After years of decline, department stores are showing signs of recovery in select areas, fueled by strategic investments and supply chain discipline, according to Stuart Reid, managing director of Interpath Advisory and global head of consumer.

Revival in Prime Locations

Reid notes that the resurgence is not uniform across all locations but is concentrated in prime urban areas like London, major cities, and resilient retail parks. These spots are experiencing “green shoots” of recovery, with longer dwell times and an ecosystem effect where in-store visits lead to online conversions.

“Footfall is down overall, but it’s concentrating in prime locations,” Reid explains. “Where retailers are investing in the right sites, they are seeing double-digit sales uplifts.”

Stores in these high-traffic areas benefit from extended customer stays, often 45 minutes or more. This creates opportunities for cross-channel engagement, where even if a customer doesn’t make a purchase in-store, they may later convert through the brand’s online platform.

Investment as the Catalyst

Reid emphasizes that the retailers seeing results have created the financial headroom to invest in their physical spaces. After a period of inflation and cost pressure, many businesses focused on head office efficiencies, sourcing strategies, and supplier renegotiations. Those that managed to unlock capital are now reinvesting in their estates.

“The general theme is where we’ve seen investment into stores in the right locations, you get significant results in terms of visits and spend,” he says.

Examples of this approach include Marks & Spencer and John Lewis, which have launched major investment programs to refresh and renew their store locations. Last year, M&S announced a £300 million investment in its store rotation and renewal program, with 16 new, nine extended, and 12 renewed shops.

However, the recovery is not evenly distributed. According to the British Retail Consortium, total UK footfall was down 0.8 per cent compared to 2024, with older shopping centers and weaker town centers still under pressure. Estate decisions are now hyper-local, requiring ultra-localized understanding of footfall and trading patterns.

“It’s all about ultra-localized understanding,” Reid says. “There are great locations. There are locations where you’ll break even. And there are those where the footfall isn’t there.”

Supply Chain as a Strategic Tool

Data modeling is becoming an essential tool in assessing whether to refresh, reconfigure, or exit certain locations. In some cases, space optimization might mean increasing concessions or adjusting the balance between owned and third-party brands to maximize asset utilization.

For non-prime locations, survival hinges on getting omnichannel right. “The best retailers think of stores as part of a smooth experience and don’t worry about where consumers ultimately buy,” Reid says. “It’s about having the right brand and experience, then converting however the customer shops.”

This changes the role of inventory, with continuity lines being centrally optimized using demand data across online and store channels. Seasonal or fashion-led lines require sharper predictive capabilities to avoid markdown risk and margin leakage.

“If your supply chain is set up with good order management and effective store delivery, you can keep stock at a minimum level in store and minimize that risk,” Reid explains.

Lead times, minimum order quantities, and overall stock ownership are under scrutiny. The objective is clear: reduce capital tied up in inventory without compromising availability.

Retailers are experimenting with complementary leisure and hospitality to drive footfall, from beauty pop-ups to food partnerships. Reid believes operational costs can be appraised case by case; the harder challenge is proving the upside.

“Experimentation is important, but you have to create proof points,” he says. The key is controlled trials, with retailers tracking average basket value, participation in online sales around trial stores, and wider halo effects. Some data will be automated; some will require manual feedback gathering. The aim is to “fail fast or succeed fast” and build a strong evidence base.

One example he cites from outside traditional department stores is the garden centre sector, where operators are introducing lifestyle elements such as paddle courts to attract new audiences. Large sites give them license to experiment and measure what works.

Reid also highlights the potential of AI in supply chain execution, noting that while public debate often focuses on chatbots and automated store interactions, the real value lies in improving supply chain operations with real-time data.

“Supply chain is a huge candidate for being AI-powered, and in fact it already is to an extent,” he says. “We’ve been using algorithms to decide stock allocation for decades. But the quality is so much higher when it’s AI-powered and fed real-time data.”

The upside is significant: fewer stock-outs, higher availability, and better margin protection. The challenge is migrating from legacy systems without rebuilding from scratch. Yet, Reid is clear that AI should augment, not replace, human judgment.

He describes a fashion brand using AI to generate proof-of-concept images for new designs, eliminating months of physical sampling and shipping before sign-off. “That takes time out of the supply chain without disrupting the human side,” he says. “It’s about speed and efficiency, not removing creative input.”

Consumers remain wary of “pure AI design,” with human curation and interaction still mattering, particularly in physical retail.

Reid concludes that the next phase of retail evolution is not more painful but full of opportunity, provided retailers use improved forecasting, availability, and working capital management to generate cash and reinvest in growth.

“The harder unlock is to point these techniques at growth and grow your way out of an issue,” he says. “It’s about speed and efficiency, not removing creative input.”