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Can Department Stores Win Over Gen-Z?

Department stores are investing in private label brands, e-commerce offerings and product collaborations to capture younger consumers, but it remains to be seen if the strategy is working.
A recent collaboration between Nordstrom's private-label BP brand and Wildfang. Courtesy.
A recent collaboration between Nordstrom's private-label BP brand and Wildfang. Courtesy.

In June 2020, Nordstrom was determining how to reopen its stores after months-long closures, facing lessened consumer demand and grappling with ongoing supply chain issues. But when several Nordstrom executives gathered that month, they discussed another issue entirely: the lack of young people shopping at their store.

“We took the opportunity to understand more deeply who the customer was and we realised that we’d gotten a little off track,” said Jen Jackson Brown, executive vice president and president of Nordstrom product group, young adults and kids categories.

Nordstrom wasn’t alone. Even before the pandemic’s effects set in, department stores were struggling with waning relevancy, particularly with younger generations, as direct-to-consumer and fast fashion competitors snapped up market share. The pandemic forced store closures that led to decreased consumer spending and accelerated that decline, forcing multi-brand retailers to reevaluate their approach to younger consumers.

For Nordstrom, the issue mandated something of an overhaul. Last June, the company launched a task force to develop a long-term Gen-Z strategy. The planned changes include a new ambassador programme, a new website landing page, a private label rethink and a series of exclusive collaborations with brands like Billabong and Wrangler.

A number of other department stores, including Macy’s and Fred Segal, are similarly sharpening their focus on Gen-Z through the debut of new private label brands, reimagined e-commerce sites and product collaborations. So far, initial results of these efforts have been promising. Going forward, retailers will have to prove that anecdotal success can translate to a longer-term path to growth among the demographic.

Playing Catchup Online

As e-commerce has boomed and given way to the rise of digitally-native, social media-tuned players like Shein, Boohoo and Revolve, department stores have struggled to find a place in the shopping habits of younger consumers.

“They’re like the retail version of Facebook,” said Molly Logan, founder of Gen-Z think tank Irregular Labs. Too often, she added, legacy multi-brand retailers think they can rely on their history and name brand recognition — increasingly irrelevant attributes to younger consumers, she added.

They’re like the retail version of Facebook.

What is important to younger consumers is e-commerce, and when the pandemic hit, few department stores had the easy-to-navigate digital offerings necessary to entice them. Macy’s, Nordstrom and Fred Segal all undertook website renovations over the past year, hoping to appeal to a more digitally savvy shopper.

“Our site was nascent to put it politely,” said Jeff Lotman, chief executive at Fred Segal.

To attract new consumers, the company built out its online store’s navigation tools, doubled down on email marketing and experimented with livestream shopping on Instagram. Fred Segal also began showcasing curated looks across its digital channels, with details on what items pair well together and how to incorporate new pieces into your wardrobe, which have been a driving force for bringing in new consumers, added Lotman.

This month Nordstrom introduced an additional landing page targeted to younger consumers, re-organising the site to highlight a range of products for them to find easily with one click.

“There’s a ton of young adult customers that are shopping on our site,” said Brown. “They couldn’t find themselves.”

The company is also hoping a newly-launched ambassador programme will help boost awareness among younger consumers. It’s a strategy that’s brought success to other retailers like Revolve, with its ubiquitous #RevolveAroundTheWorld hashtag. Targeting high school and college-age students, the programme offers partnerships in styling and content creation with virtual monthly meetings, and some participants will also be able to earn commission on products sold.

The Search for Exclusivity

Department stores are also doubling down on their private label offerings, updating existing brands to appeal to Gen-Z or launching new ones entirely.

Nordstrom and Macy’s both announced the creation of new lines and revamped categories under their private label brand. The former overhauled its juniors-focused BP private line this year, while the latter is undergoing a strategy to launch several private label brands over the next year with a focus on everyday basics, starting with its And Now This line, which debuted in July.

Having a strong private label offering for younger consumers should be the foundation of any department store’s strategy to reach Gen-Z, as “the private label is the base of the cake,” said Brown, while bringing in outside brands is “the cherry on top.”

And though promoting and marketing those collections may be more capital intensive than introducing non-private label brands that already have cache with consumers, the potential for payoff is bigger. Private label lines are exclusive to the retailer that carries them, and the hope is that access to these lines will attract new, younger consumers online and in stores.

“It’s so important for it to have exclusivity,” said Oliver Chen, a retail analyst at Cowen. “So how do you drive difference with these brands you’re creating, or have exclusivity fulfilling consumer needs or an innovation point ... they can often carry higher margins so all those things add up to specialness retailers need to compete.”

Nordstrom and Macy’s are banking that the middle ground offering between luxury and fast fashion — quality products at an accessible price point — will stand out to consumers and keep them coming back.

But competing with players like Shein, which routinely drops thousands of new, inexpensive items per day, is a difficult game. It’s unclear if younger consumers actually look to stores like Macy’s or Nordstrom to discover brands, and the promise of higher quality only is likely not enough to wean them off fast fashion’s low prices and speedy delivery.

With that, companies also are working to compete with fast fashion players on speed. Macy’s has accelerated its development timelines for production, including partnering with DoorDash for same-day delivery; Nordstrom expanded part of its manufacturing base to Los Angeles in order to move up production times for seasonal and trend-driven items for BP.

Additionally, Fred Segal and Nordstrom both reassessed pricing based on shifts it observed in consumer behaviour. The changes made at Fred Segal, Ashley Petrie, the store’s senior vice president of merchandising, said, resulted in a much higher sell-through and demand for accessible emerging designers.

“These brands would almost immediately sell out as soon as they launched,” said Petrie.

Nordstrom went so far as to buy a stake in Topshop and its sister brands in July, further cementing a strategy forward to bring name recognition to more fast fashion styles in its offering. That also includes hosting a roster of collaborations, a key driver for the company moving forward along with its private label offering.

Still, the company is toeing a hard line. BP’s collaboration with Portland-based brand Wildfang, for instance, included a range of graphic T-shirts and neon garments that were similar in appearance to those often sold by a Gen-Z focused or fast fashion brand — but at a much higher price point. Several of the garments are currently on sale from anywhere between 30 to 50 percent off.

Other companies are betting on a mix of collaborations and other exclusive offerings. Fred Segal, for example, is acquiring and reviving shuttered labels to sell exclusively in hopes of mining Gen-Z’s love of nostalgia, rather than building out new private label brands.

Camp Beverly Hills was the first brand it relaunched, acquiring the license for the 1980s sportswear line in April of this year. The line was a success for the company, with 25 percent of inventory sold on the first day and a large increase in traffic to the website following the release. Now, Lotman said he’s currently looking to expand the line beyond Fred Segal to include more retail partners.

“The strategy is pretty simple,” said Lotman. “It’s been more about finding the product that really attracts them and then letting people know that we currently have it.”

Editor’s Note: This article was revised on 31 August, 2021. An earlier version of this article misstated that Jen Jackson Brown’s title is executive vice president and president of Nordstrom product for young adults and kids. Jackson is executive vice president and president of Nordstrom product group, young adults and kids categories.

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