DJ Department Stores, This Is No Time for Grave Dancing -- Heard on the Street
By Jinjoo Lee
Surviving department stores are hoping to gain market share from weakened competitors. They might not want to get their hopes up.
By mid-July, the number of 2020 bankruptcy filings for retailers -- specifically, those seeking relief through a restructuring rather than liquidating their businesses -- had exceeded 2019's full-year numbers. These include department-store names such as J.C. Penney, Gordmans parent Stage Stores and Neiman Marcus.
Such headlines have led solvent department stores, including Macy's, Kohl's and Nordstrom, to declare this a chance to gain market share. It won't be easy.
Take the year 2012, when J.C. Penney lost 25% of its revenue year over year after undergoing an unsuccessful restructuring of the business. None of the competing department stores enjoyed much benefit: That year, Macy's, Nordstrom and Kohl's all recorded sales growth pretty much at the same level as the previous one. Instead, off-price retailers were the ones that gained share: T.J. Maxx parent TJX Cos. doubled its revenue growth during the same period, while Ross Stores logged a roughly 35-percentage-point bump to its sales growth.
"Department stores tend to sell products that others also sell. So if you can't engender a high amount of loyalty with a private-label credit card or a great experience, what we found over time is that many consumers will just price compare," notes Lorraine Hutchinson, analyst at BofA Global Research. Particularly in times when consumers have thinner wallets -- as many do now -- chances are high that shoppers will divert their dollars to cheaper destinations.
Plus, customers spread out their shopping dollars across a pretty large pool of retailers: A store closure from one business, for example, tends to result in those dollars being spread across 10 to 12 different retailers, according to Jay Sole, analyst at UBS.
Many retailers that undergo bankruptcy don't simply cease to exist, at least not in the near term. J.C. Penney and Neiman Marcus are among the companies that plan to emerge from bankruptcy with many stores intact.
Based on experience, existing department stores will have to come up with some compelling traffic drivers or really focus on their off-price segment to reap any benefits from weakened competition. One successful example was Kohl's, which gained market share after Bon-Ton's liquidation in 2018, according to Ms. Hutchinson. Kohl's sales growth tripled that year but it took some creative solutions, including an Amazon returns program and a pilot program in which it subleased a portion of stores to traffic-driving retailers such as Aldi.
Perhaps the best gift that bankrupt retailers can give their peers isn't easy market share but lessons on what hasn't worked. Surviving department stores will find themselves in trouble if they don't adopt some radical measures.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
September 21, 2020 07:00 ET (11:00 GMT)
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