Seems it’s less about the stuff these days.
Consumers are spending more on experiences, from travel to a meal out, which is chipping away at sales of tangible things, like clothing.
And when shoppers do buy apparel, they’re gravitating to off-price retailers such as
Consumers are also buying more fashion from the nation’s online juggernaut: Amazon is expected to eclipse Macy’s as the largest apparel retailer in the U.S. by 2017, according to Cowen & Co.
This perfect storm of factors is threatening the very heart of the department store model: apparel, the sector's biggest business.
Department stores have long served as paeans to fashion brands showcased in expansive shops from the Calvin Kleins, Ralph Laurens and Tommy Hilfigers of the world. But that model feels a tad anachronistic these days.
Logo Fatigue
For one, designer brands don’t mean what they once did, as logo fatigue has set in, and shoppers can easily — and are increasingly more interested in — putting together a unique look from the infinite shopping choices online.
The fashion brands themselves are beginning to react to the change. Designer Michael Kors, for one, is reducing its department store distribution to improve profit margins, just as
Disruptions in the retail eco-system call for department stores to rethink how they work with vendors and consider reducing the massive amount of space they devote to clothing, Oliver Chen, retail analyst with Cowen & Co., told Forbes. “The market has changed.”
Today, department stores lack sufficiently differentiated, compelling merchandise to consistently resonate with consumers, including those younger, coveted Millennials.
And moving full-price apparel at a department store has become tougher when consumers can instantly check the price of widely distributed brands from their smartphones, and as there are “good, low-cost alternatives like H&M and Zara that have changed the game” — in part, by how quickly they get new products to store shelves, he said.
What’s more, department stores have long commanded markdown allowances - money for product that doesn’t sell – from their vendor partners. But as the low-margin apparel business, “where deflation is a constant issue — the price of a t-shirt has stayed similar for years," remains tough, “vendors are facing unique challenges,” Chen said. It's prompted many to expand their business via alternative retail channels “that sell through themselves,” like off-price chains.
Indeed, the off-price sector has been the biggest beneficiary of department stores’ apparel woes.
Shoppers are increasingly indulging in the thrill of the hunt from combing the disheveled-yet-surprising-and-frequently-refreshed clothing racks of stores like T.J. Maxx, the behemoth of the sector.
As of 2014, Burlington, Nordstrom Rack, Ross Stores and TJX generated about 8.4%, $29.7 billion, of the clothing and footwear sales in the U.S., according to Scott Tuhy, vice president at Moody’s Investors Service. The credit rating agency expects that share to approach 10% by 2018.
Now both Macy’s and Kohl’s are jockeying for a piece of the off-price action with their new small-format Backstage and Off-Aisle spin-off concepts, respectively.
Rethinking The Model
But they still have to address the elephant in the room: Rejuvenating business in their full-line stores. To do just that, department stores are turning to categories such as beauty, in-store services, even food.
In addition to shedding stores, Macy’s has been tinkering with its format by testing new concepts that point to a shift away from apparel. During the holiday season, it began testing Best Buy consumer electronics shops in 10 stores. And last year, the retailer bought freestanding beauty chain Bluemercury, which it will expand to 100 stores by mid-year, and bring to four Macy’s locations with in-store shops.
J.C. Penney, in the throes of a turnaround, is also turning to non-apparel businesses to drive growth. The moderately priced chain aims to accelerate the expansion of Sephora beauty shops in its stores, while moving the concept to the more prominent, “center core” area. It’s also modernizing and rebranding its hair salons via a partnership with InStyle magazine.
Chen said in a Cowen & Company research note: “Our industry consultants believe department stores will eventually devote less space to women's apparel, and more to other categories, which tend to be more productive, including home, beauty, wellness, electronics.”
Stay tuned.
