What’s going on here?

• A slew of retail earnings the past two weeks makes clear that while Americans continue to shop, they increasingly aren’t ringing registers at department stores.
• Department stores turned in disappointing first-quarter results:
  • Sales at Kohl’s fell 3.4% (far steeper than the expected 0.2% drop);
  • Penney’s same-store sales dropped 5.5% (worse than the expected 4.2%);
  • Nordstrom’s sales dropped too

– despite strong earnings at Walmart and Target.

What does that mean?

• All share in common a large store-base that is a burden as shopper foot traffic falls. All have made varying degrees of improvements over the past few years, but none have evolved as completely as retailers like Walmart and Target.
• Here was what Walmart has done:
  • It paid $3 billion to buy internet retailer Jet.com, through which it built up a set of online brands;
  • It’s adding vet clinics to its stores and now runs an online pet pharmacy;
  • It reshaped its geographic hold, making a bet in India as looking to move away from England;
  • It’s made investments in same-day delivery in the U.S.;
  • It transformed some of its stores into distribution centers.
• Target, meantime:
  • has turned from discount store into a one-stop destination;
  • is remodeling its stores to make
    • the apparel section like a boutique;
    • its make-up section like Sephora;
    • its grocery sections more modern.

Why are there differences?

Location, location, location

• Department stores are, in part, restricted by geography. Many are still located at the mall, which’s in contrast to retailers like Target and Walmart.
• That means it’s harder for department stores to transform their e-commerce business through initiatives like “click and collect”, where shoppers have all the convenience of selecting items online and the instant gratification of picking up their items quickly at the store.

Product mix

• Whereas Macy’s, Kohl’s and Nordstrom find themselves somewhere between discount and ultra high-end, Target and Walmart can cater directly to bargain shoppers, without worrying about hurting the image of the higher-end brands sold in their stores.
• Department stores also can’t turn to the retail trick of selling more groceries to bring in shoppers.

True transformation

• Transformation, like building out or buying a truly digital brand, or immediately and drastically changing one’s footprint requires either capital or a stomach for investor backlash. It’s not clear department stores have either. 
• “Department stores are already being punished heavily by investors who fear they don’t see a soft landing, so now is the time for them to be innovative and take risks,” said Michael Dart, a partner at A.T. Kearney

Content source: Hirsch. L. (2019) Latest retail results show department stores need more than touch-ups. They need reinvention. CNBC. Available from: https://www.cnbc.com/2019/05/22/department-stores-need-reinvention-not-touch-ups.html [Accessed 1 July 2019]