Photo: RetailWire
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
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?
Poll
BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Bob Phibbs
President/CEO, The Retail Doctor
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.
In some ways, each department store chain has its own story, but no one can deny that the sector itself is in trouble. People just don’t shop “by department” anymore, and if they do they tend to go to mass merchants.
This is not a simple problem to solve.
I was torn between selecting Nordstrom, my sentimental favorite and Macy’s, a company that is working hard at re-invention. I still think if the company can make it work, the “Story” concept within a Macy’s store should drive in new customers, depending on the “story” of the month. Nordstrom Rack should pull in the treasure hunt/aspirational shopper for Nordstrom.
Kohl’s is doing a lot of experimentation, but I’m not sure it’s going to be ultimately helpful, and J.C. Penney is on a slide that ultimately has gone on for a decade (I think it started before Ron Johnson came on board.)
All this is bad news for malls, whose operators will have to work hard to make them destinations in and of themselves. Department stores simply aren’t the draw they used to be.
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.
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.
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.
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.
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.
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.
The definition of “reinvent” according to the dictionary: “Change something so much that appears to be entirely new.”
it’s difficult to change entrenched systems and mindsets. This is further exacerbated by the same brands, the same floor layouts, the same corporate software-driven merchandising plans, the same lack of customer service, the same, same-old. Mindsets have to change! The evidence is crystal clear. Nordstrom is too expensive faced with so many alternative choices. Macy’s is a sea awash with merchandise overload, J.C. Penney product merchandising has no meaning, no “wow I need to buy this!” Kohl’s, great for active apparel and Amazon returns, with room left to bowl down the aisles.
While this analysis seems harsh, it is. Flip the mindsets. Less is more. Curation by location, like the old days, when there was a reason to drive to the store. Retail has lost sight of merchants. Real merchants who understand the “known, unknown” of consumer sentiment.
Target has figured it out for Target. Now each retailer needs to figure out their own “entirely new” or disappear into the past. I firmly believe reinvention is possible. After all, think about all the great moving parts that can be reorganized, remerchandised, redisplayed, repriced, and reinvented.
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.
It’s beyond high time to both reinvent what a department store actually could be in our digital age, and what services and experiential retail stores will attract people to shopping malls. The fundamental challenge department stores are facing is that their legacy shopping model of the large sales floor, with everything under one roof, and being the dominant force attracting consumers to the mall has lost its luster.
The easy answer to this is to blame online shopping and of course Amazon’s disruptive impact on the retail industry. Yet customers still want to shop in a physical store, just not old fashioned department stores. Experiential retail has become the latest industry trend, as its all-encompassing business model connects the physical, digital, creative, and art worlds. The retail space remains extremely relevant, as the 2019 U.S. Census Bureau statistics show that 90 percent of all purchases are still made in the store.
There are no easy answers to the challenges that department stores are facing. We will experience continued right-sizing strategies, as unprofitable store closures will continue. The more and more technology algorithms automate things, the more we desire to have a place to connect with our community. Customers are always seeking newness and inspirational content that satiates their appetite. It will be very interesting to see how Macy’s integrates some of the elements of STORY’s creativity into their department stores. The question that remains is, with the scale and reach, will the uniqueness dissipate in a department store setting?
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.
Department stores operate under the old “middle man” model — they buy a curated selection of goods from certain vendors, the customer buys from them, the vendor and the store make money if the goods are bought. However, those days are gone. Why should I go to you to buy something from a department store when I can buy directly from say, Ralph Lauren’s site? Because they have great sales people? Because they have a great store environment? Because they’re cheaper?
For years the answer has been the last one, which has now run out of gas. All manufacturers are realizing that going DTC or through a marketplace is the way to go and that the middle man is no longer needed. Especially a store. Hence the downfall of the department store. Private label is a savior, but when you start 20 years too late it’s a hard catch up game for sure. Nordstrom has always had great service, so they may (operative term) be the exception.
Twenty years from now, the department store in the traditional mall will be a food hall or a grocery store or a game/fitness/health and wellness center or just plan gone. A park for your kids to play in. The writing is on the wall.
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.
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.
This is about relevance — pure and simple relevance to the shopper. Department stores have lost their identity in the minds of consumers and while many are focusing on key elements of experiential retail, they have yet to find what makes them relevant to shoppers. This, coupled with a late start in investing in the hidden infrastructure that allows for streamlining operations and building those great in-store experiences at scale, these brands are now suffering from that lag. Other brands, like Target, Walmart, Best Buy, etc. have been investing in both what we see on the store floor and what we don’t at a regular pace for years and that is now paying off for them.
Each of these brands has a slightly different story to tell and in Macy’s case, it’s quite literally a STORY to tell! We’ve not yet seen the longer-term results of Macy’s introducing STORY to their stores, but I hold out hope that they will find the right mix between STORY, b8ta, Market @ Macy’s, and Backstage that will bring back the sense of discovery long gone from the department store shopping experience.
For J.C. Penney — calling out their decline due to dropping appliances is a bit much. The introduction of appliances alone was never going to turn things around for the brand and the lack of investment in that hidden infrastructure, store experience, and merchandise is a triple threat that is bringing the walls down crashing at J.C. Penney. What happened to the Sephora success story?
Kohl’s is betting on closer ties to Amazon, and non-traditional partners like Aldi and WW — this is yet to be proven, but increasing traffic to the store from these initiatives still requires sales conversions to succeed — what is Kohl’s doing to change the in-store experience beyond introducing new partners to drive traffic?
Lastly, Nordstrom is an interesting blip. They have services on their side over other brands, but this has required more investment and the conversion may not be there yet. Nordstrom is challenged to find the right mix between their off-price format and the mainline store format. The curious dropping of digital marketing was likely a mistake — especially for the mainline stores where luxury shoppers are their friend and they need to discover products before entering the store for this format to succeed.
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.
I think no one is under any illusions that department stores are struggling. But there are no easy fixes for their problems — and certainly not a one-size-fits-all approach.
I like what Macy’s has done with Story and Nordstrom has done with its Local and Men’s stores. Those feel like recognition of changes in how we shop and attempts to tap into those. Variety and interest has always been the name of the game (ask Selfridges) and I think Macy’s hopes Story will do that for them.
The interesting thing about department stores is that they were essentially an early model of convenience (everything you want under one roof) and now they have been surpassed by a very different form of convenience (I’m looking at you Amazon). These huge spaces can just seem cumbersome and long and slow to shop which puts off customers. I think the Nordstrom Local idea really plays back into that idea of the department store as a place of convenience.
I think the more these companies can do to rethink how they can offer convenience to today’s customers (with the added benefit of being able to throw in some wow and experience thanks to their large footprints), the better.
The department store model exhausted itself years ago. Why is there no re-invention to lifestyle and lifestage at the store level? Ok, there is a “college” section in bedding and a wedding registry section in housewares, but no serious addressing of wrapping it all together (e.g. a vacation department, split between warm weather & cold weather).
Target and Walmart have advantage that many stores are one floor, or easy elevator access and you can roll a cart right through from home to beauty to food, and it piles up (in $$) a lot more than hand carrying ten apparel items looking for an unlocked changing room.
Last, department stores need to hire staff that is marketing savvy, not just first time hourly workers. Staff needs to be on fire for the store and know what the store’s values are (hint hint to management). Then they can address consumer needs based on all elements of the store (not just the floor area they work). Staff is an untapped resource, but unfortunately usually the first to be cut from budget.
What is a store without personable staff? It’s called online.
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.
I hate to say this, but the department store has been eclipsed. This sadly means that it is unnecessary. It is non sequitur. It has no reason.
I personally like J.C. Penney and shop there. I believe that they will be done in by their debt.
Nordstrom really does a good job with salespeople who do seem to give a darn and be much better trained than the other stores. I do not consider Nordstrom a typical department store; it borders on specialty store, in my opinion. (Mr. Phibbs is RIGHT!)
Kohl’s is a different animal all together, and Macy’s is different too. Yet Macy’s and Penney are most alike, even though I am certain that Macy’s would incorrectly want to be compared with Nordstrom. That would be comparing a store brand with Hagen Daas, for example.
The problem is that none of these stores matter. If all of them disappeared tomorrow, it would NOT matter. It would be a horrible thing for all the people who work at those stores, but for the customer — nil.
I believe that in ten years the only one to be around will be Nordstrom, if they remain committed to service, and perhaps Kohl’s. I say that only because they seem to have been the “darling” for so long. It will take time for their customer to age and go away.
However, I hate to say this but again, if they all disappeared tomorrow — aside from the terrible loss of jobs — what would it matter? That is the problem: they do not matter. Making something relevant in that situation is difficult. And Amazon becomes easier and more accommodating every day!
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.
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.
The moderate department store sector is the poster child for what I frequently refer to as the boring middle. It’s been true for a while that good enough is not good enough and department stores need to work on all elements of my 8 Essentials of Remarkable Retail. But the two they generally need to focus on are “Harmonized” and “Memorable.”
With regard to Harmonized (my upgrade to “omnichannel”) — the notion that the customer is the channel and the goal of any retailer is to eliminate the discordant notes in the shopping journey and amplify the wow across the full range of touch-points. Here most department stores are still stuck in channel-centric thinking and have a long way to go in breaking down their various silos. Though it’s important to note that Nordstrom (and to a somewhat lesser degree Neiman Marcus) excel on this dimension and have generally delivered pretty solid results. They big issue for them is their format is very mature.
With regard to Memorable, the department store remains mired in a sea of sameness, selling mostly average products to average people. They must be provide more unique, highly customer relevant products and services. They must realize that a slightly better version of mediocre is never going to be a winning strategy and that better is not the same as good.
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.