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Last Updated: Friday, 11 November 2005, 09:09 GMT
Do we still like being served?
By Gavin Stamp
BBC News business reporter

An entrance to Dickins & Jones department store in London
Dickins & Jones is one of several prominent stores closing

The contrast could not have been much clearer, even on a dull November day.

Just off Oxford Street in central London, the flagship outlet of H&M was being mobbed by eager shoppers.

The Swedish fashion retailer had just unveiled a new clothing range from Stella McCartney to feverish demand.

Less than half a mile away, however, the scene was very different.

Activity at Dickins & Jones, one of Regent Street's oldest and most familiar retail names, was much less frenetic even though the department store has slashed prices on clothes and other goods by 20%.

Dickins & Jones, which can trace its roots back to the 1830s, is clearing its stock ahead of closing its doors in January.

'A little bit of everything'

Parent company House of Fraser opted earlier this year to close the store, saying it had been loss-making since a hefty rent rise in 2002.

Loyal customer Derby Franks, who has shopped at the store on and off for the past thirty years, is saddened but not surprised at its closure.

Marks & Spencer (excluding food): 29.6%
Debenhams: 18.6%
John Lewis (excluding Waitrose): 18.1%
House of Fraser: 8.7%
Selfridges: 4.6%
Harrods: 4.1%
Source: Verdict - estimated 2005 figures

"It does a little bit of everything but nothing awfully well," she says.

"It is less busy than it was a couple of years ago. I feel very sad but there is so much choice of shops which must be a good thing."

The historic store is partly a victim of its prominent location - a high cost base, fierce competition and ever present security worries in London have all exacerbated an already difficult retail climate.

But Dickins & Jones' difficulties point to wider problems circling the 13bn sector, whose main players include Marks & Spencer, John Lewis and Selfridges.

Unless department stores can establish their relevance in the modern retail world, sales growth will continue to lag
Maureen Hinton, Verdict

Barkers, another House of Fraser store, is also closing in January while the Co-op is to shut all of the 34 stores for which it cannot find a buyer.

This rationalisation follows the collapse of Allders in February which led to the closure of about 20 stores and hundreds of job losses.

Retailers are enduring their toughest trading in 15 years but some experts believe the problems facing the sector are more deep-rooted.

"Unless department stores can establish their relevance in the modern retail world, sales growth will continue to lag the retail sector," says Maureen Hinton, an analyst with retail specialist Verdict.

Falling sales

Verdict's research suggests the sector has lost 400m in sales since 2001 while its share of the total retail pie is continuing to decline.

According to Hinton, supermarkets are starting to challenge the sector's traditional ascendancy in "big ticket" home and electrical goods.

Shopper outside Dickins & Jones
Bargain hunters say other stores offer better value

At the same time, its fashion base has been eroded by a resurgent BhS and a host of specialist and discount fashion retailers such as Primark.

"Sales are going to specialists on one hand and supermarkets on the other," she says.

In the face of these threats, the industry is consolidating fast - groups such as Jenners and Beatties becoming the latest to sell out this year.

The sector's four largest players - Marks & Spencer, John Lewis, Debenhams and House of Fraser - now account for 75% of total sales, giving each significant scale and resources to expand further.

Winners and losers

According to Debenhams' finance director Chris Woodhouse, this leaves the sector better placed to fight off competition from other quarters.

"Retail markets generally are polarising between winners and losers," he says. "Department stores are quite complicated animals to run and to do that effectively you need a large scale to support the fixed costs.

"It is no secret that it has got more difficult but we are well set."

H&M store in London showcasing new Stella McCartney range
Fashion retailers like H&M have taken sales from general stores

Debenhams currently has plans to open 23 more stores while John Lewis plans to add another 10 outlets to its 27-strong portfolio from 2007. While closing stores, House of Fraser also continues to expand.

While there is no shortage of expansion opportunities - 50 major new shopping centres are due to open by 2010 - experts are sceptical whether firms can grow without having to discard weaker stores.

"When you have a large department store, it requires a lot of money to keep them looking contemporary," says Ms Hinton.

"It is a vicious circle. If you don't keep the stores looking up to date, you lose footfall and sales and you don't have the capital to invest.

"What House of Fraser is doing - closing unproductive space and moving to more productive space - is a model which others may follow."

Age differential

The department store's core customer remains over 35 and fiercely loyal.

However, it is the key to the more fashion and value-conscious 15-34 age group which M&S and others have been trying to find for some time.

Retail experts say the way forward is for stores to add value through careful development of own-label fashion rather than trying to imitate or outmanoeuvre specialist fashion retailers.

"Debenhams historically under punched its weight in that 15-34 age group," admits Mr Woodhouse, arguing that new ranges from Jasper Conran and Matthew Williamson have begun to redress the balance.

However determined their efforts, it seems likely department stores will continue to be undercut by other retailers.

While occasionally shopping for bargains in the likes of Dickins & Jones and Harrods, Nicholas Forbes says he will continue to buy clothes more cheaply from Asda and Primark.

"I am not ruthless but price is one of the most important things," he says.

"I want plain clothes which I can wear for a couple of years and then replace."

Debenhams unveils profits surge
10 Nov 05 |  Business
John Lewis warns of tough trading
22 Sep 05 |  Business
M&S sees strong rise in profits
08 Nov 05 |  Business
House of Fraser sees losses widen
28 Sep 05 |  Business
Historic Dickins & Jones to close
17 Jun 05 |  Business

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