The Top 10 Department Stores

1.       Dillard's

3.       Belk

4.       Macy's

5.       Saks

6.       Neiman Marcus

7.       Burlington Coat Factory

8.       Bon-Ton Stores

9.       JCPenney

10.     Sears

As websites, mobile apps, tablets, smartphones and everything else digital continue to proliferate, the role of the physical store – albeit a quickly changing one – has never been more important. For department stores that do it right, their larger footprints offer added opportunity to entertain their customer (as JCPenney proposes to do with its new Town Square concept, where shoppers will gather socially for fun activities and services – and then shop); to devote more space to in-store digital offerings (as Macy's is doing with digital displays side-by-side with physical product, offering both a touch and feel, as well as an endless aisle of product and a way to interact with it); and more space for more physical offerings (such as Macy's soon-to-be-unveiled acre of shoe-selling space in its flagship herald Square location, which is in the middle of a massive $400 million renovation).

 

While some other department stores have made a big splash reinventing themselves recently, Dillard's has more quietly been focusing on inventory control and expense discipline, while striving to "own" the spot as the destination for an edited merchandise selection of revered national and exclusive brands, supported by outstanding customer care. This focus led to an impressive 4% increase in comp-store sales and improved gross margin growth by 30 basis points (following increases of 190 and 410 basis points in 2010 and 2009, respectively). Increased focus on its online store is highlighted by its new state-of-the-art, 850-000-square-foot Internet Fulfillment Center in Maumelle, Ark.

 

With exclusive and private brands continuing to rise as a percentage of total sales, Kohl's is up 240 basis points to 50.3% in 2011, helping to drive Kohl's 6.21% profit margin. Kohl's store expansion rate has slowed in recent years and most of the company's anticipated 20 new store openings this year will be in a smaller format (55,000-to-68,000 square feet vs. 90,000 square feet). Kohl's also continues to remodel its existing store base, completing 236 remodels in the past three years with 50 on tap for 2012, a process the company has honed with experience; a typical store remodel now takes just seven weeks — half the time it took in 2007.

 

The tagline "Modern. Southern. Style." is just part and parcel of a massive revitalization project going on at Belk that is already producing strong results for the company with comp-store sales up 5.5% and profit margin up 132 points over last year. Over a five-year period that began in 2011, Belk is investing approximately $600 million in a number of key strategic initiatives in the areas of merchandising, rebranding, e-commerce, store remodels and customer service. In June, Belk opened a new $4.5 million 515,000-square-foot e-commerce fulfillment center in Jonesville, S.C., to support its growing e-commerce, whose sales grew 10%, to $72 million, last year. The retailer is also rolling out a new Oracle enterprise system providing solutions in areas of purchasing, planning, allocation, replenishment, demand forecasting, pricing and promotion, merchandising, financial planning and size optimization.

 

Macy's is supercharging its omni-channel strategy, one of three key strategic initiatives underway at the company, by integrating stores, the Internet and mobile devices to put the company's entire inventory at the service of customers anywhere, by equipping 282 of its more than 800 Macy's stores to pick and ship orders. Two other key initiatives contributing to a third consecutive year of significantly improved financial performance — including the addition of more than $1 billion in top-line sales, same-store sales up 5.3% and online sales up 40% — are: My Macy's localization, focused on tailoring the merchandise assortment and shopping experience by store; and MAGIC Selling, focused on improving customer engagement in stores by training associates to "meet and make a connection" with every customer. The retailer is also continuing adoption of RFID throughout both Bloomingdale's and Macy's locations.

 

Saks significantly improved operating results in 2011, driven by strong comps up 9.5% and gross margin rate improvement, as it focused on carefully balancing inventories, committing inventory to high-potential growth areas, introducing exclusive, limited-distribution product and reducing promotional activity to drive more full-price selling. Like its counterparts, the department store chain is focused on its omni-channel strategy (direct sales were up 28% in 2011), and as part of a multi-year transformation to support this approach has invested in technology to achieve one view of its customer across channels, as well as one view of its inventory, by integrating Saks Fifth Avenue's in-store and Saks Direct inventory systems. On the fulfillment side, a new advanced robotics system for receiving and fulfilling direct orders at its Aberdeen, MD DC has significantly increased productivity, improved space utilization and improved customer service, and —still short on space — this year the company is expanding its distribution and fulfillment capacity with a new, 564,000-squarefoot facility in Tennessee.

 

Neiman Marcus made headlines when it reported a partnership with cheap chic retailer Target to produce a holiday collection that will be sold at both stores, reflecting a growing trend among retailers to throw out the old rules as they seek to inject excitement into their stores. The collection, with designs from 25 well-known and budding designers including Oscar de la Renta, Tory Burch and Derek Lam, will let Target's fashion flag fly higher while opening a door to a wider audience for Neiman Marcus. Meanwhile, it is working another fashion-forward angle, spreading and updating its Cusp concept — a curated selection of "must haves" from leading designers and up-and-coming names – from a few stores and six free-standing boutiques to all 43 of its locations. For the nine-months period ended April 28, 2012, profit margin is up 4.52%, up 150 basis points over the same period last year.

 

Burlington Coat Factory — which operates under the Burlington, Burlington Coat Factory, Baby Depot, Cohoes and MJM nameplates — turned in a 0.7% comp-store sales increase and in the first quarter of 2012 saw a 5.7% sales increase and a 0.6% increase in comps, including a particularly strong performance from ladies' apparel, shoes and accessories. The weather has a major impact on the business and the unseasonable warmth in the fourth quarter 2011 was the primary culprit responsible for the decrease in earnings and profits.

 

Despite Bon-Ton Stores' disappointing performance in 2011, Bon-Ton Stores reduced debt by approximately $47 million, reduced interest expenses, and pushed forward on several strategic initiatives fleshed out in pilot stores that will be expanded, initially to 64 stores this year. Additionally, the 272-store retailer is focusing on: reallocating square footage to highlight high-growth categories such as ladies' shoes, cosmetics and dresses; using traditional and new media channels to communicate a clear and concise message to customers; reengineering marketing efforts and more aggressively utilizing new media; growing its e-commerce business by adding resources, with a goal of doubling e-commerce sales over the next few years to reach 5% of its business; growing sales through increased penetration of its private label credit card business; and continuing to leverage expenses by uncovering opportunities to be more efficient.

 

If you've been trying to keep tabs on 1,100-store JCPenney over the past year, you couldn't help but feel a little dizzy. For some time now, to no avail, the 110-year-old retailer has been making incremental changes to try to turn around its fortunes, but it took former Apple and Target executive Ron Johnson, who joined the company as CEO in November, to really shake things up. Making the announcement at a no-holds-barred launch event in January, Johnson revealed a blueprint that includes: a "Fair and Square" pricing strategy reflecting a new promotional cadence that avoids a relentless series of promotions and coupons; a completely reinvented store centered around a "Town Square" concept, where the store center will function as a fun, service-oriented gathering place and will be surrounded by JCPenney "brand shops," focused on tried-and-true JCPenney brands as well as new additions including Martha Stewart  and L'amour Nanette lepore; and a completely new JCPenney brand identity, logo, look — and brand partner, Ellen DeGeneres. While Johnson says the transformation is ahead of schedule and that "customers love the new jcp," since its launch, sales have been lower than anticipated, with customers seemingly confused by the new pricing policy.

 

To reverse Sears' continuing poor financial results, the company needs to think differently, and it's trying to. Transforming its disparate businesses under a single management structure is no easy task, and the company is shifting course. Fixing the profit problem is key, and the company is working, with varying levels of success, to execute its five-pillar strategy — which includes: creating lasting relationships with its customers; attaining best-in-class productivity and efficiency; building its brands; reinventing the company continuously through technology and innovation; and living its values. In the first quarter of 2012, Sears posted a $189 million profit, buoyed by the spinoff of smaller-format stores, as the company moves forward with a network of direct-delivery centers designed to provide fast delivery to online shoppers, plans to improve store layout and design, significant additional investment in the Shop Your Way program, and a new wholly-owned subsidiary, MetaScale, that provides data management services, and leverages the resources the company has already invested in building the infrastructure for the data management needs of its more than 4,000 Sears and Kmart stores.