Top 5 Department Stores Leave Laggards in the Dust

If there’s a fairy tale that would best describe this moment in retailing it would have to be “Goldilocks and the Three Bears.” Goldilocks is the consumer, bears the retailers. And the consumer is only going to go for the experience that is “just right.” This year’s top five department stores are all on a mission to achieve that sweet spot, with strategies that focus on just the right product, at just the right place, at just the right time with just the right amount of customization and engagement (but not too frequently and not too invasive).

The top five department stores have left the bottom players far behind. Bon-Ton, Neiman Marcus, Sears and JCPenney all ended the year in the red. While this Report looks just at those public companies that file with the U.S. SEC under the category of department stores, it is interesting to note that TJX Cos., were it included in this list, would take the No. 1 spot, with 7.62 percent profitability, followed by  Nordstrom at No. 2, with 5.49 percent  profitability. Stein Mart would fall between Belk and Burlington with 2.04 percent profitability. Those three companies, however, were all included in last month’s Top 50 Report.

Also, just for kicks, we took a look at Target ($72.6 billion in revenues), which last year would have fallen between Belk and Burlington with 2.77 percent profitability, but this year took a loss due to its exit from Canada. As for Walmart ($476.3 billion in revenues), it would come in just below Belk with 3.47 percent profitability.

Here’s a look at a few recent highlights from this year’s Top 5 department stores.

#1 Macy’s
The iconic department store retailer is finally taking the plunge, announcing that it will venture into the outlet market with six off-price stores, to be called Macy’s Backstage, which will open this fall in metropolitan NYC. Merchandise will include clearance goods from Macy’s stores as well as special buys from well-recognized fashion brands, at prices between 20 percent to 80 percent off of original and comparable prices for similar merchandise.  Macy’s also recently announced an agreement with Men’s Wearhouse to open licensed tuxedo rental shops within 300 Macy’s stores nationwide, and in March of this year it completed its acquisition of Bluemercury (currently about 62 stores in 18 states), the U.S.’ largest and fastest-growing luxury beauty products and spa services retailer, for $210 million — Macy’s first acquisition in 10 years and an entirely new channel for growth. All of this falls under the umbrella of expansion through all-new business ideas, which is now led by Peter Sachse, chief innovation and business development officer, and also includes investigating further international expansion — it already ships to 100 countries — for Macy’s and Bloomingdale’s, the latter of which has a store in Dubai, and another planned for Abu Dhabi in 2018. With its omnichannel strategies maturing exceptionally well, opportunity abounds for organic growth for existing businesses, as the company can make decisions faster, move quicker and be more responsive to how and when its customers choose to shop, and that is reflected in the company’s fifth consecutive year of comp sales growth. Macy’s Inc.’s total sales have grown by nearly $5 billion during the past five years — even with a somewhat smaller portfolio of stores — at it has carried out the three core pillars of its M.O.M. strategy: My Macy’s localization, omnichannel integration and Magic Selling customer engagement. A few recent initiatives playing out under M.O.M.: 1) it has enhanced its assortment and sales performance by climate zone and become more granular in serving ethnic and multicultural customers; 2) it has achieved a single view of its customer across channels, and in providing even greater convenience rolled out Buy Online Pickup in Store (BOPS) to all Macy’s and Bloomingdale’s locations nationwide, and successfully piloted same-day delivery to customers in eight markets during the holiday season; and 3) has put new tools and technology on the selling floor to engage customers, including mobile POS, kiosks and tablets.

#2 Dillard’s
The retailer turned in 1 percent comps for the full year, but ended on a higher note with 3 percent comps in the 4th quarter, with sales notably strong in ladies’ apparel and shoes, followed by juniors’ and children’s apparel, with sales weakest in the home and furniture categories. During the year, Dillard’s opened a new store in Las Vegas, Nev. and also shuttered and opened a new store in Sarasota, Fla., ending the fiscal year with 277 Dillard’s locations and 20 clearance centers spanning 29 states (mostly in the Southwest, Southeast and Midwest) and online. This year, it will open three new stores in Murray, Utah; Slidell, La. and Cincinnati, Ohio, respectively. Like its competitors, Dillard’s has been combining customer and other data gleaned online with old-fashioned merchandiser knowledge to get a more complete picture of the variety of its customers, further editing merchandise assortments by store to meet the specific preferences, tastes and size requirements of each local area.

#3 Kohl’s
The company continues to pursue the Greatness Agenda it introduced early last year, which has a goal “to inspire and empower families to lead fulfilled lives.” Some of the achievements under the five pillars of its agenda include: 1) amazing product — it refocused on national brands, resulting in higher comps for its national brand portfolio than for its private and exclusive brands, with the strongest performers by brand during Q4 including Nike, Levi’s, Carter’s, Fila Sport and Jumping Beans. (Nike, its largest national brand, reported a 24 percent increase in Q4, while the company’s collaboration with Disney helped drive a 27 percent increase in Jumping Bean sales in Q4, with Frozen contributing to a much of that growth.) During 2014, Kohl’s added more than 15 new brands including IZOD, Juicy, Fitbit, Nespresso and Gaiam; 2) easy experience — it reformatted its beauty department to be more aspirational and approachable, and added Bliss to its product line; 3) personalized connections — it continues investments in platform improvements across mobile and tablet, and development of its Kohl’s wallet, allowing for easy storage of all of the retailer’s promotions and its Yes2You Rewards as well as Kohl’s Cash — all of which has resulted in increased conversion rates across all channels. As part of its focus on personalization, Kohl’s has built 10 key behavioral segments and will focus on its four largest customer opportunities in 2015. Localization efforts are in the rollout phase; 4) incredible savings — its Yes2You loyalty program, launched nationwide last October, has far exceeded expectations, rounding out the fiscal year with approximately 25 million customers enrolled in the program — 20 percent more than goal; and 5) winning teams — the company brought together almost 3,000 of its leaders from across the country for a multi-day conference to strengthen leadership skills.

#4 Belk
The 127-year-old family-run business has been looking around for a buyer, and, at press time, Sycamore Partners was preparing an offer for the retailer that would value the department store chain at between $3 billion and $3.5 billion, including debt, and would be the buyout firm's largest deal ever. Belk, currently run by the third generation of the family, reportedly has not groomed a fourth generation to take over and may view this as a perfect time to sell. The retail environment is growing ever more competitive, and even though Belk has invested more than $600 million in key strategic initiatives over the past three years, and has plans for further investments going forward, it got into the omnichannel game a bit later than some of its competitors and is still playing catch-up. During the next three-year period beginning in fiscal 2016, Belk is planning capital expenditures of $450 million, with approximately $230 million focused on its omnichannel initiative, $110 million on creating compelling shopping environments via new stores, expansions, remodels and an expanded flagship strategy, $45 million on IT that delivers new business capabilities, and $65 million on supply chain initiatives that align distribution capabilities to support its omnichannel initiative. Belk’s growth strategy has been focused on new stores, expanding and remodeling existing stores, developing new merchandising concepts in targeted demand centers, and expanding its online capabilities. It also has expanded the number of flagship locations, and ended the fiscal year with 21. As part of its omnichannel initiative, the company expanded its “Yes, We Have It!” program consisting of an item locator initiative, which generates incremental demand by enabling customers to order inventory not available in a particular location, and a fulfill-from-store initiative — during the year, more than 17 percent of sales were fulfilled by stores. The company plans to further expand both its item locator and store fulfillment efforts this year. Other programs in development include a digital store initiative to upgrade store technology, customer Wi-Fi, new PIN pads, a new touchscreen POS platform with access at the register, and the use of both fixed registers and mobile devices to process in-store customer transactions.

#5 Burlington
The off-price retailer is focusing on better assortments across brands, lifestyles, sizes and climate; and continued improvement in the store experience, including simplified merchandising, clear brand signage, size fixtures, well-organized selling floors, and a better alignment of selling hours to customer traffic. That all translates into a better customer experience, reflected in comp-store sales up 4.9 percent for the year, following a 4.7 percent increase in 2013. Meanwhile, comp-store inventories decreased by 18 percent, contributing to a 22 percent faster comp-store inventory turnover. During the year, the company opened 24 new stores and closed three. For 2015, the company expects to drive comp-store sales as a result of its enhanced off-price model, improved store experience, marketing testimonial campaigns (which feature customers in stores explaining why they love and shop at Burlington), and merchandize localization strategies. By category, the company expects continued sales growth from the investments made in its ladies’ apparel, home, bath-and-body, and accessories businesses, each of which outperformed the company average in 2014. In other highlights: 1) Burlington recently converted from a customer phone survey to a web-based survey, which provides more detailed actionable customer feedback and should allow the retailer to raise customer satisfaction; 2) it is on track to open 25 net new stores in 2015 as it moves closer to its long-term goal of 1,000 stores; 3) it continues to optimize initial pricing and markdowns and to tailor assortments by store.

Jordan K. Speer is editor in chief of Apparel. She can be reached at [email protected].
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