A shopper controls goods at J.C. Penney department store in North Riverside, Illinois.
Kamil Krzaczynski | Reuters
For department stores, there can be no time left for subtlety. It's time to reinvent.
A lot of retail income over the past two weeks makes it clear that while Americans continue to shop, they are increasingly not ringing registers at department stores. JC Penney, Kohl and Nordstrom all with disappointing results in Q1
Sales in Kohl's stores for at least 12 months fell 3.4%, far less than 0.2%, the analysts expected – their first same store member within two years. Peny's sales in the same store fell 5.5%, worse than an expected fall of 4.2%. Nordstrom withdrew on campaigns to increase profits, and it went again. Sales declined, and it sharpened expectations for the full year.
While each major chain is facing its own set of obstacles, everyone shares a large store base, which is a burden when the shopper foot traffic falls. These brands are declining in line with the increase in online brands such as clothing retailers Reformation and Untuckit. All have made varying degrees of touch-ups and enhancements over the last few years, but none have evolved entirely as retailers such as Walmart and Target.
Walmart paid $ 3 billion to buy internet dealer Jet.com, through which it built a coterie of online brands like Bonobos and ModCloth. It adds cultivation clinics to its stores and now runs an online pet pharmacy. The retailer also reshaped his geographical team, making a multibillion dollar bet in India, as it seems to be moving away from England. It has made investments in the same day delivery in the United States and converted some of its stores into distribution centers.
Meanwhile, goals have become from a discount store to an elegant, one-stop destination. It's rebuilding its stores to make the garment look like a boutique, its make-up section like Sephora and its grocery sections are more modern.
But whether it is brand loyalty, fear of losing customers or simply business constraints – the United States warehouses today remain what they were ten years ago.
Location, location, location
The department stores are partially limited by geography. Many, except for Kohl, are still in the shopping center, although the traffic then falls. It is unlike retailers such as Target and Walmart, which are rarely located in shopping malls.
This means that it is harder for department stores to transform their e-commerce business through initiatives such as "click and collect", where shoppers have all the convenience of choosing goods online and instant satisfaction by picking up their goods quickly in the store. This opportunity has been a boost for both Walmart and Target companies, but it's less convenient when customers go to the mall to get their purchases. Target's e-commerce sales rose 42% in the quarter, mainly due to its basket-side online order pickup service.
The department stores also sell influence on how the companies perform. While Macy's, Kohl's and Nordstrom find themselves somewhere between discount and ultra high end, Target and Walmart can accommodate direct traders without worrying about damaging the image of the more sophisticated brands sold in their stores.
Department stores also can't turn to the retailer to sell more groceries to bring into shoppers. Soda would look awkward next to a cloth.
Grocery and store goods have helped accelerate Walmart's growth. Profits from Walmart's store-branded groceries have helped drive its first-quarter fiscal performance, peaking analysts' expectations, executives said earlier this month.
With these limitations, the department stores have still tried to develop in a hardened manner. Macy introduced rotating marketplaces for popular brands and mobile checkout. Kohls cooperates with Amazon for returns and adds partners such as Aldi and Planet Fitness to its downsized stores, hoping it will drive foot traffic.
But for the big part, these changes have not addressed the basic weaknesses faced by the department stores, just as Target and Walmart have been able to rebuild their business.
Even as Macy says it plans to start cutting some of its larger locations, it still has one of the country's largest fleet of stores that act as a feature of revenue as the sales force. Along with Bloomingdale's brand, it owns 680 stores across the United States
Penney's, which interrupted attempts to sell devices earlier this year, said it was focused on improving fundamentals such as merchandise assortment, but gave "poor guidance as it fully develops its turnaround strategy," wrote Telsey Advisory Group CEO Dana Telsey Wednesday.
Transformation such as building or buying a true digital brand or promptly and drastically changing its footprint requires either capital or a belly for investor backlash. It's not clear, department stores have either. Having lived through the slaughter of leveraged retailers such as toys R Us, Bon-Ton and Belk, most people are unlucky to take on too much debt, which may seem like a shackle when the economy goes down.
But the current effort does not win over investors.
Macy's shares have fallen 35% over the past year and are trading at the lowest valuation (business value for earnings before interest, taxes, depreciation and amortization) for a decade, according to Factset. As the sale slowed down, it has focused on tackling its leverage and buying $ 750 million in debt at the end of last year.
Nordstrom shares have fallen by 25% from a year ago. At this level, the stock market trades at the lowest price of a decade, except for 2017, according to Factset. Last year, negotiations were discontinued to go private, partly due to financing problems.
Meanwhile, Penney has put together $ 4 billion in total debt according to the Factset, and sales have fallen since 2016. Its holdings are down 55% over the past year.
Meanwhile, Target shares have risen by more than 9% on Wednesday, and stocks rose more than 20% over the past 12 months, while Walmart shares rose nearly 23% over the past year. The S&P 500 Retail ETF (XRT) has fallen only 7% over the same period.
"The department stores are immediately punished by investors who fear they don't see a soft landing, so now is the time for them to be innovative and take risks," said Michael Dart, a partner of A.T. Kearney and author of "Retail's Seismic Shift." "Nordstrom should even consider going private again."