It was a great holiday season in the retail world – for Mr. Grinch!
As retailers begin to preannounce year-end results, we are learning that the assault on department stores and other traditional retailers from e-commerce, price-sensitive consumers, and a tepid economy continues to batter revenue and profits. Each holiday season it gets a little worse as retailers race to cut prices and downsize faster than consumers flee their venues for the comfort of shopping online. This past year, that trend continued.
Department store sales have dropped $7.2 billion from 2001 to $12.7 billion today, according to BMO's Jack Ablin (and that's nominal, so in inflation-adjusted terms the drop is much more severe). Troubled women's apparel retailer Limited Stores announced last week that it is closing all 250 of its stores nationwide and will try to operate purely as an online company. According to RetailNext, a retail tracking company, sales at brick-and-mortar stores sunk by 10.3% in December compared to 0.4% in 2015. The National Retail Federation expects holiday sales excluding cars, gas, and restaurants to rise 3.6% to $655.8 billion in 2016 with online sales surging 19% to roughly $98 billion and brick-and-mortar sales dropping by tens of billions of dollars.
With numbers like that, it's no surprise that the nation's largest retailers are announcing massive store closings and job cuts. And this store is experiencing one of the biggest meltdowns.
Macy's Is Everything That's Wrong with Traditional Retail
On Jan. 4, Macy's Inc. (NYSE: M) rocked markets with disappointing holiday sales data. The company announced that comparable sales were down 2.1% year over year in the November/December period for licensed plus owned stores, and 2.7% for owned stores. The company was not expecting this news, another sign that management is failing to adjust quickly enough to the changing retail landscape. The department store stalwart has now experienced seven straight quarters of declining sales. Chairman and Chief Executive Officer Terry Lundgren (who has led the company's failed strategy and gone from CNBC "Squawkbox" rock star to soon-to-be ex-chairman and CEO) said, "we had anticipated sales would be stronger. We believe that our performance during the holiday season reflects the broader challenges facing much of the retail industry."
Macy's experienced particular weakness in handbags and watches as specialty retailers continue to take market share from general merchandisers. But an even bigger problem is that Macy's adopted JCPenney's unsuccessful couponing and discounting strategy to chase down-market consumers into the gutter. You can't cut prices to profitability (even Walmart is discovering that).
Mr. Lundgren was correct, however, in stating that Macy's problems are characteristic of an industry under siege from irreversible structural shifts in shopping habits and the economy. Kohl's Corp. (NYSE: KSS), LBrands Inc. (NYSE: LB), Ascena Retail Group Inc. (Nasdaq: ASNA) (Ann Taylor's parent), and JCPenney Co. Inc. (NYSE: JCP) also announced lousy sales last week, and Sears Holdings Inc. (Nasdaq: SHLD) pre-announced another quarter of double-digit same-store sales declines for the holidays.
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Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.