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Translated by
Nicola Mira
Published
Jun 19, 2017
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US department stores forced to rethink business model

Translated by
Nicola Mira
Published
Jun 19, 2017

The retail sector in the USA has been sailing through stormy seas for several years. According to commercial real estate experts Cushman & Wakefield, across all sectors, 9,000 to 10,000 shops are expected to close down in 2017 in the USA, with another 13,000 closures forecast for 2018. The hardest-hit segment is that of department stores. They are struggling to adapt to changing consumer habits, and many of them are forced to streamline their organisations to stay afloat, further compounding their woes.


Sears has recently announced further job cuts - Sears


Sears, historically one of the USA's premier retail names, initially forecast 170 store closures this year, and last week added another 66 to the list. The company is going through a structural make-over, and last March, for the first time, it mentioned the possibility it may eventually disappear altogether. On 13th June, the group announced it was forced to cut 400 jobs in the USA and close down another thirty or so stores, while Sears Canada is reportedly about to default.

Macy's too has engaged in an aggressive store-closure policy, with a view to save up to $600 million in costs. The department store, weakened by declining sales, announced in January the closing down of 70 stores and the elimination of some 10,000 fixed-term jobs.

JC Penney has adopted a similar strategy: last February, it heralded the closing down of between 130 and 140 stores, and initiated a voluntary redundancy programme involving 6,000 employees. The group's target is to save $200 million per year, and to carry on managing a total of 900 stores, a downsizing of approximately 15%.

As for Saks Fifth Avenue, owned by the Hudson’s Bay group, it plans to cut 2,000 jobs. The ensuing reorganisation is expected to generate cost savings to the tune of $170 million for the upmarket department store chain.


The department store chain is considering delisting - Nordstrom


In early June, Nordstrom announced it is considering a stock exchange delisting, owing to the difficulties traditional brick-and-mortar distribution is faced with. The chain, founded in 1901, has stated that "in the light of the changing business environment in retail sales, the group is considering if its long-term interest is better served by becoming a private corporation."  

All of these department stores face competition on two fronts: mass-market distribution on the one hand, notably Walmart, and booming e-tail giants like Amazon on the other. The popularity surge enjoyed by e-tail is a factor in the consumers' declining interest in shopping malls, they too penalised by disappearance of their main footfall drivers, department stores. At the same time, the huge number of shopping malls spawning across the country has generated fierce intra-sector competition. Several industry experts have predicted that one in four shopping malls will close down by 2022. This means about 300 of the 1,100 malls currently in business in the USA.

In order to reinvent themselves - something they are compelled to do - traditional department stores are actioning several levers: they are streamlining their chains, they try to inject new energy in-store by using digital tools, and they are busy with a frenzy of promotional initiatives to win over customers again. They are also reviewing the range of brands they offer, to become more distinctive, in some cases focusing more on rarity and exclusivity than on volume.

Bloomingdale’s installed tablets in-store some years ago, while others are concentrating on categories different from ready-to-wear apparel. For example, beauty: JC Penney has struck a deal with Sephora, while Macy’s has set up an exclusive partnership with BeGlammed. JC Penney has instead set its sights on home decoration, expanding its Home range, and Nordstrom has decided to launch a store dedicated exclusively to men, in New York, opening in 2019.

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