Future of Big Box Stores

Future of Big Box Stores

Retail

STOrai Magazine

STOrai Magazine

313 week ago — 6 min read

It’s been a long, slow slide for department stores. Starting some two decades ago, the major chains began leaking share to the big-box, off-the-mall players. Just as that started to stabilise to some extent, Amazon and other e-commerce  pure-plays began chipping away at the sector’s once dominant position in apparel, accessories and home products. Most recently, in addition to the ongoing threat from online shopping, off-price chains have benefitted from a growing legacy of major chain mediocrity.

 

Unsurprisingly, investors have treated the sector like the plague. In the US, the market values of Macy’s, J.C. Penney, Sears, Dillard’s and Kohl’s have all plummeted. Even Nordstrom, which has performed relatively well, has seen its market value halved in the past couple of years. Just this past week J.C. Penney saw its shares, which were already off some 80% since 2013, plunge further after a surprise earnings warning.

 

For many, this unrelenting parade of bad news leads them to believe that department stores are toast. But just as the retail apocalypse narrative is nonsense, so is the notion that department stores are going away. I am willing to go out on a limb to say that a decade from now there will still be hundreds of large, multi-category brick-and-mortar stores operating in the United States and throughout the world. But despite this conviction, things are virtually certain to get worse before they get better; and three major things must happen before any sort of equilibrium can be reached and decent profits can return.

 

Major rationalisation or consolidation of space

The overall retail industry is still reeling from decades of overbuilding, as well as the abject failure of most department store anchors to innovate, in order to stay remotely relevant and remarkable. While the idea that major chains can shrink to prosperity is fundamentally misguided, it’s clear that- a) most chains still have too many stores; b) the stores they have are, on average, larger than they need; and c) there is no compelling reason for Sears, Kmart, Bon-Ton (and perhaps a few others) to exist at all. Many dozens, if not hundreds, of locations are certain to be whacked after the holiday season. And despite the liquidation sales that will put pressure on earnings in the first half of the calendar year, there is actually a real chance for year-over-year margin improvement by the time the holiday season rolls around this time next year.

 

A true commitment to be more focused, more innovative and more remarkable

It turns out that department stores, like every other struggling retail brand, picked a really bad time to be so boring. It turns out that deferred innovation is even more crippling than deferred maintenance; and that trying to be everything to just about everybody means being mostly irrelevant to a lot of folks. Given the certain continuing contraction of the sector, the only hope for remaining brands is to gain significant amounts of market share. And that only happens to any material degree by embracing intense customer-centricity to become more relevant to a tighter customer set, and by consistently executing a far more remarkable experience than the competition. Continued flogging of me-too products, one-size fits all advertising, boring presentation, and chasing the promiscuous shopper through promotion on top of promotion, won’t cut it. The hard part is that most of the flailing brands are woefully far behind, lack a culture of innovation, and simply don’t have the cash to do what it will take to right the ship.

 

Amazon needs to place its bet. It’s clear that Amazon has its sights set on being a much bigger player in apparel, accessories and home products. And it’s hard to see how they get speed, add the necessary volume, and address the vexing returns/supply chain issues without a major physical presence in the moderate and higher-end softlines arena. For that reason, I’m also willing to go out on a limb and predict that Amazon will buy a major department store player in 2018. And just as its acquisition of Whole Foods is transformative for the grocery industry, so too will be a much deeper brick-and-mortar (and omnichannel) presence in the department store sector. In fact, it’s hard to underestimate how a big move by Amazon here will reshape just about every imaginable facet.

 

While 2017 has brought more than its fair share of department store news–and we’re hardly finished–I see 2018 as being chock-a-block with not only profound news but likely representing the year when the future of the sector will become far clearer. 

 

Article by Steve Dennis published in STOrai Magazine

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

Comments