvent
itself in Time." Toronto Star, Oct 14, 2017. https://login.ezproxy.langara.ca/login?url=https://search-proquest-
com.ezproxy.langara.ca/docview/1956115251?accountid=37673.

Stankevičiūtė, Erika, Rokas, Grunda and Edverdas Vaclovas. Bartkus “Pursuing a Cost Leadership Strategy and
Business Sustainability Objectives: Walmart Case Study.” Economics & Management 17, no. 3 (July 2012): 1203.
doi:10.5755/j01.em.17.3.2143, Business Source Complete

Walmart, “2019 Annual Report,Defining The Future Of Retail”, Walmart, March 28,2019,
https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-2019-AR-Final.pdf