A Time of Diverging Fortunes for the Retail Sector

For department stores, a bleak moment. For others, strong gains.

Author: Andria Cheng

May 12, 2017

For the retail industry, this is a time of haves and have-nots.



The haves: Online retailers, off-price fashion chains, dollar stores and others. The have-nots: Department stores. 

On Friday, JC Penney joined its peers including Macy’s, Dillard’s, Kohl’s and Nordstrom in reporting declining Q1 comparable store sales.

Penney’s same-store sales, a key industry measure that strips out results from new and closed stores, fell 3.5%. That sharply missed the 0.8% decline that analysts surveyed by Retail Metrics were expecting.

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Penney’s segment results also highlighted the performance divide in the overall industry and showcased the struggles within the overall apparel sector that’s resulted in many bankruptcies and store closings: Sales of apparel for both adults and kids dropped more than the company average, eclipsing gains in areas including online business, appliances, mattresses, furniture and Sephora in-store beauty boutiques.

The diverging fortunes can be seen in US Commerce Department data released on Friday showing consumers are still spending--but it’s just where they spend that’s changed. Retail and food services sales year to date through April rose 3.7%, excluding motor vehicles and parts dealers. Big gainers included an 11% jump in online and other nonstore retailers, a 5.9% gain at home-improvement retailers, and a 3.2% increase in food service and drinking places. Department stores showed a 5.2% sales decline while clothing stores sales fell 1.1% during the first four months of the year from a year earlier.

As the retail industry heads into the thick of the first quarter earnings releases, results will continue to strike a similar note of consumers buying more online and shifting more spending to eating out and other experiences that they then post on social media. When it comes to things they actually buy, spending will likely tilt toward retailers like Home Depot that concentrate on home or chains including TJ Maxx and Marshalls parent TJX Cos., whose off-price concept of selling name-brand products at a discount has led it to be a millennial favorite, stealing significant share away from department stores and other retail segments.

Earnings results in the coming week will likely continue to paint a similar contrast. No. 1 US home-improvement retailer Home Depot, for instance, is expected to post a 3.9% Q1 comparable sales increase when it reports on Tuesday, according to Retail Metrics data. Among the other bright spots, analysts also expect sales gains from TJX and smaller rival Ross Stores. On the discount front, Walmart, which has been praised for such initiatives as its 2016 purchase of Jet.com and the April rollout of Pickup Discount that may give it a competitive advantage against Amazon, is expected to post a gain of 1.3% at its namesake US chain.

In comparison, its top discount rival Target is expected to post a fourth straight quarter of comparable sales decline as CEO Brian Cornell has promised to compete “aggressively” on price, a key driver for shoppers to buy. 


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