Top 5 Department Stores Tackle Tough Imperatives
Like last year, the top far outstripped the bottom — Bon-Ton Stores, J.C. Penney and Sears — but this report looks only at those public companies that file with the U.S. SEC under the category of department stores. (Belk, No. 4 last year, was acquired by Sycamore Partners last August and no longer files with the SEC.)
When we compare the Top 5 with some of their peers such as Ross, TJX Cos. and Nordstrom, they do not fare as well. Had Ross been included in this list, it would have landed at No. 1, with an 8.55 percent profit margin, followed by TJX Cos. at 7.36 percent and Nordstrom, at 4.26 percent — companies that all made the Top 50 rankings last month. Just for one more comparison, Target, also, would have come in above our Top 5, with 4.56 percent profitability.
Here’s a look at some highlights from this year’s Top 5 department stores.
It was a tough year for even the No. 1 company, with sales decelerating, particularly in the second half of the year, which created higher inventory levels following low Q3 sales. The department store retailer, which operates 272 locations and 24 clearance centers in 29 states (plus its online location), has not seen many strong opportunities for retail development, but it did find a few: In the fall, it opened newly constructed locations in Liberty Center in Cincinnati, Ohio (a portion of sales from its Grand Opening celebration were donated to the Breast Cancer Research Foundation (BCRF®); Fremaux Town Center in Slidell, Louisiana, and Fashion Place Mall in Murray, Utah, where it replaced an existing store. More recently, it closed its location in Aiken, S.C. This year, the company will continue its efforts to engage with its customers in store and online with great fashion and excellent service, and to that end is bringing in new, high profile brands and focusing on investing in the development and compensation of its associates. During the year, Dillard’s was recognized for its innovative use of GS1 Standards to automate the capturing and sharing of product information for e-commerce product setup and publication. For Q1 2016, sales and net income were down over the same period the previous year.
After five years of growth in sales and earnings, the company, along with the entire industry, was beset by port slowdowns, warm weather and a strong dollar, which deterred spending by international visitors in its flagship stores. Internally, key organizational changes that were some time in settling also took a toll; comp sales were down by 2.5 percent. The challenging year has pressed Macy’s into a greater level of urgency vis a vis evolving many of the omnichannel strategies it has put in place around changing consumer preferences and buying behaviors, and it is also taking steps to be more efficient, cost effective and faster to market. It is refining its consumer touchpoints, improving websites and mobile apps, and expanding fulfillment capabilities with national availability of BOPIS and same-day delivery. In 2015, it opened its fifth direct-to-consumer fulfillment megacenter, a 1.3 million-square-foot facility in Tulsa, OK. It closed 41 underperforming Macy’s stores out of the 770 in its portfolio, and it is also monetized real estate in various ways. Last year, for example, it sold the underutilized upper floors of its downtown Seattle Macy’s store to a developer for $65 million. The retailer, also the owner of Bloomingdale’s, continues to test a wide range of concepts and ideas on a limited scale, such as its Macy’s Backstage off-price stores, the first five of which it opened in metro New York City in fall 2015, and this year it has brought the Backstage concept inside about 15 full-line Macy’s mall stores. It also established Last Act separate spaces on its apparel floors after testing a simplified pricing approach for its deep clearance apparel merchandise, which it has now rolled out to all stores. Macy’s also acquired Bluemercury, a fast-growing beauty specialty store business, in 2015.
It’s seen five consecutive quarters of sales increases since it launched its Greatness Agenda, with a four percent increase during the most competitive period between Thanksgiving and Christmas, and success on many of the plan’s initiatives: It has grown the depth and breadth of its national brand portfolio, with most of those brands growing by double-digit increases; it is becoming a destination for Active and Wellness, and has increased its share in this category; and it is making progress with localization. This year, unique assortments by store will come to fruition in 90 percent of its store portfolio, which should improve the customer experience and improve inventory management — its goal is to reduce inventory by 10 percent by store by 2017. In omnichannel, its investments in digital are driving sales, with online-generated demand up 25 percent for the year, much of which was fulfilled with ship-from-store enablement and buy online, pick up in store capability, while it also increased its same-day delivery efforts. Its Kohl’s app was used by more than 11 million customers and growing, and it found success with new mobile in-store capabilities, including mobile pay. The retailer also debuted a pilot program for in-store cafes. This year, Kohl’s will pilot seven new small-format stores and will continue its Off-Aisle pilot (these stores sell customer product returns from Kohl’s stores and e-comm) with two new stores. It also is opening new retail outlet locations selling Kohl’s proprietary brands, starting with 10 to 15 FILA stores. It will also close 18 underperforming stores. The company is installing a new point-of-sale system and constructing a fifth e-commerce fulfillment center which should be open in time for fall 2017.
#4 Burlington Stores
The off-price apparel and home product retailer saw net sales exceed $5 billion, up 5.9 percent, and hit 12 consecutive quarters of positive comp sales, with comps for the year up 2.1 percent on top of last year’s 4.9 percent increase. Comp-store inventory decreased six percent and turnover improved 10 percent. Its ability to achieve 4 percent comps in Q4 despite the unseasonably warm weather shows the progress it is making toward becoming less reliant on seasonal product. The company entered 2016 with more current inventory: merchandise aged 91 days and older was $120 million at year-end, representing a 13 percent reduction from the previous years’ $138 million, while pack-and-hold inventory as a percent of total inventory was 25 percent vs. 27 percent at the end of last year. On its long-term growth strategies: 1) looking to comps growth it is increasing focus on ladies’ apparel, home and beauty; the store experience (it remodeled 12 and refreshed 18 stores); its marketing testimonial campaign (real customers in real stores); merchandise localization initiatives and gift giving strategies. It also: 1)added a sixth DMM to ladies’ to focus exclusively on maternity; 2) for store expansion, it opened a net of 25 new stores, bringing the total to 567 at fiscal year-end, and plans to open 25 more this year, as it marches to a goal of 1,000 stores long term and 3) to enhance operating margin, it is working to optimize markdowns, tailor assortments by store, and keep discipline around its receipts. The company has also made adjustments to pay practices, and its 2016 plan includes an additional $7 million marked for hourly wages.
#5 Neiman Marcus
The luxury retailer, which operates 42 Neiman Marcus stores as well as Bergdorf Goodman (2), Last Call (43), the Horchow catalog, CUSP (5) and MyTheresa.com (including one MyTheresa store in Munich), was on the cusp of issuing an IPO last August but stepped back from the brink citing jitters in the stock market. More accurately, the company was struggling with its own internal challenges, including a $5 billion debt load and falling sales: comps fell 5.6 percent in Q1 2016, the first drop in six years. The retailer’s recent efforts to grow sales by attracting younger and less-affluent customers have not panned out. Additionally, the strengthening dollar kept away many of the retailer’s tourist customers, while in Texas, where Neiman’s has seven stores, many customers dependent on the oil and gas industry for their income have pulled back on their shopping. Online, the company suffered a big blow over Thanksgiving when its website went down under heavy traffic and promotions. In June, the company announced it was looking for a buyer or investor — just three years after it was purchased by Ares Management and the Canada Pension Plan Investment Board for $6 billion — and it was reported that CEO Karen Katz recently traveled to China to meet with potential buyers. Meanwhile, the iconic retailer founded in 1907 is marching forward, opening a new store in Long Island in February, starting construction on a store in Hudson Yards on the far west side of Manhattan, set to open in 2018, and working on major remodels for many of its stores around the country. It also has entered the last phase of a systems implementation that will centralize merchandise onto one platform.
Jordan K. Speer is editor in chief of apparel. She can be reached at [email protected]