Department stores have been under pressure as competition ramps up from online rivals like Amazon. They’re also getting squeezed by the Trump administration as it ratchets up tariffs on Chinese goods.

(Bloomberg)—It has been a gangbusters month for retail earnings—unless you’re a department store.

As Walmart Inc. (No. 3 in the Internet Retailer 2019 Top 1000) and Target Corp. (No. 16) raise their full-year profit outlooks and Home Depot Inc. (No. 7) and Lowe’s Cos. Inc. (No. 23) signal the American homeowner’s feeling just fine, the department-store industry remains a persistent blemish on the U.S. retail sector.

“With the department stores, a revamp of the business can take years,” said Gabriella Santaniello, founder of the retail consulting firm A Line Partners, noting that other retailers have been faster to adapt to changing preferences. “Department stores are not that nimble. It’s going to take quarters that becomes years with them trying to keep up with the consumer.”

This can be seen in the results: J.C. Penney Co. (No. 40), Macy’s Inc. (No. 5) and Kohl’s Corp. (No. 24) all reported declines in revenue from a year earlier. The key metric of comparable sales remained in negative territory for Kohl’s and J.C. Penney, while Macy’s was stagnant. And it could still get worse—Macy’s and J.C. Penney haven’t yet included the impact from impending tariffs on Chinese goods in their official guidance.

Department stores have been under pressure as competition ramps up from online rivals like Amazon.com Inc. (No. 1). They’re also getting squeezed by the Trump administration as it ratchets up tariffs on Chinese goods. A levy on department-store staples like handbags already went into effect, with the vast majority of other products slated for hikes later this year. And unlike retail giant Walmart, many department stores are finding they don’t have the buying power to push back on those tariff-related price hikes.

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Rising bankruptcies

Given that backdrop, some one-time leaders haven’t been able to cut it. Sears filed for bankruptcy last year, and while it’s still operating, it plans to shutter 26 more of its large-format Sears and Kmart stores in late October, and the total closures surpass 100. Chain Bon-Ton Stores Inc. filed for Chapter 11 protection in February 2018, while San Francisco institution Gump’s Holdings LLC filed its own bankruptcy petition last summer.

More recently, bankrupt Barneys New York Inc. (No. 196) is seeking to regroup as a slimmed-down business and renegotiate its leases. Katherine Bahamonde Monasebian, chief digital and technology officer at Barneys, acknowledged the industry’s at an inflection point.

Department stores used to be “the center of their community. They were where you went to find what you needed, perfectly curated,” Monasebian said in an on-stage interview with Bloomberg News at the eTail East conference in Boston. “There wasn’t retail without department stores. What happened against the backdrop of just tremendous change was the operating model evolved.”

“It’s easy to say Amazon killed department stores, millennials killed department stores, but it’s actually a confluence of a lot of things,” she added. “Yes, it’s the digital upstarts, yes it’s leverage, it’s very hard to have heavy debt loads on razor thin margins.” Monasebian cited customers’ push for more experiences, shoppers trained to shop on discount, and a move toward more apparel renting as factors behind the department-store industry’s decline.

Analysts at Jefferies said in an Aug. 19 note that the apparel rental industry could represent 10% of the broader apparel market in the medium term, and even higher for women.

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Still, chains are trying to find ways to evolve. Kohl’s, for example, started accepting Amazon returns at all of its stores in July in a bid to drive traffic, while both Macy’s and J.C. Penney have inked deals with online consignment outlet thredUP to goose their sales and appeal to younger buyers. Nordstrom Inc. (No. 18), which bucked the trend and saw its shares spike after reporting a reduction of expenses and profit that beat analysts’ estimates, has been leaning into hyper localized small-format stores.

Amid the shifting landscape, Barneys is plotting its next steps as a leaner chain, including more food, experiences and entertainment, Monasebian said.

“I don’t think department stores are dead. I think they are reinventing themselves just to be more experience focused, more customer focused,” she said. The startup economy has been a “wakeup call for these large traditional heritage retailers to really emphasize the need for being nimble, for being fluid.”

Santaniello of A Line Partners says department stores need to adapt to survive—and quickly.

“Department stores aren’t going to go away completely,” she said. “But there will be a lot of culling of the herd.”

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