Encouraging signs for department stores as holiday season kicks off

Discussion
Photo: RetailWire
Nov 28, 2017
George Anderson

It’s not hard to find knowledgeable retail industry watchers who will cast doubt on the long-term viability of U.S. department stores. Heck, Michael Ward, chief of Harrods, recently said his American department store counterparts were in the process of committing “suicide” as they seem unable to come up with new ideas or products to appeal to consumers.

While much of the shade directed at department stores is deserved, Kohl’s, J.C. Penney and Macy’s have seen some encouraging signs for their businesses in the days since Thanksgiving, according to reports.

Kohl’s entered the holiday season with a sense of optimism. The chain, which managed to post a 0.1 percent increase in same-store sales despite having to shut some 100 locations temporarily due to hurricanes in the third quarter, has already raised its full-year outlook ahead of the Black Friday weekend. Kohl’s said sales on Thanksgiving set records both in its stores and online. The chain is gaining traction with its buy online, pickup in-store (BOPIS) service with about 40 percent more orders fulfilled on Black Friday this year compared to 2016.

J.C. Penney reported increased traffic to jcp.com with visits to the site reaching their highest single-day level on Thanksgiving. Store traffic was aided by the appeal of Sephora shops, according to a note by Cowen and Co. analyst Oliver Chen, reported by CNBC.

Macy’s, which took some heat in social media as some customers were unable to have their credits cards processed, benefitted from cold weather in the Northeast as consumers went online and visited stores to buy winter clothing. The chain expects to sell more than one million coats during the holiday season.

DISCUSSION QUESTIONS: Do you expect department stores, as a whole, will perform better this holiday season than they did in 2016? If so, to what do you attribute the improved performance? Which chains give you the most reason for optimism?

Braintrust
"Department stores can’t compete on range and convenience any more, and they have to remember that. The first chain to crack it will win."
"This is not the profile of an industry blazing a trail to new heights. These are beautiful stores, but they don’t have much of a future."
"As we get closer to the crunch time of holiday ... the retailers that effectively utilize their stores as distribution points will win."

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19 Comments on "Encouraging signs for department stores as holiday season kicks off"


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Neil Saunders
BrainTrust

Department stores will perform better this holiday season. However, before anyone gets too excited, there are two caveats.

First, demand over the Black Friday period was up across all of retail. A rising tide floats all boats, but it does not stop ones with holes in them from sinking. And department stores still have plenty of holes to plug.

Second, last year’s comparative numbers were very weak. A modest rise after a big fall does not mean you’re anywhere nearer the summit of the mountain, And boy, do department stores still have a mountain to climb!

Some credit has to go to Kohl’s for the creative things they have done with ranges and store layouts. And J.C. Penney was really onto something when it put Sephora in stores. And Macy’s has made some strides in departments like footwear.

All that said, the model for most of these players remains broken and it will take more than a reasonable Black Friday to fix it.

Chris Petersen, PhD.
BrainTrust

The very label “department stores” is an interesting artifact reflecting a heritage of traditional brick-and-mortar retailing. Many of the positive statistics quoted for Black Friday/Cyber Monday have more to do with significant gains in online and click and collect sales than store performance. The “department stores” that will do well and survive are the ones that provide a better experience when, where and how customers want to shop. Consumers consume products and services, not formats. And today’s consumers want consumption to be on their terms — in fact they demand it.

Charles Dimov
BrainTrust

Black Friday seems to have been a success for most retailers. It’s a breath of relief, given the doom and gloom of early 2017. The economy is bounding forward, and retailers are starting to promote BOPIS at a growing pace (see Kohl’s). All told, yes, I expect this holiday season to be a success and an improvement over 2016.

Overall, my bets are on omnichannel retailing. As we approach Dec 24th, I think the value of a BOPIS order pickup will rise exponentially. The chains with in-store pickup services will win the sales, and the hearts/loyalty, of those shoppers who find themselves in a bind on Dec 22nd, 23rd and the 24th at noon.

Stuart Jackson
BrainTrust
I expect department stores to perform better this year — but this doesn’t mean they’re on the path to sustained recovery. It just means that last year was so bad that it would be difficult for them to perform any worse. The economy and retail outlook in North America has recovered over the last 12 months, meaning that more shoppers will be willing to spend more money. The more important figure we should be looking at is the share of Christmas presents bought online vs. offline. That figure is likely to reveal the real bad news; shoppers continue to flock online. Many people hate the idea of shopping in cramped and hot department stores, where they have to ascend or descend eight floors. It’s tiring just thinking about it. Online is more convenient. Department stores still haven’t solved this problem: in the future, I strongly believe department stores will stock fewer products, have wider aisles, contain fewer floors and stock more high-quality goods. It will be a better experience for shoppers. Department stores can’t compete… Read more »
Brandon Rael
BrainTrust

The department store segments are certainly benefitting significantly from increased demand and improved overall economic optimism. However, now is not the time to celebrate and slow down their concentration on improving the overall customer experience, and innovations, which are key to the department store’s evolution.

It’s too early to celebrate as the retail industry is up against some weak comparable sales numbers from last year.

As we move beyond Black Friday, Cyber Monday and the remainder of the holiday season, department stores have to do everything in their power to make their stores a key shopping destination once again. Curating your assortments, driving in-store innovations, experimenting with new brands products and overall focusing on the experience side of retail have provided dividends.

The department store segment must provide a compelling reason for customers to return to their stores, as the world of commerce is literally at their fingertips.

Zel Bianco
BrainTrust

As we all know, New York City is not indicative of the rest of the country but I walked into Macy’s and could not wait to get out due to the crowds. I was in a mall in the Washington, D.C. area and it was also very crowded and was anchored by not one but two Macy’s stores. There was an article in The New York Times last weekend that stated Macy’s real estate was worth way more than Macy’s, especially stores in urban areas where they own very desirable properties. You could have fooled me with the crowds. Lord & Taylor on the other hand was a pleasure to shop because it was not crowded at all. So my guess is that if Macy’s can get though the credit card issues, and continue to close some stores as there are just too many, they may be able to make it.

As Neil indicates, it may be too little too late for department stores.

Dave Bruno
BrainTrust

As the saying goes, “A rising tide lifts all boats.” So yes, as retail is widely expected to have a strong season, I do believe department stores will fare better, but there are still systemic issues that they need to overcome if they hope for long-term stability and growth.

Adrian Weidmann
BrainTrust

While the retail industry touts improved performance I, for one, am not convinced that department stores will survive the seismic shift in retailing. The physical store as we know it is a dinosaur — enjoy it before it goes extinct. Any improvement is relative. The store continues to transform and evolve to meet the equally dynamic expectations of the digital shopper. It’ll be interesting to see what event and/or defining technology historians will look back on as the one that finally killed the store as we know it.

Gene Detroyer
BrainTrust

Kohl’s “is gaining traction with its buy online, pickup in-store (BOPIS) service with about 40 percent more orders fulfilled on Black Friday this year compared to 2016 … J.C. Penney reported increased traffic to jcp.com with visits to the site reaching their highest single-day level on Thanksgiving … [at Macy’s] consumers went online and visited stores to buy winter clothing.” Enough said.

Without online the ugly trend will continue.

Dick Seesel
BrainTrust

Most of the anecdotal evidence and reports from retailers suggests that foot traffic was down, especially on Friday, but overall sales volume was good. This suggests that stores’ omnichannel strategies are working to drive total sales, instead of the “silo” effect of looking at e-commerce and brick-and-mortar as two separate businesses.

There is also a sense of higher discretionary spending, which will tend to benefit department stores along with off-pricers specializing in apparel. Early cold weather doesn’t hurt, either.

Roy White
BrainTrust

The lead in the discussion article says it all. There is definitely doubt about the long-term viability of U.S. department stores. Indeed, they face only a challenged future, and any performance gains are really just a blip. Consumers are growing less interested in large, complex stores. Online selling is growing and it’s growing in many of the categories on which department stores depend. Corporate sales for all three chains mentioned in the article are down this year anywhere from 1 to 6 percent despite some comp store increments. While Kohl’s is profitable, J.C. Penney is not and a sizeable chunk of Macy’s earnings stem from gains in sales of real estate. This is not the profile of an industry blazing a trail to new heights. These are beautiful stores, but they don’t have much of a future.

Brian Kelly
Guest
1 month 20 days ago

Holiday is forecast to be up 3.7 percent to 4.5 percent. I’d call that a high tide and that will float even department stores. Generally the economy is growing, however regional growth is not enjoyed by all. Rural areas continue to struggle.
Therefore those retailers with a greater share of their store portfolio in those affected trading areas will underperform. Dillards, BonTon, Belk and Macy’s are in this bucket.

Kohl’s is up against flat comps, enjoy “value” position, have a strong loyalty program and extra top-spin with the Amazon partnership. I think they will out-perform.

J.C. Penney could surprise us too. However the aggressive immigration policy impact could be a sea anchor on topline and an unknown, raising doubt. My mall walks indicate that J.C. Penney invested fewer dollars in store holiday environmentals vs. LY, which suggests it is less bullish on its expectations.

Ricardo Belmar
BrainTrust
Yes, department stores will perform better this holiday season — mostly due to better overall retail performance, not necessarily due to their own actions. That said, the department stores that have invested in omnichannel, or unified commerce, and truly integrated the digital world into their shopping experience will outperform others. Convenience is king, and the department stores that have prioritized shopper convenience with not just BOPIS, but EASY pickup experiences in the store (translation — not a corner in the back of the store as an afterthought with long lines) will be successful at winning customers. The stores with great mobile app experiences that make it easier to find products and order them will do well. Those that have well-trained associates that can help customers find the right item will be winners. The key is that you need to have all of these things in place, not just one or two. Customers expect it all now, and if you don’t deliver you won’t sell this holiday season. Department stores better hope they planned their infrastructure… Read more »
Lee Peterson
BrainTrust

As an old retailer once said to me, “all boats are floating this year.” I believe that’s going to be true this Holiday season. People are out, weather seems ok, there’s so many easy ways to buy, etc, etc. — it’s going to be a good one, you can smell it.

However, that doesn’t mean that department stores are out of frying pan. Their footfalls are down and their e-com still isn’t up enough (due their own slow-footed-ness over the last decade) to make this what it should be: a GREAT Holiday season. To me, they’re stuck in survival mode for the foreseeable future and first quarter will bring that to light.

Mohamed Amer
BrainTrust
According to the National Retail Federation, last holiday season represented a 4% growth across retail. However, department stores came in down 7% in year over year comparisons (see here). So, against that backdrop and early indications from Black Friday, I am optimistic that we will see better performance this holiday season. It’s true that department stores are challenged: more purchases are being made via mobile and online, foot traffic in malls is declining, and consumers are shifting to more experiential spending over pure materialism. For those reasons, the longer term prognosis is less rosy but need not be one of despair. In fact it could be the necessary pivot to a retail renaissance. The first of these challenges is a secular change for retailers and brands: mobile and online represent the future and the physical store needs to be part of that equation. And if we limit our horizon to the next 5-10 years, I believe the other two trends are firmly entrenched. However, that does not negate retailers and especially department stores from addressing… Read more »
Craig Sundstrom
Guest

I hate to begin a comment with “so what,” but really, so what? So what if department stores make some kind of token improvement over last year, then what? They are still in a decades long decline that recent changes in income and shopping patterns (i.e. online) have only accelerated. The real question is — as was the case with movie theaters — “will the decline eventually reach some bottom point and the species soldier on” (albeit in a much diminished state) or will it continue until flagships become like Disneyland (one or two in the whole country … or maybe none at all)?

Jackie Breen
BrainTrust

The department stores that are providing a unified experience for their customers between the in-store and online experience will win this holiday season. Many retailers have done a better job this year compared to last at expanding their omnichannel capabilities and this has played a role in the success that is being seen.

As we get closer to the crunch time of holiday and last minute shoppers need their gifts fast, the retailers that effectively utilize their stores as distribution points will win. This includes both BOPIS and fulfilling online orders with store inventory for faster delivery.

Meaghan Brophy
BrainTrust

If I answered this question this morning, I would have said absolutely not. Department stores will perform better than last year, but only because retail as a whole is performing better this holiday season. Numbers are up across the board. But I don’t think department stores will take a larger chunk of the pie.

BUT — NRF just released their Thanksgiving weekend shopping data including stats showing that 50% of 25-34-year-olds shopped department stores online and in-store over the five day period from Thanksgiving to Cyber Monday. So, now I am not so sure.

Katherine Black
Guest
1 month 20 days ago
I think that most department stores will perform better but as most point out, it is a bit artificial. I think that department stores are mostly benefiting from the shift in weather patterns (it was a warm fall and is finally getting a bit colder) as well as low comps last year. It is also worth pointing out how much Black Friday ads changed this year. As an example, Macy’s Black Friday ad features a number of doorbusters that are free after rebate. I suspect that this was a great traffic driver, so as long as they got good attachment, that could be an OK strategy. My concern would be that the clunkiness of a rebate will annoy customers in the end and may discourage a second or third holiday shop (which a lot of customers will typically do). Even if this strategy does work to boost short-term sales, you can hardly argue that the core proposition has turned a corner and customers are flocking to something other than a free product.
wpDiscuz
Braintrust
"Department stores can’t compete on range and convenience any more, and they have to remember that. The first chain to crack it will win."
"This is not the profile of an industry blazing a trail to new heights. These are beautiful stores, but they don’t have much of a future."
"As we get closer to the crunch time of holiday ... the retailers that effectively utilize their stores as distribution points will win."

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