The holiday sales reports have not been good for the department stores. Macy’s and Kohl’s comparable store sales dropped 2.1% during the vital 2016 Christmas selling period. There is a shift going on in consumer shopping habits and preferences. Despite the overall decline in sales, Macy’s management was happy with sales of cold weather merchandise. That was no surprise since the weather was much colder than in the prior year. However, some major classifications suffered, including handbags and watches. Similarly, Kohl’s most challenged classification was accessories. This is a surprise as accessories are typically desirable Christmas gifts.
According to One Click Retail.com’s 2016 Shopping Season Recap, Amazon achieved significant increases in department store classifications. They include Apparel +32%, Shoes +5%, Beauty +31%, Furniture +46%, Heath and Personal Care +31%, Toys +24%, Home +18%, and Kitchen +12%. The best-selling product at Amazon was Amazon’s Echo and Echo Dot--voice activated speakers that connect to Amazon’s artificial intelligence Alexa Voice Service. Clearly there was a major shift of buying to the internet and especially to Amazon.
These are impressive figures that show consumers believe the values offered at Amazon and contrasts with the lack of credibility at department stores. There were constant sales – Macy’s ran one One-Day Sale that lasted three days, others lasted two days. Events must be truthful and believable. Christmas shoppers obviously shifted to a trusted low price retailer.
A woman walks past a Macy's department store on January 5, in Washington, D.C. (ANDREW CABALLERO-REYNOLDS/AFP/Getty Images)
Macy’s sales announcement was coupled with a confirmation of 68 store closings out of a projected 100 stores closing program, 63 of which will close in early 2017. This means a reduction from 730 stores to 662 stores. Because of these closings, a significant reorganization of the field structure is necessary. Over 10,000 associates will lose their jobs as a smaller, tighter organization emerges. The central organization will also be restructured. In the fourth quarter of 2016 the company will take a charge of approximately $250 million (50 cents a share). This is in addition the $249 million charge the company took in the second quarter. This year Macy’s took almost a half billion dollars in charges to tighten the operation.
Macy’s will operate its stores with smaller support infrastructure. It will be a challenge to keep the remaining stores productive with new ideas and customer attractions. It is expected that comparable sales will run in the -2.0% to -2.5% range during the coming year.
We have not yet heard from all retailers how the holiday season fared. I expect that the results will not differ much. The customer looked for value and many shoppers shifted to the internet and low margin stores. Luxury stores suffered from the lack of foreign visitors.
The poor holiday results make it clear that department stores must change their approach if they want to survive. They must eliminate unprofitable categories, create pop-up departments at the right time with the right merchandise, sponsor fashion events with a twist, and hold special classes for teen customers. These are some quick ideas that, in my opinion, would differentiate stores and make them more of a destination for today’s consumer.
Retailing is changing. Amazon is a major factor in forcing the change. 2017 will be a different year for the industry as the old guard continues to feel the pain of the shifting tide.
No comments:
Post a Comment