Faced with retail apocalypse, department stores focus on beauty and off-price outlets
Faced with the power of e-commerce giants such as Amazon, department stores have closed stores in record numbers across the country — what has become known popularly as the retail apocalypse.
Last week, Macy’s, Kohl’s, Nordstrom, Dillard’s and JCPenney reported their second-quarter earnings, and overall, the future still looks bleak for department stores this back-to-school season. Although JCPenney and Macy’s managed to exceed Wall Street’s expectations, they still reported another quarter of declining sales. So far, the only department store to report an increase in sales in the second quarter is Nordstrom, which saw a 1.7 percent increase in same-store sales. Despite this, these department stores said they remain confident that they can turn things around.
Here’s what you need to know.
Plans to fix apparel with new brand partnerships and off-price stores
Of all divisions, department stores have struggled the most when it comes to apparel. Amazon continues to take market share away from department stores, as consumers, especially younger shoppers, look to the e-commerce giant for fashionable, inexpensive clothing that is often delivered faster than department stores’ turnaround times.
In its earning call on Friday, JCPenney, which saw a 1.3 percent decline in same-store sales, admitted it was “slow to react to the changing trends” in apparel, but believes it can bounce back by introducing new casual and contemporary clothes from new and exclusive brands. It is partnering with “Project Runway” on an exclusive line of clothes available online and in 500 stores. At the same time, JCPenney is increasing its Nike and Adidas activewear output. Meanwhile, Kohl’s, which managed to see a 1.7 percent increase in same-store sales, plans to lure shoppers into stores with its new partnership with Under Armour on activewear.
Macy’s and Nordstrom are focusing on increasing their number of so-called off-price stores, or discount outlets to turn their apparel sales around. Macy’s, which is closing 100 stores due to declining traffic and saw a 2.5 percent decline in same-store sales, will open more branches of its Backstage stores, which are discount shops located within traditional store locations. “We believe that this strategy, which offers simplified pricing, a treasure hunt environment and lower price points, is resonating with many of our customers and adding to the Macy’s experience,” said CFO Karen Hoguet on its earnings call. Macy’s will also roll out a new marketing strategy and loyalty program in September which is meant to rebuild the company’s credibility when it comes to fashion.
Nordstrom reported women’s apparel was one of its best-performing categories. It has also found that its off-price Nordstrom Rack stores are “an important way to attract new customers,” the company said in its earning call on Thursday. With a total of 221 Nordstrom Rack stores to date, Nordstrom said it plans on opening 11 more this fall.
A focus on beauty
To remedy falling apparel sales, department stores are ramping up their beauty offerings.
JCPenney CEO Marvin Ellison said its beauty division, which includes makeup, fine jewelry, footwear and handbags, was one of its top performers from last quarter and expects continued growth. This is largely due to its partnership with Sephora and the store’s ability to bring in youthful customers. By year-end, the department store said it plans to have 650 Sephora stores in 75 percent of existing JCPenney locations. The company is especially enthusiastic about Sephora’s exclusive Fenty Beauty by Rihanna line, which is set to hit stores this fall. “She has one of the largest social media followings,” said Ellison.
Macy’s is also working to grow its beauty business. On Thursday’s earnings call, the retailer said beauty was one of its weakest categories this past quarter. In July, Macy’s began offering discounts on cosmetic lines, which have long been exempt from promotions. Now, Macy’s will expand its Bluemercury stores, which offer salon services.
Despite store closures, digital sales remain strong
As department store closures spike, the fear is that online sales will follow. However, that does not seem to be the case so far. For JCPenney and Macy’s, e-commerce is still going strong despite closing 137 stores and 100 stores, respectively. “In the ZIP codes where we have closed stores,” said Ellison, “we’ve seen no decrease in online traffic.” Ellison said overall, JCPenney e-commerce business was up double digits this quarter. Macy’s has seen 32 straight double-digit growth quarters for its digital sales.
New ways to drive online shoppers to brick-and-mortars
A key objective for department stores during this retail apocalypse is to connect online and in-store sales. To drive foot traffic to physical locations, it’s important to offer incentives online.
Many department stores have given shoppers the option to buy online and pick up items in stores. Nordstrom, for instance, is expanding its Reserve Online & Try in Store service to more stores. “We’ve been encouraged to find that around 80 percent of customers who try this service choose to shop this way again,” Nordstrom said in its Thursday earnings call. Macy’s, too, has looked for mobile-focused ways to get people into physical stores. Its Shop Your Store initiative, which allows consumers to see the inventory available in any given store, is in beta mode. And Kohl’s has its new Smart Basket, which gives discounts to consumers who pick up items in stores instead of shipping them to their homes.
Ellison said JCPenney is “exceptionally pleased” with how it’s handling online sales. All online orders can now be shipped to stores, and 80 percent of inventory is available for in-store pickup.
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