North American trend: Concessions within department stores

Date:

Share post:

By Steph Chiu

Burberry is the latest luxury brand to begin operating its Canadian shops-in-stores as leased concessions. For years, luxury brands have played key roles within upscale North American department stores, and this relationship is evolving towards the ‘concession model’. We can expect to see a rising trend of more concessions within Canadian department stores, including Holt Renfrew, Saks Fifth Avenue and Nordstrom

Traditionally, a ’boutique’ within a North American department store was simply a space dedicated to displaying a brand’s merchandise. The department store operated the shop, including its staffing, merchandising and displays. The trend of the designer concessions is changing this, however. But what is a concession? A concession is essentially a miniature store operated by the brand, and located within a larger store. Under this model, brands occupy space within the host store/department store in return for paying a lease and/or a percentage of their sales to the larger store. This relationship provides luxury brands with a number of significant advantages including:

Store atmosphere and displays: Part of the experience of shopping for luxury goods is the store environment; an atmosphere of exclusivity and opulence surrounding the luxury products. While luxury brands are selective with which department stores may carry their products, the most refined experience is often delivered in a brand’s own store, where the brand can oversee every aspect of the environment. With dedicated concessions, luxury brands have more power to control their brand image, as well as adapt their displays and merchandising to highlight their products in the best possible way. 

Control over product pricing: Traditionally, department stores could decide how they wanted to price products sourced from various luxury brands. This became especially problematic when the recession hit in 2008 and department stores launched aggressive promotions and markdowns as a way to increase revenue and reduce stock. Unsurprisingly, these strategies were not well-received by many luxury brands, who felt that such sales and price reductions tarnished their high-end brand image. In moving towards concessions, luxury brands are given complete control over product pricing, which better allows them to protect the aura of luxury associated with their goods. 

Potentially better sales staff: A knowledgeable sales associate can make all the difference, especially when dealing with pricey luxury goods. In department stores, staff are often responsible for large sections of the floor where several brands are represented; training in the products and history of each brand may therefore be lacking. By operating concessions, brands are free to hire dedicated sales associates that may be better trained and groomed to suit the atmosphere that the brand wishes to create.

Increased profitability: Many concession owners are finding that they get a higher return on the products they sell through their concessions. As goods are not sold wholesale to the department store, profit margins can be kept by the concession (less any agreed-to commission to the host store). Department stores are also finding it more profitable to host concessions, as they no longer need to provide staff and merchandise to the concession’s space. Rather, the larger store can collect rent and possibly a percentage of sales from the designer concession while letting the concession control its operations. In essence, the department store is acting like a ‘mall’. 

Concessions are common in European department stores, especially chains like House of Fraser in Britain, which is substantially concession-operated: of the chain’s 18,000 staff, 13,000 are employed in its in-store concessions. Some Japanese department stores have operated essentially as concession ‘malls’ for decades. Canada’s best example of a concession-based store is Montreal’s Ogilvy, which dedicates almost 80% of its space to concessions. Ogilvy’s concession ratio will be reduced, however, when it becomes a merged Ogilvy/Holt Renfrew store in 2017. 

While the relationship dynamic between brands and host retailers is changing, it’s important to note that the intention of concessions isn’t to cut out the department store entirely. As mentioned, luxury retailers and department stores have been operating together for decades, and luxury brands have been afforded many benefits as a result of this relationship. In many cases, being located in accessible, high-traffic department stores is how luxury brands were first introduced to consumers. Department stores help drive traffic to flagship stores, but also serve to attract shoppers who may not visit a brand’s flagship store. Building upon this established relationship over the years has allowed brands to establish prestige, power, and a strong clientele. In addition, department stores often provide significant financial and marketing resources to luxury brands. The concession model allows brands to marry the relationship benefits of being hosted by a desirable retailer, while controlling its brand message and potentially enjoying increased profitability. 

A study on concessions would not be complete without mentioning Louis Vuitton, who trail-blazed the concept. Concessions have been a central component of Louis Vuitton’s business model for decades. The brand continues to improve upon its concessions by incorporating innovative, ground-breaking design elements to showcase its mastery of the concept, such as in its new three-level, 10,000 square foot ‘towhouse’ concession at Selfridge’s in London. 

Driven by the many advantages of the concession model, other luxury brands have followed in Louis Vuitton’s footsteps by opening concessions of their own in department stores like Saks Fifth Avenue and Neiman Marcus. Most recently, both Gucci and Prada converted to operating concessions at Holt Renfrew stores in Canada. Chanel and Dior concessions can also be found at Holt Renfrew and as mentioned above, Burberry is currently in the process of converting its shops to concessions within Holt’s stores as well. 

With so many luxury brands taking advantage of the concession model as they develop their retail strategy for the future, it seems like it will only be a matter of time before concessions become the norm within North American department stores. But will all luxury retailers follow suit in converting to the concession model? The benefits of doing so certainly speak for themselves. On the other hand, some department stores may not be happy with this change, as was displayed when Barneys New York refused to let Prada convert its shops-in-stores to concessions within their stores. As a result, Prada pulled out of Barney’s stores, leaving only their footwear. Neiman Marcus is also hesitant to accommodate concessions, though we’ve been told that this may be changing.

Knowing this, the question may not be whether the luxury brands chose to convert, but rather whether department stores are willing to grant permission to do so. However, if concessions are indeed the future of luxury retailing, any department store that refuses to allow concessions within its stores may well be left behind in the competitive world of retail.

Steph Chiu is an Honours Business Administration student, currently attending theIvey Business School at Western University.

Sources:

Read more:


1 COMMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here

More From Retail Insider

Elevating Canadian Retail: How JLL’s Expertise Reshapes Property Management [Interviews]

Landlords are increasingly turning to JLL for pioneering property management solutions that prioritize both enhanced customer experiences and sustainability.

Gen Z’s Digital Upbringing Meets a Passion for Tangible Retail and Authentic Brands [Interview]

A new report on Gen Z, born between 1997 and 2012, provides insight into consumer behaviours as well as a look into the upcoming Generation Alpha.

Interview with Giant Tiger’s New CEO Gino DiGioacchino on the Future of the Iconic Canadian Retailer [Interview]

DiGioacchino speaks to Retail Insider after being appointed as the new President and CEO of Giant Tiger, and discusses the future of the business and importance of maintaining strong connections with local communities.

Purdys Chocolatier Expands Footprint with Pop-Up Stores [Interview]

The strategy involves providing customers with a taste of Purdys' renowned chocolates in areas where the brand hasn't had a presence before.

Colliers Report Emphasizes the Retail Advantage of Bridging the Digital-Physical Divide [Interview]

A recent report by Colliers Real Estate Management Services reveals that retailers who effectively blend their online and physical store operations are 35% more likely to achieve profitability, with the study emphasizes the importance of omnichannel strategies, convenience, property maintenance, and retailer-driven ESG initiatives.

Preview of ICSC@CANADA Conference 2023: Retail, Technology, and Networking Opportunities in Toronto [Interview]

Craig and Kyle Tomlin, Director of Events in Canada for ICSC, discuss the highly anticipated ICSC@CANADA 2023 conference, set to take place from October 2nd to 4th at the Metro Toronto Convention Centre North Hall in downtown Toronto.

Canadian Grocers Take a Page from Carrefour’s Playbook to Tackle ‘Shrinkflation [Op-Ed]

French supermarket chain Carrefour has labeled products impacted by reduced size, and similar measures may be adopted in Canada to enhance transparency in food pricing, says Sylvain Charlebois.

Jeweller Mejuri Debuts Personalized App and Innovative Membership Program; Plans Expansion with 5 New Stores [Co-Founder Interview]

The popular brand's personalized mobile app and membership program aim to enhance customer engagement and personalization, as Mejuri enters major markets with stores.

Fast-Casual Restaurant Concept MightyBird Opening 1st Location in Toronto in a Partnership [Interviews]

The new concept at Union Station will be the first of many in a partnership between Eat Up Canada and Open Concept Hospitality.

KIT + ACE Launches Store Expansion in Canada Under New Ownership [Interview]

The Vancouver-based retailer will open two locations this fall in Toronto and Calgary, with plans for a substantial expansion into 2024 says CEO David Lui.

Casual Steakhouse Chain MR MIKES Expanding Further in Canada [Interview]

With plans for continued expansion into Western Canada and Ontario, the restaurant chain is evolving its concept and targeting smaller markets to establish itself as a hub for local communities.

Canadian Retail Sales: A Slight Recovery Amidst Economic Challenges [J.C. Williams Group Analysis]

The analysis explores the noteworthy trends in the health and wellness sector, the resilience of certain retail categories, and the impending holiday season's strategic considerations for retailers.

Bloor Street Retail Transformation: Luxury Brands, Renovations, and New Openings in Toronto [Podcast]

Craig and Lee take a deep dive into the dynamic changes occurring on Toronto's Bloor Street West, noting the street's resurgence as a thriving hub for luxury shopping in the city.

Ricardo’s Kandy Korner to Open Flagship Candy Store at CF Toronto Eaton Centre in Toronto [Interview]

Entrepreneur Ricardo Rizaie says he’s planning to take his experiential candy retail concept across Canada after opening a third Canadian storefront in downtown Toronto.

PizzaForno Expands Into Toronto’s Public Transit System, Sets Sights on Airport Locations for Automated 3-Minute Pizzas [Interview]

This innovative move marks PizzaForno's entry into the public transit sector, and demonstrates its commitment to becoming the fastest-growing pizza chain in North America by 2024.

Calgary’s Retail Space Crunch Drives Surge in Rental Rates and Demand [Report]

A variety of complicated factors are at play as Calgary retail space sees demand given market growth, while new supply is limited due to factors such as construction costs.

Lush Cosmetics Sets Ambitious Expansion Plans for Canada Including New Spa Locations, Services, and Entertainment Partnerships [Interview]

The UK-based retailer is innovating with its Canadian operations with enhanced customer experiences and unique treatments, while launching a new app to facilitate bookings and provide more information about products and services.

Canadian Consumers Adjust to Higher Cost of Living [Survey/Video Interview]

An Angus Reid survey asked Canadians how they're navigating elevated inflation, a higher cost of living and a potential recession.

Canadian Shoppers Embrace Generative AI for Shopping Suggestions: Report

The groundbreaking Salesforce report focuses on the growing importance of AI-driven personalization in the retail sector.

Inside the New KITH Store on Yorkville Avenue in Toronto [Photos]

The stunning storefront took months to build, features Kith Treats and a restaurant concept from New York City, and could be a game changer for the Bloor-Yorkville area. 

RECENT RETAIL INSIDER VIDEOS

Advertisment

Subscribe to the Newsletter

Subscribe

* indicates required

RECENT articles

Elevating Canadian Retail: How JLL’s Expertise Reshapes Property Management [Interviews]

Landlords are increasingly turning to JLL for pioneering property management solutions that prioritize both enhanced customer experiences and sustainability.

Gen Z’s Digital Upbringing Meets a Passion for Tangible Retail and Authentic Brands [Interview]

A new report on Gen Z, born between 1997 and 2012, provides insight into consumer behaviours as well as a look into the upcoming Generation Alpha.

Interview with Giant Tiger’s New CEO Gino DiGioacchino on the Future of the Iconic Canadian Retailer [Interview]

DiGioacchino speaks to Retail Insider after being appointed as the new President and CEO of Giant Tiger, and discusses the future of the business and importance of maintaining strong connections with local communities.

Purdys Chocolatier Expands Footprint with Pop-Up Stores [Interview]

The strategy involves providing customers with a taste of Purdys' renowned chocolates in areas where the brand hasn't had a presence before.

Colliers Report Emphasizes the Retail Advantage of Bridging the Digital-Physical Divide [Interview]

A recent report by Colliers Real Estate Management Services reveals that retailers who effectively blend their online and physical store operations are 35% more likely to achieve profitability, with the study emphasizes the importance of omnichannel strategies, convenience, property maintenance, and retailer-driven ESG initiatives.

Preview of ICSC@CANADA Conference 2023: Retail, Technology, and Networking Opportunities in Toronto [Interview]

Craig and Kyle Tomlin, Director of Events in Canada for ICSC, discuss the highly anticipated ICSC@CANADA 2023 conference, set to take place from October 2nd to 4th at the Metro Toronto Convention Centre North Hall in downtown Toronto.

Canadian Grocers Take a Page from Carrefour’s Playbook to Tackle ‘Shrinkflation [Op-Ed]

French supermarket chain Carrefour has labeled products impacted by reduced size, and similar measures may be adopted in Canada to enhance transparency in food pricing, says Sylvain Charlebois.

Jeweller Mejuri Debuts Personalized App and Innovative Membership Program; Plans Expansion with 5 New Stores [Co-Founder Interview]

The popular brand's personalized mobile app and membership program aim to enhance customer engagement and personalization, as Mejuri enters major markets with stores.

Fast-Casual Restaurant Concept MightyBird Opening 1st Location in Toronto in a Partnership [Interviews]

The new concept at Union Station will be the first of many in a partnership between Eat Up Canada and Open Concept Hospitality.

KIT + ACE Launches Store Expansion in Canada Under New Ownership [Interview]

The Vancouver-based retailer will open two locations this fall in Toronto and Calgary, with plans for a substantial expansion into 2024 says CEO David Lui.

Casual Steakhouse Chain MR MIKES Expanding Further in Canada [Interview]

With plans for continued expansion into Western Canada and Ontario, the restaurant chain is evolving its concept and targeting smaller markets to establish itself as a hub for local communities.

Canadian Retail Sales: A Slight Recovery Amidst Economic Challenges [J.C. Williams Group Analysis]

The analysis explores the noteworthy trends in the health and wellness sector, the resilience of certain retail categories, and the impending holiday season's strategic considerations for retailers.

Bloor Street Retail Transformation: Luxury Brands, Renovations, and New Openings in Toronto [Podcast]

Craig and Lee take a deep dive into the dynamic changes occurring on Toronto's Bloor Street West, noting the street's resurgence as a thriving hub for luxury shopping in the city.

Ricardo’s Kandy Korner to Open Flagship Candy Store at CF Toronto Eaton Centre in Toronto [Interview]

Entrepreneur Ricardo Rizaie says he’s planning to take his experiential candy retail concept across Canada after opening a third Canadian storefront in downtown Toronto.

PizzaForno Expands Into Toronto’s Public Transit System, Sets Sights on Airport Locations for Automated 3-Minute Pizzas [Interview]

This innovative move marks PizzaForno's entry into the public transit sector, and demonstrates its commitment to becoming the fastest-growing pizza chain in North America by 2024.

Calgary’s Retail Space Crunch Drives Surge in Rental Rates and Demand [Report]

A variety of complicated factors are at play as Calgary retail space sees demand given market growth, while new supply is limited due to factors such as construction costs.

Lush Cosmetics Sets Ambitious Expansion Plans for Canada Including New Spa Locations, Services, and Entertainment Partnerships [Interview]

The UK-based retailer is innovating with its Canadian operations with enhanced customer experiences and unique treatments, while launching a new app to facilitate bookings and provide more information about products and services.

Canadian Consumers Adjust to Higher Cost of Living [Survey/Video Interview]

An Angus Reid survey asked Canadians how they're navigating elevated inflation, a higher cost of living and a potential recession.

Canadian Shoppers Embrace Generative AI for Shopping Suggestions: Report

The groundbreaking Salesforce report focuses on the growing importance of AI-driven personalization in the retail sector.

Inside the New KITH Store on Yorkville Avenue in Toronto [Photos]

The stunning storefront took months to build, features Kith Treats and a restaurant concept from New York City, and could be a game changer for the Bloor-Yorkville area.Â