As the U.S. experienced the coolest overall weather in six years, shoppers flocked to department stores — driving up weekly sales, according to the Retail Economist-Goldman Sachs Weekly Chain Store Sales Index released this morning.
The gain comes at an opportune time for department store retailers in particular who have readied themselves for the fall and holiday shopping season by leaning up inventories and paring down apparel assortments amid ongoing pressure from off-price retailers and fast fashion companies.
For the week ended Sept. 3, the index “rose by a strong 2.3 percent” compared with the prior week said Michael Niemira, chief economist of The Retail Economist LLC. On a year-over-year basis, sales gained 3 percent. “Nationwide temperatures over the past week were the coolest comparable fiscal week in six years, according to Weather Trends International,” the economist said. “That cooler weather helped drive demand at department stores, in particular, which led all of the retail segments.”
In a separate research note from Telsey Advisory Group, the research analysts said the department store segment is well positioned. “Heading into [the second half of 2016], we believe department stores are in much better shape than last year in terms of lean inventory positions, and easy comp store sales and margin comparisons, particularly in the fourth quarter.”
The improvements — while necessary given current market conditions — may not deliver the same profits as department stores delivered in prior years, the analysts noted. “Overall, we believe department stores are working toward reinventing the traditional model and continuing to elevate the omnichannel experience while seeking to drive profitable sales growth,” the research analysts said. “While we do not expect that EBIT [earnings before interest and taxes] margins will return to historical peaks, a heightened focus on driving comps, keeping inventory levels lean and lowering expenses creates a more interesting backdrop for the department store sector as we enter a potentially renewed stage of growth.”
Looking at the department store sector from a global perspective reveals a market segment that has faced challenges from specialty retailers and fast fashion firms as well as from off-price retailers such as The TJX Cos. Inc. And the reaction has been to contract and consolidate. In a 142-page report on the state of the global department store segment issued yesterday by Deborah Weinswig, executive director and head of global retail and technology at Fung Business Intelligence Centre, the more mature department stores who have mastered an omnichannel approach will likely succeed.
Weinswig was quick to add a caveat. The success of department stores can be achieved “but only if retailers offer appealing and worthwhile in-store experiences as well as desirable product. Today’s shoppers are spoiled by choice and are more demanding than ever.”