“Market share defensibility” has become critical to the sector’s credit profiles, according to an analysis from Fitch Ratings titled “Department Stores: Clamoring for Share,” written by analyst Monica Aggarwal.
The debt watchdog said the department store sector has been “the most pressured category in domestic retail and is one of the few major areas to have actually contracted in size over the past decade. As a result, market share gains are even more necessary to sustain healthy profits and cash flow.”
The sector’s lost share to specialty chains, discounters and off-pricers and saw its sales shrink at a compounded annual rate of 2.2 percent over the past decade as retail sales, excluding automobiles, rose 4 percent, Fitch said.
The pain hasn’t been felt universally, though.
Kohl’s Corp., which has hit a rough patch lately, has been the strongest department store gainer, growing its share of sales within the sector to 10 percent last year from 2.6 percent in 2000. And the rating agency said Macy’s Inc. was the best positioned in the middle market, with strong momentum from new merchandising and store initiatives.
Sears Holdings Corp. has been the biggest share donor, giving up almost $9 billion in sales over the past five years, Fitch noted. More recently, J.C. Penney Co. Inc. has also lost some ground to competitors as it gets reinvented by chief executive officer Ron Johnson.
Fitch predicted the top 10 department stores as a group — Macy’s, Sears, Kohl’s, J.C. Penney, Nordstrom Inc., Dillard’s Inc., Neiman Marcus Inc., Belk Inc., Saks Inc. and The Bon-Ton Stores Inc. — would see no sales growth this year. Combined earnings before interest, taxes, depreciation and amortization are also expected to be about flat.
Weakness at Penney’s and Sears should be offset by relative strength at other large players.
Fitch said luxury department stores should continue to outperform this year, but that inventories seem to have grown faster than expected sales gains. “This could drive some downward pressure on gross margin for the remainder of 2012, particularly if sales momentum slows down given the continued stock market volatility,” Fitch said.
Looking further ahead, the sector faces online opportunities and offline challenges.
Fitch said department stores can better develop the e-commerce business to drive sales, but that vacant mall space could ultimately hurt customer traffic.
“Fitch thinks that more store closings and a potential restructuring of Sears over the next 24 months could have growing implications for traffic patterns and competitive dynamics within the mall,” said the report. “Mall vacancy rates could increase given the lack of appetite today of big-box retailers even outside the department store space to add incremental square footage.…The loss of an anchor tenant could potentially be a negative for the remaining retailers to the extent that it impacts mall traffic, given the significant overlap between retailers such as Macy’s, J.C. Penney and Sears.”
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye