A lackluster holiday season delivered a wake-up call to department stores, which are experimenting with strategies to bring in customers who now can shop instead from their couch or office computer.
CHICAGO — Less-than-stellar holiday sales — despite extra-long hours and extra-steep discounts — may be a wake-up call to department stores that they need a new approach.
“What shoppers are looking for from department stores today is an experience, services and brands they can’t get other places. There’s an opportunity, but they’re not totally taking advantage of it yet,” said Wendy Liebmann, CEO of WSL Strategic Retail, a retail consultancy in New York.
The holiday season at Sears was especially rough. Greg Melich, an Evercore ISI analyst, warned in a report that the company is no longer “viable as a retailer in its current form.”
The department-store chain, based in suburban Chicago, announced last month it planned to accelerate store closings and said it expected to write down the value of its iconic brand name by up to $200 million.
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Behind the scenes, Sears is working to “proactively transform” its business, said spokesman Chris Brathwaite. The retailer has aggressively invested in what it calls “integrated retail services” that combine the online and in-store shopping experience, where analysts said Sears is ahead of the curve.
Customers can get free curbside pickup of items they’ve ordered online or reserve clothes online to try on in-store, and the company’s loyalty program allows more targeted and personalized marketing.
Liebmann and Howard Davidowitz, chairman of Davidowitz & Associates, another retail consultancy in New York, said Sears is in unusually dire straits.
“They just can’t compete,” Davidowitz said.
But overall it isn’t a good time to be a department store, he said.
Sears Holdings this month said fourth-quarter sales at stores open at least a year fell 6.9 percent in Sears stores and 7.2 percent in Kmart stores, and fell 7.3 percent and 11.1 percent, respectively, for the full year.
Macy’s reported a 4.7 percent drop in November and December sales at existing stores and has also announced plans to cut 40 stores. J.C. Penney Co. reported a 3.9 percent increase in sales over that period; analysts said its good performance came from fixing earlier mistakes.
Seattle-based Nordstrom lowered its forecasts for profit and sales after slower-than-expected third-quarter sales.
“Clearly, this was a difficult period with industry-sales declines and increased promotional activity resulting in compressed merchandise margins,” Mike Koppel, Nordstrom’s chief financial officer, told analysts.
Nationally, retail sales were up by 0.2 percent in January, but department stores’ sales were down 0.8 percent, according to U.S. Commerce Department data released earlier this month.
Department stores are a “high-cost operator,” with lots of large stores in pricey mall real estate, Davidowitz said. That makes it tough to compete with stores like value-focused T.J. Maxx or fast-fashion retailers and online sellers that offer similar items with a less-expensive business model.
“People are watching their pennies,” he said. “The customer is trading down, and people in the extreme value business are booming.”
E-commerce has been a challenge for all brick-and-mortar retailers, but some retail analysts said department stores may have been particularly hard-hit.
Online shoppers do less browsing than in-store customers, meaning retailers make less per sale, said Keith Jelinek, senior managing director with FTI Consulting. A customer hunting for a specific item online might not think to look to a department store offering a wide range of items, said Neil Stern, senior partner at Chicago-based McMillanDoolittle.
Even wealthier customers who still like the department-store experience aren’t buying as many clothes.
“Post-recession, a lot of people are saying, ‘How much more stuff do I need? There are other things I’d prefer to spend my money on,’ ” Liebmann she said.
Many higher-end department stores have off-price stores to compete with those offering a better deal, including Nordstrom Rack, Macy’s Backstage and Saks Fifth Avenue OFF 5th.
“Most are now saying, this is where we can grow with price-conscious shoppers,” Liebmann said. “There’s a danger because it erodes who they are as a premium retailer, but it also brings in a whole new audience.”
Brianna Stein, a student at Columbia College hunting for a gift at a Nordstrom Rack off Michigan Avenue, said she likes the fact that she could stumble across a brand-name item from Nordstrom at a great price.
“Sometimes you get lucky,” she said. “As a student, budget is pretty important to me.”
Despite their challenges, there is a niche for department stores to fill going forward, said Steven Barr, PwC’s U.S. retail and consumer sector leader.
Alicia Terran, a Chicago wedding planner searching for a particular Michael Kors purse at Macy’s, agreed.
“There are always going to be girls that love department stores,” she said.
But that doesn’t mean they don’t need to evolve, analysts said.
With companies that started with e-commerce also trying to blend online and brick-and-mortar sales.
McMillanDoolittle’s Stern said companies that already have a network of physical stores will have at least a short-term advantage. But he also said Sears’ online efforts won’t matter if customers aren’t interested in the brand behind the tech.
“You can be great at doing all this, but if the brand’s not compelling, you’re still not drawing new eyeballs,” Stern said.
Brathwaite said Sears is trying to be profitable and doubling down on relationships with current shoppers.
Others are trying to balance drawing in younger customers with keeping the brand’s legacy intact and trying to go back to what department stores were initially famous for: a destination outing, not just an errand, Barr and WSL’s Liebmann said.
Desiree Perkins, shopping at a Chicago Nordstrom while in town on business, said she liked the store’s products but was also impressed with the overall look.
She estimates she does about half her shopping online but likes the full experience she gets in person.
“That’s what brings me in,” she said.