Revenues Are Decreasing with No End in Sight

2. Revenues Are Decreasing with No End in Sight • US Census Bureau and Euromonitor International data may be different, but both report red numbers for department stores. According to the Census Bureau, 2018 sales at department stores, including discount stores, decreased 3.8%. • Euromonitor International states department store sales decreased 23.5% since 2013 when it totaled $96.6 billion to 2018’s $76.2 billion, and will decrease at a compound annual growth rate of 5.8% through 2023, to $56.6 billion. • Q4 2018 was particularly bad, which is supposed to be department stores’ best quarter, with department/discount department stores’ sales decreasing 2.0% from Q4 2017, but eliminate discount department stores and department stores alone decreased 8.3%.

3. Failing to Deliver the Best of the Past in an Appealing Format • Maybe, the most disturbing trend in the department store sector is that it is failing at the basics that made it such a retail strength for more than a century: merchandise consumers want to buy, an appealing shopping experience and over-the-top service. • Although store closings often grab the headlines, the other telling metric is chains on the brink of bankruptcy. Neiman Marcus, for example, has a CreditRiskMonitor “FRISK” score of 1, or a 9.99% to 50% probability of bankruptcy. • Despite a 35% increase in off-price department store revenues from 2013 ($4.0 billion) through 2018 ($5.3 billion), Kohl’s announced during June it is closing its off-price venture, Off/Aisle, while Macy’s Backstage concept has been quite successful.

4. Wall Street Has Little Love for Department Stores • For many years, Nordstrom was considered a stellar department-store performer, but as of early July 2019, UBS analysts reported it was having difficulty competing with the trend towards more casual wear, so the analysts describe it as a “no-growth retailer.” • Goldman Sachs at the end of June 2019 similarly downgraded the stock outlook for Nordstrom and Ross Stores. The brokerage firm thinks the volatile international trade picture and a possible supply chain disruption puts both retailers in the “sell” category. • Moody’s also forecast negative conditions for the department-store sector, after YOY sales decreased during Q4 2018 and Q1 2019. It expects operating income to decrease by 10% during the remainder of the year, twice its previous forecast.

5. An “A” for New Efforts • During April 2018, Kohl’s announced Aldi would be leasing space from it at 10 locations. Although both stores are separate, a 2019 Field Agent survey found 90% of shoppers said they were more likely to shop both stores during the same trip. • Although there are still many questions about its future, Sears is opening 3 Sears Home & Life stores, as small as 10,000–15,000 square feet. They will offer appliances, tools, mattresses and lawn equipment. • A new strategy for some department stores is to promote additional sales to customers who visit a store to retrieve an online order or one that was shipped to the store, as the in-store conversion rate is 10 to 20 times more than online.

6. Identifying Today’s Department Store Shoppers • Comparing data points from The Media Audit’s 2019 Rolling Aggregate Report from 66 US markets and representing more than 140 million US adults finds that Kohl’s at 24.4% has the largest share in the target audience, with JC Penney and Macy’s, 16.4% each. • Although 60% of all those shopping JC Penney, Kohl’s and Macy’s during the past 6 months were women, the gender split is essentially even at Sears, which may be attributable to its emphasis on tools and similar male-oriented products. • Ethnically, all four stores scored well with Latinx Americans, with Sears at 21.0%/125 index; Macy’s 19.8%/118 index; JC Penney18.7%/111 index; and Kohl’s, 13.7%/81 index.

7. Nordstrom as a Special Case • The Media Audit did not include Nordstrom in its 2019 survey since it has less than half the stores as the other chains and probably because in those markets with Nordstrom locations approximately half or more of its shoppers have $100K+ incomes. • Another data point reveals why Nordstrom is different from the other major department store chains, as women are the dominant shopper by gender: Pittsburgh, PA, 72.1%; Milwaukee-Racine, WI, 68.6%; San Diego, CA, 64.4%; and Austin, TX, 70.4%. • Interestingly, Asian Americans index very high as Nordstrom shoppers in Pittsburgh, Milwaukee-Racine and Austin (although only a small percentage of the total audience), but index very low (65) in San Diego, where one might expect them to index high.

8. Advertising Strategies • Major chains’ failure to offer what made them a strong sector for more than a century is an opening for regional/local chains to study those past strengths and present them in a modern package instead of trying risking concepts, such as off-price stores. • The Kohl’s/Aldi combination concept is another idea regional/local chains and/or independent stores may find applicable, such as department store/wedding boutique, department store/ fitness center or department store/day spa. • The Media Audit data of department store shoppers by their educational level strongly suggests media buys should emphasize programs and dayparts with more sophisticated content than what appeals to lower-income consumers.

9. New Media Strategies • Regional/local department stores have no choice but to offer a buy-online-pick-up-at-store (BOPIS) service, and then aggressively promote a special in-store offer for those who use the BOPIS service since the in-store conversion rate is so much greater than online. • Some regional/local department stores may find it worthwhile to stock more products appealing to men, as Sears does, and then create short, smartphone-recorded videos of store employees introducing these new products with a limited-time offer for men only. • Regional/local department stores with a long history can create a series of short social media posts sharing its history, employees and support of the community, reinforcing their longevity, as well as future growth plans.