Department stores are now several years deep into the the latest round of industry challenges, and the question is evolving into: who will weather the storm, and how long will it last. The going theory has been department stores are needed, but there are simply too many of them. As retailers continue to whittle down their footprints, whether of want or need, that theory will be tested in 2018.
“We believe closing stores will allow us to adjust our business to effectively compete against the growing threat of online retailers,” Penney CEO Marvin Ellison said when a round of store closures was announced early last year.
Among those department store chains that have been closing stores are Macy’s, Penney and Sears Holdings, the parent company of Sears and Kmart stores. Hudson’s Bay, the owner of Saks Fifth Avenue and Lord & Taylor, also recently struck a deal to hand valuable real estate over to co-working start-up WeWork.
Meanwhile, regional department store Bon-Ton missed an interest payment, setting off concerns of restructuring, an event that often precludes store closings. Luxury retailer Neiman Marcus has likewise been struggling under a debt-load left behind from a private equity buyout.
Department stores looking to be survivors must now prove they can buy inventory their shoppers want, continue to find growth in their off-price concepts, and keep the apparel brands from circumventing them by going directly to their consumers. As they test smaller stores and unique partnerships, they must show these stores are profitable and can succeed in bringing in traffic.
Nordstrom has seen sales at it discount Rack division slow, and Kohl’s is left to figure out if a new partnership with Amazon will benefit it in the long run.
“Holiday 2017 was a good one, but it doesn’t signal a renaissance for the industry nor that they are out of the woods yet,” Retail Metrics’ Perkins said.