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?