Are department stores seeing the Ghost of Christmas Future in bleak holiday results?

Discussion
Source: Publix
Jan 11, 2019
George Anderson

The spirit of Christmas present was not too kind to department stores during the 2018 holiday season as earnings reports from J.C. Penney, Kohl’s and Macy’s (never mind the bah-humbugging mess that is Sears) point out.

All three chains reported results that were not only below the expectations of Wall Street analysts but well below the growth rate forecast for the retail industry as a whole over the last two months of the year.

Penney’s results were the worst of the three as it reported a 5.4 percent drop in same-store sales for the nine weeks ending Jan. 5, just one year after delivering a 3.4 percent gain in comps for the holidays. As discussed on RetailWire yesterday, Penney’s new CEO, Jill Soltau, faces a myriad of challenges as she attempts to make the chain relevant again while coming up with financial strategies that will pay down the company’s roughly $4 billion debt.

Kohl’s, whose CEO, Michelle Gass, told The Wall Street Journal in an interview that she doesn’t think of her company as a department store, posted a 1.2 percent increase in same-store sales for November and December, compared to a 6.9 percent jump a year earlier.

A concern for Kohl’s stakeholders is that its recent holiday results continued a downward trend for its comps in 2018. The chain reported a 3.6 percent increase in the first quarter followed by a 3.1 percent gain during the second and a 2.5 percent improvement in the third.

Macy’s, like its rivals, reported a gain of only 1.1 percent in same-store sales during the holiday season, continuing an up and down comp trend for the year. The retailer posted a 3.1 percent increase in the third quarter preceded by flat comps in the second quarter and 3.9 percent growth in the first.

Macy’s share price fell 17 percent yesterday after announcing the disappointing performance during one of the strongest holiday selling seasons in recent years. The retailer also reduced its sales and profit guidance for its 2018 fiscal year.

DISCUSSION QUESTIONS: Do the reported holiday same-store results from J.C. Penney, Kohl’s and Macy’s point to bigger issues among department stores as a whole or should they be viewed only on a company by company basis? Do you see any specific challenges facing Kohl’s and Macy’s that need to be addressed quickly?

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Braintrust
"Departments may work in food, but beyond that, it's time to tailor assortments, for real."
"Evolution takes time, a slow drip, bright spots, and then confusing downturns. And then suddenly, “overnight” things change."
"Challenges? That’s putting it mildly. The fact is, department stores have been losing their panache over a cavalcade of modern events..."

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19 Comments on "Are department stores seeing the Ghost of Christmas Future in bleak holiday results?"


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Neil Saunders
BrainTrust

I would not classify this as a department store problem, it’s a poor retailer problem. Both Macy’s and J.C. Penney were on the backfoot over this holiday season. Dreary stores, poor merchandising, a lack of gifting ideas, weak customer service, a lack of exclusive product, and so on and so forth. It’s not the format that’s the problem — after all, Target is arguably a department store of sorts — it’s the attitude and approach to retailing.

Chris Petersen, PhD.
BrainTrust

The future of all retail depends upon one word — relevancy. It’s not just about store format or online presence. The issue for today’s customers is: how relevant is the retailer in solving all of my needs? Relevant products, price, convenience, options for shipping and pickup, and the customer experience end-to-end. Large-format stores like department stores have both a big footprint and expensive real estate. They must create value beyond the store itself. Their survival depends on building relationships that create value before, during and after the purchase.

Mark Ryski
BrainTrust

The holiday results reflect both macro factors impacting the department store category as well as factors that are idiosyncratic to the individual retailer. The more recent positive results these retailers delivered were likely a result of the overall strong economic conditions, and less a function of anything these retailers did from an executional standpoint. It’s interesting to note that positive comps are almost always attributed to brilliant execution of great strategy, while negative comps always seem to be a function of macro trends and diminished store traffic. There are no panaceas or quick fixes for the category or the retailers mentioned – re-focusing on basic execution is a good place to start.

Brandon Rael
BrainTrust

The narrative these days is that department stores have seen their best days, and with Sears’ demise, it’s really gaining some momentum. However, despite some disappointing 4th quarter and holiday sales results from Macy’s, Kohl’s and others, we can certainly attribute these to the particular companies and not the macro factors. The legacy department store formats of the past are boring, cumbersome to shop in, and do not consider the customer experience side of things.

Up until the 4th quarter, Macy’s transformation plan was in full motion, and we should expect it to continue well into 2019. At the heart of Macy’s transformation is four tenets that its customers are looking for: inspiration, fashion, value, and transporting experiences.

Other department stores should take notice that their strategies have to be centered around the customer experience. It’s critical for their survival and relevance in today’s rapidly evolving shopping scene.

Phil Masiello
BrainTrust

Consumers evolve rapidly. Technology evolves rapidly. The above-mentioned stores are not evolving at a pace with the consumer. Complacency is the enemy of brick-and-mortar retail today. Small changes and implementation of ineffective pricing and sales programs are not going to solve what ails them. They need to rethink their models and start to focus on the ever-changing customer.

Walk in to any of these stores and you can see many of the problems. The store layouts don’t change, the product merchandising doesn’t change, assortments and brands don’t change. Price will only get them so far.

Yes, they are going to continue to struggle.

Steve Montgomery
BrainTrust

There are two intertwined issues. The first is that everyone assumed based on unemployment, etc. that this Christmas would be very robust. This led to forecasts of higher traffic and sales. The second is the reality of what happened. The combination of the two makes the shortfall several retailers experienced seem even worst that it was.

It is a prediction of what will happen? The answer is yes and no. Yes, if retailers do not make changes to their current business model and formats. No if they do. Sales may shift from their brick-and-mortar stores to online, but they are still sales. The extent of the shift will depend a great deal on the customer experience with both.

Lee Peterson
BrainTrust

Challenges? That’s putting it mildly. The fact is, department stores have been losing their panache over a cavalcade of modern events: still apparel driven, brand baggage, destruction of localism, sale/price denigration and of course, the good old internet, which has everything they have only you don’t have to go there to get it.

As one of our contributors said yesterday about J.C. Penney, department stores need a complete overhaul, and that’s so much easier said than done. Macy’s tests as of late, and in particular their efforts at “Marketplace” are steps in the right direction. But boy, try rolling that out in force to get volume/scale. It takes time, lots of it.

Department stores, specifically the three you mentioned, will be about half the size they are now in another 10 years (or less) if innovative/revolutionary steps are taken and then rolled quickly. Otherwise, look to Sears for some relevance on the issue.

Joan Treistman
BrainTrust

Any correlation to this year’s holiday results and stock market jitters and the shutdown? I’m curious as to how others relate the overall economy and retail sales. Are all retailers equally affected or unaffected?

Dick Seesel
BrainTrust

2018 looks like one of those years when the department store segment loses share at a faster clip — the question is why? Is it the lost appeal of mall-based anchors, or problems unique to Macy’s and Penney? (I put Kohl’s in a separate category because it’s not a mall-based retailer and was up against daunting comp sales.)

Both Macy’s and J.C. Penney have merchandising and “store experience” issues — see yesterday’s discussion about Penney. Shoppers in a spending mood deserve better for the time and effort needed for a trip to the mall.

Paula Rosenblum
BrainTrust

I have a very bleak answer to this question. Department stores have been dinosaurs for years (in fact, back in 2011 I described one major department store’s search for a new CEO as a “hunt for a dinosaur rider.”).

Of them all, I think Macy’s is closest to figuring out how to survive and thrive but the chain also has too many doors.

They all have to figure out how to engage customers based on their lifestyle. No one wants to shop “by department” anymore. In fact, that issue is going to emerge on web sites as well. “Show me stuff that matters to ME and engage me quickly.”

For example, I really should not have to search for the women’s plus size “department.” Or the Clarins products in the appropriate department.

Other retailers should also take note. Departments may work in food, but beyond that, it’s time to tailor assortments, for real.

Anne Howe
BrainTrust

Part of the shopping journey, especially over the holidays, is the wandering with eyes open to discover something that will surely delight the recipient. If shoppers do that at retailers and come out empty-handed, year after year, they just scratch that retailer off the “relevant” list for gifts. A visit for work-out clothes, shoes or a tablecloth may stay in the rotation, but frankly, the off-price retailer provides that as well as fun experiences for gift discovery. In a nutshell, many large retailers in general have not figured out how to overcome the lack of emotional satisfaction shoppers really feel. Applying the art and science of true human influence is just one key place to start!

Bob Phibbs
BrainTrust

A little perspective here, the upswing to retail started Q4 2017 so they were going against higher comps to begin with. This constant bashing of department stores as irrelevant crashes into the reality that I see many people actually shopping and buying at department stores. Unless a brand can craft a branded shopping experience, hire for people who can execute it and think on their feet, whoever the retailer is is just a warehouse hoping someone will buy something from their too-crowded displays.

Jeff Sward
BrainTrust

I don’t think it’s the Ghost of Christmas Future. I think it’s the beating heart of today and tomorrow. (Beating but failing that is.) There are so many self-inflicted wounds that it’s tough to blame Amazon and the Internet. Does that mean if they all were blessed with perfect-pitch foresight tomorrow and executed to that foresight that they would experience healthy growth? NO. So now it’s a race, and I don’t mean to the bottom. Who can get smart and SCALE the fastest? Differentiate and scale. SOS (stuff on sale) is a race to irrelevance.

Cynthia Holcomb
BrainTrust

Evolution takes time, a slow drip, bright spots, and then confusing downturns. And then suddenly, “overnight” things change. Twenty years ago Millennials were young adolescents, growing up with the world literally in their hands. Ways of living, aesthetic preferences and the reliance on tech to get things done changed everything. Meanwhile, traditional retail has marched on and on, chasing technology and shiny objects.
The 2018 holiday shopping season seems to be an inflection point in retail. A long time coming. Ask yourself, are Amazon products (watches, shoes, apparel) brand for brand better than Macy’s? No. What is different? A new generation of consumers, not bound by the limitations of traditional retail. Sadly, for those of us who love the romance of retail past, holiday 2018 sales and recent closings of landmark Fifth Avenue stores are a telltale sign of things to come.

Brian Kelly
Guest
2 months 10 days ago

Stores that underperformed for the 9 weeks of Holiday, did so because they sell the wrong merchandise at the wrong price in the wrong location. These stores face the same challenges that rendered Sears irrelevant. Too much internal pressure to beat last year, forcing merchants and operators to drive the business looking in the rear view mirror. Each year they are less relevant as success gets further and further away.

Macy’s/JCP are similar. Stores too big, locations less relevant. Remember, Macy’s is made up of a bunch of failed local chains. They will both run out of money.

Kohl’s is different and to me, surprising. Was hoping Gass could leverage her Starbucks secret sauce in some new and relevant way. Alas, the shopper thought differently. And with all that Amazon induced traffic clutching 30% off coupons.

With topline this soft, the earnings reports will be ugly. As we like to say, “Retail ain’t for sissies!”

Dave Bruno
BrainTrust

Survival for department stores is the same as it is for everyone else: staying relevant through assortments and experiences. The scale of department stores makes these challenges more difficult, of course, but the department store model in and of itself does not have to die. They just need to adapt, including aggressive reviews of assortments and creative reviews of all those square feet. I would think there are lots of opportunities to reduce inventory investments and convert some of that space to experiences that augment the journey and connect to the shopper in new and engaging ways….

Craig Sundstrom
Guest

I’m confused by the question. For years now, we on RW have argued the entire department store segment is either dead or dying, depending on how much hope one held out for it so … uhm … yeah there are “bigger issues.” (Indeed the folly was getting excited by a few quarters of low-mid single digit growth.)
But I have nothing to recommend. I doubt anyone does, other than the old (medical) advice: try to keep the patient comfortable and hope they rally.

Ray Allen
Guest
2 months 9 days ago

I haven’t seen the hard data, but many observations were made about good traffic this season. If someone takes the time to get in their car and come to your store, you should be able to sell them something.

My personal observations were that stores had traffic, store employees were overwhelmed with inefficient operational activity, and there was very little engagement or proactive assistant on the sales floor.

I am not sure it is a new problem or if the segment matters, but there is definitely a lot less patience out there. If a person is shopping for a gift and having any trouble digging through piles of un-curated merchandise or trouble getting any kind of assistance, they will not only leave, but shop somewhere else in the future. On the flip-side, a little service and attention can go a long way.

Some retailers and certainly many individual store employees don’t seem to think shoppers have other options. They certainly do.

William Passodelis
Guest
2 months 7 days ago
Umm — their day was done several years ago. Every younger person I know, when asked if they would go holiday shopping, looked at me kind-of sideways…. Search engines, predominantly Amazon, allow purchase from your home in your pajamas having your own coffee with unlimited selection, with the TV streaming You Tube or sports on Apple TV. Why would they get dressed, drive, park, perhaps pay for parking, fight the crowds, fight for attention from limited overworked untrained and possibly disinterested sales staff? Are you kidding? Is there ANY way to compete with the search engine? We have forgotten the show and we have bottom line pencil pushers only looking to save money. Sometimes it costs money to make money! When I lived in Chicago, every Saturday, I got up early and took the EL into the Loop and spent the morning at Marshall Field & Company. The selection was unparalleled, the staff were trained, knowledgeable and excellent, and the store had several floors that morphed and changed as seasons changed. A cute young lady… Read more »
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Braintrust
"Departments may work in food, but beyond that, it's time to tailor assortments, for real."
"Evolution takes time, a slow drip, bright spots, and then confusing downturns. And then suddenly, “overnight” things change."
"Challenges? That’s putting it mildly. The fact is, department stores have been losing their panache over a cavalcade of modern events..."

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