Archive for the 'Department store retailing' Category

JCP: Too early to declare victory

JCP’s CEO recently declared that its (slight) 2016 profit repreesented an historic turnaround. Most RetailWire panelists agreed with my contrary view:

It’s admirable that JCP has stopped bleeding cash but its net earnings in 2016 were just over $1 million (not the EBITDA number, which was higher). So it’s premature to declare an historic victory in light of store closings and soft sales. The slippage in gross margin in 2016 is another area of concern, because competition won’t be any easier in 2017.

With those reservations in mind, Mr. Ellison has had his eye on the ball ever since assuming the CEO chair and continues to focus on the right things — data science, expense controls, driving sales opportunities and weeding out unproductive locations.

Two comments on omnichannel

Here are a couple of RetailWire posts on the subject of whether e-commerce is eating into brick-and-mortar retail. The first comment was published after stores reported year-end sales:

“Omnichannel” retailers like Macy’s, JCP and Target are still heavily dependent on their physical footprint. Each store reported rapid e-commerce growth (from 17% in Penney’s case to 30% at Target), yet each of them also reported total comparable-sales declines in the low single digits. So it’s clear that the combination of brick-and-mortar and omnichannel isn’t driving sales yet.

All of these stores and others have opportunities to improve their assortments, customer service and overall store experience. Omnichannel initiatives like BOPIS and “ship from store” have put even more strain on retailers’ ability to execute these “Retail 101” issues better. But until they do, their overall sales will continue stuck in neutral.

The second comment was published today:

“Cannibalization” may be the wrong term, because retailers with true omnichannel strategies need to think about how to grow the overall pie. Continuing to think about business silos (e-commerce vs. brick-and-mortar) will stand in the way of a consistent overall approach to the business.

But there’s no doubt that brick-and-mortar is losing its relevance, as seen in the growing number of chains closing locations or throwing in the towel altogether. To go back to the question of how to grow the overall pie…why isn’t that happening? Why aren’t strategies like BOPIS (intended to drive traffic to stores) driving incremental sales?

These aren’t easy questions to answer, but I continue to believe that the operating demands of turning a physical store into a mini-distribution center are eroding the service-centric reasons why consumers shop in those stores in the first place.

“Cannibalization” may be the wrong term, because retailers with true omnichannel strategies need to think about how to grow the overall pie. Continuing to think about business silos (e-commerce vs. brick-and-mortar) will stand in the way of a consistent overall approach to the business.

But there’s no doubt that brick-and-mortar is losing its relevance, as seen in the growing number of chains closing locations or throwing in the towel altogether. To go back to the question of how to grow the overall pie…why isn’t that happening? Why aren’t strategies like BOPIS (intended to drive traffic to stores) driving incremental sales?

These aren’t easy questions to answer, but I continue to believe that the operating demands of turning a physical store into a mini-distribution center are eroding the service-centric reasons why consumers shop in those stores in the first place.

 

 

 

 

Department stores’ search for relevance

From a recent RetailWire blog post, I have some comments about the continuing struggles in the department store segment. Some of my concerns are based on the relevance of their merchandise content, and some are based on the “sameness” of the shopping experience:

There are two key “relevance” issues, especially pertaining to traditional department stores: First, are retailers using all of the technological tools at their disposal to enhance their brands? Are they leveraging today’s tools (mobile payment, RFID, and so forth) to improve customer service or simply to cut costs? And how has “omnichannel” (especially BOPIS) actually eroded the shopping experience? There is very little difference between shopping at Macy’s or Dillards today compared to 30 years ago, other than UPC scanning and more sophisticated POS terminals.

Second — and it always comes down to this — is merchandise content. I’ve shopped a lot of traditional department stores over the last few weeks, and I’m struck by how much inventory and square footage continues to be devoted to dressy career apparel for men and women. This may be the retailers’ sweet spot (as they see it), but the lack of adaptation to change is concerning. Do these stores not recognize that Boomers are retiring — and leaving the workforce — in droves? Do they not see that most Millennials are working in more casual environments and are shopping elsewhere for their wardrobe needs? (Add to this the slow reaction to the movement toward activewear-as-sportswear.)

Sometimes achieving “relevance” costs money — whether through new tech tools, more payroll or a fresh coat of paint. But mostly it’s about the products, brands and trends that stores choose to put forward.

Macy’s store closures don’t fix the problem

I commented on RetailWire in early January about Macy’s announcement of 2017 store closures:

I saw with a particular shudder that one of the Macy’s stores on the list is the “flagship” location in downtown Minneapolis — the old Dayton’s headquarters, where my wife and I both worked and eventually met. It’s hard to imagine that a store with an appropriately sized footprint can’t thrive in downtown Minneapolis — full of office workers and residents — unless there is something fundamentally wrong with how Macy’s is running its business. I’ve shopped their stores from California to Florida to Nevada to Illinois over the past couple of years, and continue to be disappointed by the merchandise content, the physical condition of the stores and the service experience. Until Macy’s addresses these “Retail 101” issues, it doesn’t matter how many stores they close.

Additional thoughts from RetailWire:

Some of our observations about Macy’s are based on 20/20 hindsight, not based on what seemed like a smart move at the time. Even though there was plenty of debate about the disappearance of powerful local nameplates like Marshall Field’s, the reality is that several of those retailers were in their own slow decline. So Macy’s effort to create a national brand (and economies of scale) paid off for awhile.

Where Macy’s has lost its way is in the failure of the “My Macy’s” initiative to cater more effectively to local tastes. The best data science in the world may not be a substitute for experienced managers who really understand their customers’ taste (and when things sell in a given climate). But the bigger issue is the overassortment of women’s brands, erosion of customer service and lack of capital spending; no amount of localization can overcome those hurdles.

And to add a final thought after visiting Macy’s Manhattan flagship in early March: This is a spectacular store that has gotten a big boost in capital investment over the last few years. But Macy’s is so focused on this location (visible to its investors, suppliers and competitors) that it has neglected hundreds of other locations around the country.

Can JCP keep expanding Sephora?

Penney has been aggressive about expanding Sephora shops to its full- and mid-sized stores, even while rebounding from its missteps in 2012-2013. The question posed on RetailWire is whether JCP should expand the concept to its small-town, small-footprint locations. Here’s my take:

I regularly shop a midsized JCP store in Menomonee Falls, Wisconsin. (The home of Kohl’s headquarters…not coincidentally.) Penney built this and other roughly 90,000 square foot locations before the Ron Johnson era, to see if it could operate Kohl’s-sized off-mall stores successfully. This location does contain a Sephora shop, although not as big as the one just installed at a local anchor store in a Simon mall.

I think it’s essential that Penney and Sephora develop a more “curated” version of their collaboration for the many even smaller JCP stores around the country. It’s arguably the most successful part of Penney’s business for the past several years; in many of the smaller communities where these stores are located, Sephora will be the only game in town for shoppers who want more than their local discounter can offer.

An Apple store inside Macy’s?

Catching up a bit by posting a September RetailWire comment about an Apple location inside Macy’s flagship store in Manhattan:

Part of Macy’s problem is its Herald Square-centric approach to the business, and this is another example. The flagship store in Manhattan has always been a showplace for new shop concepts and brand features, especially because it’s an easy place to show off to those members of the investment community who don’t do channel checks around the country.

Meanwhile, there are hundreds of Macy’s stores across the country — not just the 100 likely to be shuttered next year — that are in desperate need for capital investment and revamped merchandise assortments. Not long ago, I visited the Macy’s store at the University Town Center in La Jolla — and even though a brand-new Nordstrom store is being built next door, this Macy’s store hasn’t had a facelift (paint, tile, carpeting, lighting) in a long time.

So is a partnership between Apple and Macy’s a good idea? Sure, but it can’t mask the long list of issues that Macy’s management needs to address nationwide.

JCPenney: “Less bad than most” again

JCP reported 2nd quarter results that were modestly better than other department stores’ sales trends, and measurably better in operating profit compared to their own past standards. This continues to point toward operating improvements but it’s a long way from a true turnaround until the sales trend becomes more robust. Here are some thoughts I posted on a recent RetailWire panel discussion:

Marvin Ellison has noted the sales gains in JCP locations where Sears has closed, and it’s not surprising. Even those Sears stores that are still open are often woefully light on basic inventory, especially in Penney’s sweet spots like sheets, towels, socks and underwear. And the play for Sears’ appliance business is clearcut, even though JCP also has an opportunity to make its own home stores more productive.

But some of the credit for JCP’s modest operating improvements is coming from other initiatives that Mr. Ellison is spearheading — cost reductions, improved supply chain management, better IT managment, and (most important) new merchandising leadership. Given these changes, and the tailwinds coming from Sears and Macy’s store closures, JCP investors probably have a right to expect faster growth after 2016.