Last year’s robust holiday season hasn’t made retailers any less worried about the near-term future.
There’s widespread concern on the toll fourth-quarter discounting and online growth took on margins and whether the volatile stock market, political unrest, tariffs and recession rumors derail the heady consumer spending seen through most of 2018. Also, Americans are carrying more debt on homes, cars and student loans, which could also slow spending as interest rates rise.
While online operations continue to accelerate revenues, they pose greater strains on package carriers and their ability to be accurate and on time with deliveries, and lead retailers to spend more on free shipping, curbside pickup and BOPIS to encourage shopping.
“The switch to more online shopping makes the margins tighter for retailers,” said Barbara Kahn, professor of marketing at the Baker Retail Center at The Wharton School.
In addition, tariffs on billions of dollars of Chinese imports will be tough for retailers to absorb and could result in higher prices on consumer goods, and store vacancies are ever-present at mid-tier malls and high-street venues such as Madison Avenue due to retail streamlinings and landlords getting greedy with rents. In some locations, rents have started to moderate.
One site being widely watched is Henri Bendel at 712 Fifth Avenue between 55th and 56th Streets. It’s set to shut down, but is a beautiful building with Lalique windows and a prime retail location, particularly suited for a monobrand flagship.
“We will see the continued acceleration of category killers going out of business, wiped out by online operations offering cheaper and wider assortments,” predicted Kahn, summarizing what she sees as major retail trends for the year.
On the bright side, retailers will further their efforts on personalizing the offering and communications to shoppers. They will continue to automate the shopping process both online and in store. They will raise the level of exclusive products they sell to differentiate themselves from the sea of sameness and will work closer with brands and designers. And inclusivity is gaining acceptance in the retail world, as marketing and merchandising strategies reach a wider variety of lifestyles, cultures and body types.
In New York, there’s never been more retail upheaval and transformation and it revolves around the department store sector, from the closing of the Lord & Taylor flagship on Fifth Avenue and the Saks Fifth Avenue women’s store in Brookfield Place this month to the opening of the first Neiman Marcus and Nordstrom women’s stores in town. Neiman’s opens in March in Hudson Yards on Manhattan’s far west side, and Nordstrom’s women’s flagship on West 57th Street by Broadway in Manhattan will debut in the fall.
The Saks flagship on Fifth Avenue, which has been undergoing a dramatic $250 million “re-imaging” for three years — some sources believe the price tag will be higher — will unveil a new main floor housing leather goods and accessories; the L’Avenue restaurant from Paris; the Vault for fine jewelry on the lower level, and an escalator linking the lower, main and second floors. It’s designed to facilitate a flow of shoppers from floor to floor and elevate the shopping experience.
Bloomingdale’s also completes a multiyear renovation of its flagship with the launch of a new ready-to-wear floor on the fourth level.
Among mass merchants, look for Walmart Inc. to continue to invest in new businesses, advancing its diversification strategy of the past few years that brought a string of brands focused on e-commerce into the portfolio, including Bonobos, Jet.com, Eloquii, ModCloth and Bare Necessities.
Retailers at precarious crossroads include:
• Barneys New York, which got socked with rent increases on its Madison Avenue and Beverly Hills flagships. Barneys must generate more traffic, in stores and online, to survive.
• J.C. Penney Co. Inc. desperately needs to rev up revenues to sustain the business and win over customers from liquidating or dead competitors, i.e. Toys ‘R’ Us, Bon-Ton Stores, Sears and Kmart.
• Victoria’s Secret has a new chief executive officer coming in, John Mehas, who must rethink merchandise offerings and consider reentering previously exited categories as the brand tries to stabilize business. It’s failed to freshen up the merchandise and the image and keep up with both its maturing customers and younger generations.
• J. Crew Group Inc. needs to dig out of its hole, recapture its merchandise specialness, and find a ceo for the task, after parting ways with Jim Brett last year.
• The Neiman Marcus Group must work with creditors to restructure its onerous $4.8 billion debt this year, well before the $2.8 billion term loan comes due in October 2020. There are also two sets of bonds and an asset-backed loan due in 2021. Neiman’s has another concern as well: Chanel, the luxury store’s largest vendor, is switching to the concession business model, which could limit profits.
• It’s questionable whether the bankrupt Sears Holdings survives more than another year or two. Look for more store closings and asset sales.
• The Hudson’s Bay Co. is another retailer with a large debt load, but the company should be able to shrink it by around $2 billion through the deal to sell the Lord & Taylor flagship on Fifth Avenue to WeWork for $850 million, seen coming to a close this month, and last year’s deal to sell a majority stake in its European retail operations and a 50 percent in the European real estate, both to Signa Holdings, based in Austria. Look for additional asset sales.
As Kahn sees it, anything that is stuck in the middle, meaning mainstream and moderate in appeal and not value-driven like off-pricers and dollar stores, “is going to have to find an edge.” She also said many big retail players, such as Kohl’s and Kroger, will have to expand on the variety of categories they offer to stay competitive and differentiated.
Other accelerating trends for 2019, as cited by Kahn:
• Showrooming so retailers can keep fewer goods in stock at the store site while offering a wider range of sizes to be “inclusive” and a more appealing presentation that’s less cluttered.
• Implementing easier payment systems because people lose patience waiting on checkout lines. The Amazon Go format, where you can walk out without checking out, could take off.
• Malls increasingly utilizing vacant space for different uses, including food and beverage and community activities.
• Greater use of big data, artificial intelligence and machine learning.