Department Stores Battle for Market Share

Two percent might be the magic number for companies struggling to maintain their businesses as online players gain momentum.

Two percent might be the magic number for department stores struggling to maintain their businesses as online players gain momentum.

This story first appeared in the June 6, 2014 issue of WWD.  Subscribe Today.

That’s the minimum level of sales growth department stores need to protect their market share, according to “Department Stores: A Shrinking Slice of the Pie,” an analysis set to be released by Fitch Ratings today.

The 18-page report by analysts Monica Aggarwal and Isabel Hu paints a dire picture for the sector overall and notes the weakness could impact “B” and “C” malls.

Even so, Fitch notes said Macy’s Inc., Nordstrom Inc. and Neiman Marcus Group Ltd. LLC are gaining share by growing their online businesses and using their stores to serve customers with differentiated goods. But midtier companies are feeling the squeeze, with Sears Holdings Corp., The Bon-Ton Stores Inc., Kohl’s Corp. and J.C. Penney Co. Inc. struggling with a promotional market and a shifting landscape.

“Total sales for the top 10 department stores in aggregate have remained essentially flat since 2001, while square footage has grown by approximately 18 percent, indicating a meaningful decline in sales productivity,” the analysts said. “Fitch expects the secular and competitive pressure could lead to more store closings or potential restructurings over the next 24 to 36 months, and have negative implications for traffic patterns and competitive dynamics within malls, particularly tertiary malls, as department stores are key anchor tenants.”

Fitch estimated that online apparel and accessories sales approached $38 billion last year, making it the largest and one of the faster growing categories in e-commerce.

Department stores are part of that growth but still rely on their brick-and-mortar operations.

Citing estimates and company numbers, Fitch said that Bon-Ton, Dillard’s Inc. and Sears’ U.S. operations get only about 5 percent of their sales from the Web, lagging Macy’s (at 10.7 percent of sales), Nordstrom (13.3 percent) and Neiman Marcus (23 percent).