Fitch: Department Store Sales Continue to Slide

3/10/2014
U.S. department stores have seen sales decline by approximately 4 percent to about $175 billion the worst rate of decline since the 2008-2009 recession and lower than Fitch Ratings' medium term projection of a decline of 1 percent to 2 percent annually. This reflects the continued secular pressure and channel leakage to specialty apparel, discounters and, more recently, the online channel.

The eight department stores that Fitch rates (approximately 60 percent of the sector) reported comparable store sales decline of approximately 0.9 percent on a sales-weighted basis in 2013. Total sales volume for these companies was down 2.2 percent for the year versus 4 percent for the sector.

The notable laggards continue to be Sears Holdings Corporation; Bon-Ton Stores, Inc.; Kohl's Corporation and J.C. Penney Company, Inc., although J.C. Penney finally turned a positive 2 percent comp in fourth-quarter 2013.

Macy's, Inc.; Nordstrom, Inc.; and Neiman Marcus, Inc., which continued to post positive comps and market share gains, have differentiated product offerings, strong customer service and a successful multi-channel strategy that incorporates strong store presentation and merchandise offering with growing online sales.

Fitch expects a market consolidator would need to generate top-line growth of 2 percent or above to ward off competition from other channels such as specialty, discount and online retailers.

Fitch expects comparable store sales for the department stores the agency rates will remain flat to grow 1 percent in 2014 due to the expected improvement in J.C. Penney. Inventory levels in the channel appear to still be somewhat high at the end of 2013, indicating further clearance activity in first-quarter 2014; Fitch does not expect that the promotional activity will abate. As a result, gross margin for the sector could remain under modest pressure in 2014.
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