Can department stores shake themselves out of the doldrums?




Underscoring the many challenges facing the department store sector, Kohl’s, J.C. Penney and Nordstrom all last week reported disappointing first-quarter earnings.
Kohl’s first-quarter earnings missed Wall Street’s expectations by seven cents as same-store sales fell 3.4 percent, its first quarterly decline in almost two years. Management blamed the impact of cold weather on spring sales and struggles within home goods for the shortfall. The company slashed full-year guidance in part due to higher costs from tariffs and planned moves to get more aggressive on pricing and promotions.
Nordstrom’s first-quarter earnings were well below analyst targets, and similarly axed guidance. Sales at its full-price department stores dropped 5.1 percent, but surprisingly, sales at Nordstrom Rack were down 0.6 percent and online sales growth slowed to seven percent. Nordstrom cited “executional misses,” including a clumsy roll out of its “Nordy Club” loyalty program, a decision to reduce digital marketing and merchandise misses.
Struggling J.C. Penney, which hoped to benefit from Sears’ exit, reported a wider-than-expected loss as same-store sales slumped 5.5 percent, slightly worse than expected. Penney attributed the sales decline to its decision in February to stop selling appliances.
Macy’s during the prior week reported its sixth straight quarter of same-store gains, but those were only up 0.6 percent and partly reflected growth at its Backstage off-price concept.
Stronger growth from Amazon.com, Walmart and Target indicate department stores are losing share to non-mall retailers that offer one-stop shopping convenience and value, as well as to those with superior e-commerce capabilities.
In apparel, department stores face competition from off-pricers such as TJX Cos. and Ross Stores, fast-fashion sellers and stores opened by their own vendors. As shown by Ascena Retail’s decision last week to shutter Dress Barn, the category remains fiercely competitive and may be facing more pressure with a more sluggish consumer economy.
“Last year, shoppers were spending freely and were able and willing to make purchases of discretionary products,” Neil Saunders, managing director of GlobalData Retail and a RetailWire BrainTrust panelist, wrote in a note. “While demand has not dropped off a cliff, there has been a material tightening of conditions and sentiment this year.”
- Terrible Tuesday for Department Stores – The Wall Street Journal
- A wave of retail earnings reports shows department stores still haven’t figured out how to get shoppers excited – CNBC
- Department Stores Find Different Ways to Disappoint – Bloomberg
- Nordstrom Slumps on Forecast Cut, Stoking Department-Store Gloom – Bloomberg
- Nordstrom cuts 2019 forecast after quarterly results miss big – Reuters
- What Retail Recovery? Malls Under Pressure as Stores Close – The Wall Street Journal
- Macy’s Climbs After Bouncing Back Strong From Tough Holiday – Business of Fashion
DISCUSSION QUESTIONS: What are the toughest hurdles the basic department store model faces as its remaining players work to reinvent themselves? Have you seen new department store programs or strategies that you believe have the potential to drive greater traffic and top-line growth?
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25 Comments on "Can department stores shake themselves out of the doldrums?"
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Founder, CEO & Author, HeadCount Corporation
There are no easy answers when it comes to department store performance. Strong economic conditions that helped department stores deliver good results over the last year have been replaced by tariff concerns and economic headwinds. To a great extent, the initiatives that department store operators are undertaking seem to be incremental window-dressing, whereas retailers like Walmart and Target are investing in making the shopping experience better – and especially connecting online/offline. It’s paying off. Driving more traffic into department stores, like Kohl’s decision to accept Amazon returns at all locations, is a good start, but traffic alone isn’t the answer. Department stores need to focus on converting the traffic into buyers.
Co-founder, RSR Research
Principal, Cathy Hotka & Associates
It’s hard to get excited about department stores when aisles are stuffed with racks of merchandise that’s being marked down. While TJX lures customers with thoughtful merchandising and tempting displays, many department stores seem to be saying “help us get this stuff out of here.” Big changes are needed.
Co-Founder and CMO, Seeonic, Inc.
The toughest challenges for department stores are competing with speciality retailers, both in-store and online. Retailers that do not distinguish themselves will not attract as much attention as those that specialize in a particular category. Today’s shopper can use the Internet to find retailers and their products, easily expanding the shopper’s visibility to specialty retailers. Department stores can emulate this approach by specializing in certain categories and providing a unique selection or better service in those categories.
Founding Partner, Merchandising Metrics
Department stores have too long relied on the “One Day Sale” (and it’s brethren) to drive sales. And now sales are 24/7/365. Yawn. And look what I can buy while sitting on the couch. So the impetus to visit the mall is back to “storytelling” and “treasure hunt” … now defined with one word — EXPERIENCE. Macy’s is on to something with Story. Not just the specific shops themselves, but what is learned from those shops that is scalable. And not just adding more Story shops to more stores, but adding storytelling and treasure hunt execution into more departments in more stores. I often read about the death of the “boring middle.” What happens if the middle is not so boring anymore? What happens if there is a little fun, a little unpredictability injected into the scene — again? Merchants have to prevail over the cost-cutters for department stores to have a role again.
Principal, Retailing In Focus LLC
I’m not sure how to compare Kohl’s (which had a tough quarter but is financially sound and on the right strategic path) to J.C. Penney, in its usual survival mode. And it’s hard to draw conclusions about the entire segment when you add Nordstrom to the conversation.
However, there may be a shift underway from economic tailwinds to headwinds. Despite low unemployment, the unease surrounding tariffs, the stock market and the farm economy is taking a toll. Any search for value will benefit off-pricers and discounters in the months ahead.
President/CEO, The Retail Doctor
Until and unless someone gives a damn at the C-suite department store about the customer experience and hires better, trains, and holds them accountable for the brand experience they will continue to rush to technology when the answer is standing right on their floor – hoping for direction and encouragement instead of tasks.
Managing Director, GlobalData
At a macro level, the department store business model is broken. Huge spaces, often in very expensive locations, require high sales volumes with reasonable margins to work. However, volumes have fallen off a cliff and margins are more compressed than ever.
At a micro level, the factors that have brought this about differ from retailer to retailer. However, the commonality between all of them is that they have not evolved with change in the wider retail sector, neither have they invested in their properties or propositions.
Remedying this is going to be very painful and not all retailers, and certainly not all stores, will survive. I honestly think many of the traditional players still don’t get the scale of the problem and/or are unwilling to take the necessary risks. They talk of change, but on the ground most stores are still lackluster and completely unsuited to the modern realities of retailing.
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
Founding Partner, Merchandising Metrics
Nicely said. Knowns and unknowns. Predictability on certain things and unpredictability on other things. A little surprise and delight is a great reason to go shopping … maybe even buying.
Strategy & Operations Delivery Leader
President and CEO, Stealing Share
The Emperor has no clothes. The biggest hurdle for department stores is the department store itself. They want to pretend that solutions to their woes can be manufactured without investments in any significant change.
This is not an advertising and marketing problem. This chain store problem has deep roots in operations. Marketing and advertising must serve those operations. Not the other way around.
The market and consumer has changed. Department stores have not.
I fear that anyone INSIDE talking about the changes necessary will be shouted down by those who are invested in the current model.
History shows us that the voice of dissention is mistakenly viewed as the voice of disloyalty.
EVP Thought Leadership, Marketing, WD Partners
CEO of Envirosell Inc., Speaker, NY Times Best-Selling Author
U.S. department store industry needs to pay attention to London, Paris and Tokyo. Has anyone visited Ginza 6? 1.) Pay attention to the off-shore tourist interested in an organized friendly shopping experience. 2.) Be careful about organizing by brand rather than purpose. 3.) Burnish your food offering including menus in multiple languages. 4.) Curate for the young female executive – working uniforms. 5.) Be creative about gifting – the best graduation gifts are uniforms for success.
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
The challenges for department stores continue to mount. First and foremost is the challenge of selling commodity products — products that are available at their competitors’ stores and also sold by the manufacturers’ branded stores (in some cases). Add to that the availability of many of these items available online, including Amazon’s marketplace. The competition has never been greater.
The best way to survive is to differentiate your brand through experiences. I suggest following the models of successful European department stores such as Galeries Lafayette, Harrods, Selfridges, etc. They have done a fabulous job of making shopping a truly remarkable experience. Consumers love the theater of shopping and this is your opportunity to make your store the theatre.
Retail Transformation Thought Leader, Advisor, & Strategist
CFO, Weisner Steel
Department stores have been losing market share for my entire lifetime. Literally. (Actually more than literally, since the decline precedes me.) And while I would like to say I’m only eight years old, that’s not the case.
Of the players mentioned, two are already “reinventions”: Kohl’s which is smaller and neighborhood based, and Nordstrom, which doesn’t even call itself a department store (the former might be considered a reincarnation of Mervyn’s from the ’60s/’70s while the latter is a rebirth of the old “carriage trade store”). I don’t see any more “reinventions” in the offering, so if the current players can’t make it, then I think that’s it for the format.
Head of Trends, Insider Trends
Retail and Customer Experience Expert
The issue is merchandising and shopping experience. The basic department store model is being attacked from discounters and general merchandise. To win, I think department stores need to go back to being a destination for shopping and social gathering. There is always a segment of shoppers who wants to spend time in the store to get the branded experience, and do their first purchase there, then repeat purchase on the web. Department stores also need exclusive merchandise packaging or non-exclusive products from the brands. There isn’t a magic bullet, but it is a way to go.
Consultant, AdoniisCollections.com
Global Industry Architect, Microsoft Retail
There is so much potential for technology to help. Augmenting staff knowledge, providing endless aisle, augmented reality to see product in your own home … the list goes on.
There is a huge opportunity to focus on ‘retail-tainment’ to provide experience and advice that cannot be attained elsewhere — to provide an environment where problems can be solved (we have to remember that disruptions disrupt by solving a pain in the customer experience).
In the Middle East, store locations are turning themselves into experience and entertainment centres.
Also in the UK, John Lewis are doing some interesting things — a hotel room where you can stay over night where everything is for sale; a huge focus on entertainment and re-training for store associates as if they are hosts in the store in Oxford. These are however big, expensive endeavours — and that is the risk — needing to get buy-in for investment.
Partner, Simon-Kucher & Partners
Department stores will continue to follow the trend of SKU rationalization that a lot of retail/apparel has been witnessing. Think Warby Parker: 3 price points, limited assortment. Think Rothy’s: 4 styles, many different prints. Think Brooklinen: limited colors and preset bundles. Except for the first, the other two are direct to consumer and etailers. In a way, this is why they’ve seen success. They focus and do one thing really well.
The old school department store provided shoppers with the ability to browse in the store at leisure. Younger, more tech-savvy shoppers prefer to do this online and less in-store.
President, Sageberry Consulting/Senior Forbes Contributor
Vice President - Industry sectors , Capgemini
It can be argued that Target is a department store. Looking at the amazing progress that Target is making in reinventing itself, I think it might be a little premature to write the obituary of the department store. I agree with Mark Ryski, Target and Walmart are success stories because of how they have made the shopping experience so seamless.