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Thai department stores must revise business models to stay relevant

Thai department stores have been warned to “fine-tune” their business model if they want to remain relevant to consumers in the years to come. 

Jariya Thumtrongkitkul, head of advisory and transaction services – retail at CBRE Thailand, says disruption from the growing e-commerce sector and changing consumer behaviour mean department stores are not necessarily the appealing destination for shoppers that they once were.

She says they will need to offer improved shopping experiences, inventive activities and value-added programs if they want to maintain their status as a “second home” for Thai shoppers. 

“While department stores offer shoppers convenience, saving them time with many varieties of goods grouped in different departments and allowing the shoppers to find and compare products and choose what they want, the traditional department store model does not fit the needs, lifestyle and behaviour of its shoppers anymore, especially the new generations,” she said.

Jariya Thumtrongkitkul of CBRE.

Over the last year or so, two major Japanese department-store chains have exited Bangkok – Isetan and Tokyu, both of Japanese origin. 

According to CBRE Research, department-store space accounted for just 3 per cent of Bangkok’s total retail supply at the end of last year. 

Following the exit of the two Japanese brands, Thailand’s department store market is now largely dominated by two domestic companies, Central Group and The Mall Group. One other Japanese department store – Takashimaya – continues to operate a single store at IconSiam in Bangkok, two years after it opened. 

The local operators have been able to open stores in many larger cities throughout Thailand which has enabled them to build larger networks and grow their customer base.

Thumtrongkitkul is confident department stores still have a place in the Thai retail market. 

“While more and more younger generations prefer to shop online to save time and money, the brick-and-mortar store is still believed to be the second home for Thai shoppers. Department stores should be more agile in the era of e-commerce and adopt some technological innovations such as in-store automation and mobile payment solutions to reach the younger crowds.”

Design also plays an important part in the customer shopping experience. 

“Department stores can be more creative in remodelling traditional department store space into some ingenious and interactive space with a great design and right product portfolio mix for their customers.”

She cites The Mall Group as an example, which launched its first “Lifestore” concept at The Mall Ngamwongwan at the end of last year by redesigning and renovating its traditional department-store space to enhance customer shopping experience and enjoyment.

High prices a challenge

Thumtrongkitkul says the price of products being sold in a department store are normally set high to cover the higher establishment and operating costs by operators, limiting their target to only upper- and high-income customers. At the same time, she says, the range of products brands offer may also no longer meet fast-changing customer needs since today’s shoppers have more choices in buying products online. A migration of shoppers online has led to reduced footfall in stores. All this makes seasonal sales, promotions and partnerships with credit-card companies and other players more important. 

The third way to boost engagement Thumtrongkitkul advocates is using value-added programs such as personal shoppers, a customer-loyalty program, on-demand solutions and personalised services, all of which have become a new trend as customers, including older consumers, become more sophisticated and demanding.

“The retail landscape has changed drastically in the past few years from various factors like technological advancement, consumer behaviour and preference as well as Covid-19. Cookie-cutter strategies will be a thing of the past, especially for department stores where the format and offerings have remained the same for decades,” she says.

“Going forward, we believe department stores still have opportunities by being adaptive. Operators are likewise encouraged to capitalise on the mixed-use nature, specialise on the catchment area’s needs, lean more towards younger customers that are hungry for what is next, as well as adjust existing space to be more innovation-oriented. 

“These could be a part of the answer to captivate consumers and also be the key to success,” concluded Thumtrongkitkul.

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