Department stores in the US are fighting tooth and nail to win customers. They’re firing on all cylinders today, cranking up marketing programs, merchandising efforts, investing in digital technologies to improve the in-store experience, consolidating loyalty programs, and forging partnerships with brands from the D2C, resale, rental, and subscription markets. Macy’s and J.C.Penney have entered the resale market by partnering with ThredUP, and Nordstrom has announced plans to expand its ‘Local’ stores. It has also joined hands with Rent the Runway, becoming a member of the rental startup’s pick-up and drop-off retail location network.
One can’t help but recall what a bloodbath Sears and Kmart were. From a high of 3,500 department stores in the United States & more than 300,000 employees, 2018 saw a new low with figures of only 1,000 department stores and 89,000 employees. It is expected that fewer than 300 department stores will remain open for both brands combined by the end of this year.
Consumer preferences are changing, and the closures represent the stores that could not change with them.
Amidst the storm, a few major retailers have continued to shine, demonstrating how adaptability looks in the era of omnichannel retail. Based on RIS’s ranking of the top 100 publicly traded retailers, we picked out a list of the major 10 departmental store retailers in the US and dove in to see how they’ve been re-imagining their businesses.
A legacy retailer with over 5200 department stores and $387.66 Billion in retail sales as of 2018, Walmart is known to stay ahead by testing new concepts and has been working to scale autonomous shelf-scanners and floor-scrubbers in stores, create the store of the future, leverage virtual reality (VR) solutions in employee training, and roll out one-day shipping to aggressively compete with Amazon.
The retailer surpassed 1,100 grocery delivery locations and more than 3,000 pickup locations in the US and expanded its Next-day delivery offering, which it plans to make accessible to over 75% of the US population by the end of 2019. The retailer’s eCommerce sales grew by 37% YoY earlier this year. Walmart CFO Brett Biggs was quoted as saying that “online grocery remains a meaningful contributor to eCommerce growth,” as do fashion and home.
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While Walmart has been investing a lot of money into growing its e-commerce business and competing more with Amazon, Target has remained low key and continued to do what it has been doing right. Of Target’s $76 billion in revenue, (up by more than $3 billion from last year) $22 billion drops to the bottom line. The company has been reinvesting its profits into its business, remodeling over 1,000 department stores, opening smaller-format pop-up stores on or near college campuses and rolling out its loyalty program ‘Target Circle’ nationwide, to create a seamless, intuitive shopping experience.
Also, it has grown to efficiently to cut costs by utilizing stores as fulfillment centers, scaling same-day delivery through Shipt and through in-store and curbside pickup services which are now available in over 1,550 department stores in the US, These three options alone accounted for more than a third of Target’s digital sales in its second-quarter 2019, up from about 20% last year.
TJX Companies (which owns Marshalls, TJ Maxx, HomeSense, HomeGoods, and Sierra Trading Post) is not only the leader in the off-price retail segment category but also a strong competitor to the likes of Kohls and J.C.Penney. It’s profit increased slightly, to almost $12 billion in 2019, up from around $10.3 billion in 2018, thanks to its business model.
TJX sources merchandise from over 20,000 eCommerce vendors across the world at rock-bottom prices and then sells that inventory at a 20%-60% discount, still gaining a profit. It then rotates the products in-store, sparking a ‘treasure-hunt’ like fest for customers which keeps them coming back for more. In Q2 2020, comp sales increased 2% over last year’s 6% increase, thanks to continued increases in customer traffic to its department stores. Its sales and customer traffic increases underscore the enduring appeal of off-price retail and the treasure-hunt shopping experience. In the year of maximum department store closures, TJX has opened 75 new stores, bringing its total store count to 4,381.
Macy’s has been hard at work this last year aiming to transform its business. It began moving its infrastructure to the cloud to streamline retail operational functions, rolling out virtual reality experiences to its department stores, and launching the narrative-driven retail concept shop STORY.
Macy’s also plans to invest approximately $1 billion in 2019 in strategies such as mobile tech with a view on omnichannel retail.
Credit: Flickr – Mike Mozart
One of the most prominent initiatives from Macy’s is the opening of its Growth50 stores. This strategy revolves around enhancing the customer experience of about 50 select department stores under the brand. Despite lesser than impressive Q2 2019 numbers, Macy’s Growth-focused plan seems to have checked all the right boxes. With this response from the customers, Macy’s is planning to open 100 more such ‘Growth’ department stores in the US by the end of the year.
However, RIS’s retailers ranking wasn’t very kind to this iconic American retailer; the company fell by 16 spots down to the 19th spot. In fact, it is the only department store retailer in the top 5 to drop out to double digits.
When every department store in the US is spending billions of dollars competing against Amazon, Kohl’s is embracing the competitor. It has partnered with Amazon through an Amazon returns program, where select items purchased from Amazon’s website can be returned to Amazon kiosks in Kohl’s stores. The returned items will then be shipped by Kohl’s back to Amazon for free. CEO Michelle Gass expects a boost in traffic and branch launches thanks to this program. With an eye on increasing profitability, Kohl’s has decided to exit the highly competitive US discounts stores segment by closing down its Aisle discount stores.
The loyalty program at Kohl’s department stores is one of its biggest draws. With over 50 million active loyal customers, Kohl’s hopes its new growth strategies will hit the right chord among young customers. Beauty Checkout was launched at more than 200 Kohl’s department stores, aimed primarily at the female customer base. This will feature a rotating assortment of emerging beauty brands & their products, that are popular on Facebook & Instagram. Kohl’s has decided to take it up a notch by launching an exclusive line of merchandise for its spring sale by partnering up with Facebook.
Nordstrom is a luxury department store chain that is most popular among millennials They offer a wide variety of designer clothing and footwear, cosmetics, and home goods. Founded in 1901 in Seattle, Washington as a shoe store, Nordstrom is now the top luxury apparel retailer in the United States in terms of sales. As of 2018, Nordstrom boasted 379 locations worldwide, including its flagship store in downtown Seattle.
Nordstrom Rack, a subsidiary of Nordstrom and a competitor to TJX, features discounted apparel, footwear, and accessories, among other items. In 2017, the mass apparel retailer generated $4.19 billion in retail sales in the United States. Though TJX reported higher overall net sales, Nordstrom Rack department stores bring in about $17 million on average annually, greater than TJX’s average annual store sales of $10 million.
In a bid to stand out from the other retailers, Nordstrom has launched a unique services-focused chain of department stores without an inventory called Nordstrom Local. Services include alterations for existing clothes owned by customers, pickup/returns service and also guidance on styling from experts in the store. Another initiative that has added teeth to Nordstrom’s omnichannel strategy is the partnership with Rent The Runway. RTR’s customers in Los Angeles can now walk into any Nordstrom store and drop off their rentals.
Nordstrom was also one of the first department store chains in the US to embrace social media. Their online store provides free shipping and free returns within the United States. All of the above efforts combined have helped Nordstrom achieve one of the highest customer satisfaction rates among the top department stores in the United States.
Ross Stores is a chain of discount department stores based out of Dublin, California. It also operates Ross Dress for Less & dd’s Discount stores. It is the largest off-price retailer in the US. By adding a net total of 27 stores in Q2 2020, It managed to beat analyst expectations and profits rose compared to the year-ago period. It added more department stores under both brands.
Buoyed by this uptick in numbers, Ross Stores plans on more such department stores in the coming months with the very first stores added in Virginia & Ohio early this year. This means Ross is on track to meet its target of opening 100 department stores in 2019. This growth can be attributed to Ross’ popularity with millennials and women.
Ross Stores’ unique off-price modeling has helped it in the short-term despite medium-term tariff troubles. Micro-merchandising has also helped the department stores in its growth, making it a big ‘BUY’ among stock investors.
Hudson’s Bay is a chain of Canadian department stores also operating in the US. It owns the iconic Saks Fifth Avenue and Lord & Taylor chain of stores. Ever since Rich Baker bought Hudson’s in 2008, it has been a rollercoaster ride for the company After an eventful first few years, during which Hudson’s Bay expanded globally, profits began to dry up.
After bringing Helena Foulkes on board as CEO, Hudson’s department stores have managed to steady the ship one store closure at a time. As part of the rejig, Hudson’s bay has shuttered its chain of department stores in Europe and is expected to exit the continent by the end of this year. The sale of HBC’s Europe JVs has resulted in sizeable cash flow for the struggling department store chain.
On the heels of this exit, the Canadian department store chain is also planning to go private sans the public attention every move is currently getting. This is expected to alleviate HBC from its current predicament and is expected to help the department store to turn the corner in the coming years.
Despite more than a century’s worth of experience, JCP has not managed to escape the current downward trend in the Retail industry. The share price of JCP has lost more than 90% of its value in 3 years and is under threat of getting delisted from the NYSE. Their current revenue is about $11.6 billion, a fall of nearly 3.7% compared to last fiscal. JCPenney currently owns 850+ department stores in the US.
Restructuring of management led to the appointment of Jill Soltau as the CEO in 2018. JCP has since focused on improving footfalls through various new initiatives. Not least of which includes embracing its omnichannel abilities to boost demand and increase profit. In August this year, JCP has announced a new partnership with ThredUP. ThredUP’s second-hand women’s clothing will soon be available to purchase across 30 department stores under the JCP brand.
The American department store major is also focusing on improving inventory management with an aim to reduce excess inventory, potentially to bring down higher markdowns. Despite such moves, it remains to be seen if JCPenney can reclaim its glory days.
Burlington Stores, named after the township in New Jersey where the off-price department store is headquartered, has had a pretty good 2019. Its stock has done so well – that it is a current favorite among retail investors on Wall Street – thanks largely due to the department store diversifying from its core business of selling coats to offering a broader range of retail products. Other initiatives from the off-price apparel retailer include augmenting the list of vendors, a fresh approach to marketing its products and localization of its business units.
Going omnichannel and focusing on untapped retail product categories like home, beauty, etc. gave the NJ-based department store the added impetus to fuel its growth. Burlington Stores has plans to increase its department store count by 50 in the current fiscal. Not to mention, revenue is on an uptick for the past 11 out of 14 quarters, you read that right.
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