Darling, you have a big shock in store

Selfridges did it (and spent £93m). John Lewis has spent £131m. Now Liberty is ringing the changes with a £9m facelift. Grace Bros it's not.

For shoppers entering the newly revamped Liberty building on Regent Street, there's a shock in store. The familiar – and much- loved – formula of London's most distinctive West End emporium has been swept away. The three warren-like floors of Regent House, which used to house Liberty's men's department, packed to the ceiling with every possible male accoutrement, have disappeared without trace. Next door in the main building, the Arts and Crafts wood panelling is still there, but here it's gone, and there's not a single Liberty print in sight. Next door shoppers can still wander in expecting to be enveloped by the cosy, comforting gloom of the 126-year-old department store, but here a new, glass entrance on the corner of Great Marlborough Street opens on to a huge women's beauty parlour. It's a white, bright temple to lipsticks and powders where shoppers are invited to experiment with the products at six central "playtables". This is the dazzling new centrepiece of the Regent Stree

For shoppers entering the newly revamped Liberty building on Regent Street, there's a shock in store. The familiar – and much- loved – formula of London's most distinctive West End emporium has been swept away. The three warren-like floors of Regent House, which used to house Liberty's men's department, packed to the ceiling with every possible male accoutrement, have disappeared without trace. Next door in the main building, the Arts and Crafts wood panelling is still there, but here it's gone, and there's not a single Liberty print in sight. Next door shoppers can still wander in expecting to be enveloped by the cosy, comforting gloom of the 126-year-old department store, but here a new, glass entrance on the corner of Great Marlborough Street opens on to a huge women's beauty parlour. It's a white, bright temple to lipsticks and powders where shoppers are invited to experiment with the products at six central "playtables". This is the dazzling new centrepiece of the Regent Street building, reopening this week after a £9m investment by Liberty in a revolutionary revamping of its image as the "dowager duchess" of London's department stores. Like many of its rivals, it has felt the chill winds of competition from nimbler speciality designer boutiques that have rendered the very term department store a dirty word within retailing. In fact, the once proud department stores of London's Oxford Street and its hinterland now actively discourage the tag, complete with its camp Grace Brothers connotations of floor-walkers and stale tea cakes.

John Ball, Liberty's managing director, desperately wants to draw the line between his store and its more traditionalist West End neighbours, particularly those still struggling to find a niche in the 21st-century consumerist bazaar.

"A department store would be John Lewis, which sells everything from buttons to pots and pans," he says. "We focus on clothes, beauty and home goods. So we are actually a very large boutique, where customers can, for instance, take clothes to the shoe and lingerie departments and try them on all together. They would expect to do that in a boutique and they can do it here on a much larger scale.

"The threat from smaller, specialist boutiques has in any case passed. People are bored with seeing the same Prada or Armani shop in every town. They want to come here for the unique Liberty experience, knowing they can get those brands here if they want them." Whether, of course, offering an ultra-modern minimalist store to its customers constitutes the "unique Liberty experience" as we know and love it is open to debate. But the enormous sums being spent by all the department stores on fancy refurbishments demonstrates their collective and urgent need to change in order to survive after suffering years of declining market share.

Some have taken huge gambles and won. The £93m lavished on Selfridges, that great retailing dreadnought dominating the west end of Oxford Street, has paid off, earning its visionary boss Vittorio Radice status as a retailing messiah. He spent a fortune on restoring the once tired old institution into a refurbished cathedral for shopping, slapping back the marble on its forest of great Ionic columns, removing the false ceilings and stocking a superb range of designer kit.

Mr Radice set out the goalposts when he said: "What you want is to create a destination. You want to be able to create a place where people feel good to go." After all, people no longer go to department stores because they need to shop. They go because they want to shop, and be entertained, stimulated, amused and generally have a good time.

Others have been less focused in their spending sprees. John Lewis, arguably the last true department store in the West End – still the place to buy anything from knicker elastic to new school uniforms – is spending an even greater fortune but is still struggling. Some £18m has been lavished on tarting up the Oxford Street branch – and £103m on an overhaul of its Chelsea cousin, Peter Jones – but profits are tumbling and the way forward is unclear.

Can an all-purpose store survive when the market appears to be dividing between the tightly focused designer emporia at one end and ultra-competitive discount stores at the other? Is John Lewis – never knowingly undersold – confusing the need to shop with wanting to shop in the package it offers its customers? Particularly when ultra-efficient new entrants such as Primark are snapping at its heels on its more basic ranges, while, let's face it, no one goes to John Lewis to spend a fortune on a high-margin designer suit.

"The Primark prices are simply sensational and the quality is often good. Why buy socks or children's clothes in John Lewis or even Marks & Spencer now that Primark is on the scene," says George Wallace, chief executive of Management Horizon, a firm of consultants. "Discount stores like these used to offer poor quality for poor people. That is simply no longer true, and so the department stores are hurting." Those that have reversed the decline have reinvented themselves into specialist designer meccas. Down in Knightsbridge the once county-and-pearls Harvey Nichols still pulls in the latest Edina and Patsy crowd, outperforming its one-time grand old neighbour Harrods, now widely seen as merely a "showpiece retailer" dangerously dependent on tourists.

It is certainly difficult to find a Londoner, or indeed any Brit, who goes shopping in Harrods, and when foreigners forsake the capital it stands glittering but empty. Profits all but halved last year, even before 11 September and the full effects of foot and mouth were felt. It is likely to be even worse this year. We hear nothing now of the partial flotation on the New York stock exchange, once planned for later this year.

Debenhams and House of Fraser have managed to streamline their operations, concentrating on fashion and the home. Neither would pretend to offer all-singing, all-dancing department stores of the old school any more. Both benefit from economies of scale, and have spent relatively modest sums on effective refits. That said, the slightly more downmarket Debenhams is now under threat from the resurgent Marks & Spencer while House of Fraser is still struggling with unmodernised stores such as Dickens & Jones.

And while Liberty undoubtedly is a genuine one-off, it is perhaps taking the biggest gamble of all. Spending what amounts to a massive £530 a square foot on refitting just one part of its store is bold talk indeed. It will need to shift an awful lot of designer lipsticks and powders to pay for it.