The Business Times

A stark divide in America's retail industry is coming into focus

Published Thu, Mar 7, 2019 · 12:07 AM

[NEW YORK] Macy's is closing stores. So are JC Penney, Family Dollar, Payless ShoeSource, Victoria's Secret and Gap. On the flip side, Walmart and Target just reported their best sales growth in more than a decade.

America's retail industry is divided. As earnings season continues, it is becoming clear just how divided.

On one side are the companies that have worked out online strategies to compete with Amazon, while also finding the right mix of products and services, like selling groceries, to keep shoppers coming into their stores.

Amazon is still by far the leader in e-commerce, but Walmart, Target and Best Buy especially are increasingly challenging its dominance in online sales. They are using their physical stores to fulfill online orders - catering to shoppers' demands for instant gratification - and increasing their digital promotions.

Those efforts paid off in 2018, particularly during the holiday season. Walmart and Target just reported their best comparable year-over-year sales growth since before the financial crisis, bolstered in part by the growth of their online operations.

Walmart's digital revenue rose 40 per cent last year, and the company is now the third-largest online retailer in the United States, according to data from eMarketer. Target's e-commerce revenue increased nearly as much, and the company said that about 75 per cent of its online sales during the fourth quarter were fulfilled in stores. Best Buy's turnaround maintained its momentum in 2018. The electronics retailer's comparable sales growth the past two years is its highest in more than a decade.

The three companies also benefited from the struggles and store closings of retailers like Toys "R" Us and Sears.

Then there are the laggards.

Investors had high hopes for department stores like Macy's, Kohl's, JC Penney and Nordstrom last year. The economy was strong, consumer confidence was high and shoppers had extra money to spend as a result of the tax cuts.

Shares of the four department store chains rose more than 30 per cent in the first half of the year, before they succumbed to a broad market sell-off. But the results they have reported recently show that some of the early hopes reflected in the stock increases were premature.

The chains' performance is tied in part to the struggling malls that their stores often anchor. Many of those shopping centers have been hollowed out in recent years and have failed to keep up with the changing tastes and buying habits of American consumers.

JC Penney reported declining sales for the holiday season, while Macy's warned that its sales are unlikely to increase much in the year ahead. Both companies also announced additional store closings.

Sales for two mall stalwarts, Gap and L Brands, the parent company of Victoria's Secret, also fell short of Wall Street's forecasts and the pair announced more store closings.

Nordstrom reported that comparable sales at its full-price stores had declined 1.6 per cent. But the company's results were lifted by another shift among consumers: a growing move toward discount chains. Comparable sales at Nordstrom Rack, the company's off-price store, rose 4 per cent.

One department store chain has managed to avoid the gloom. Kohl's same-store sales and forecast for the year ahead beat Wall Street's expectations. Why? A partnership with Amazon to sell the Echo and other products from the e-commerce giant while allowing Amazon customers to return purchases to Kohl's stores.


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