Retailing is back.
In a year of dynamic change, consumers are shopping more, tourists are returning to stores, online and mobile shopping continues to increase at double digits, and retailers generally are managing better by keeping costs and inventories in check and rationalizing real estate. There’s growing confidence that department stores can avert extinction, and that Amazon, while beating up on commodity competitors, is less of a threat in fashion apparel.
Macy’s, Nordstrom, Walmart, Target and Kohl’s are among the chains innovating and testing concepts, categories, services and technologies for long-term gains. They’re thinking more local, making it easier for shoppers to buy, pick up and return what they purchase, and increasingly focusing on personalization, customization, convenience, sustainable products, wear-now styles, special sizes and inclusiveness.
The $64,000 question is, how long will retailers be on a high? Tariffs, trade wars, and speculation that the nation falls into recession next year or in 2020 could put a chill on the industry and erode consumer confidence even before the end of 2018. Longer term, retailers need to do a better job attracting younger customers by offering new kinds of services and experiences. Selling the same old product won’t cut it.
Here’s a shortlist of retailers to keep an eye on, whether they’re in a fragile turnaround mode or advancing from a position of strength with an agenda for change.
* Macy’s. The new management sees momentum into the second half, and raised company guidance for 2018 sales and earnings. Key strategies include rolling out Backstage offprice departments, displaying fashion apparel with greater frequency, building up a vendor direct business to widen the assortment, and the “Growth 50” initiative, which entails beefing up staffing, lighting, carpeting and restrooms; adding big-ticket items, mobile checkouts and size ranges, and setting up “At Your Service” counters. Watch for Macy’s to unleash a strategy for Story, the 2,000-square-foot store on Manhattan’s West Side that changes its merchandise theme every four to eight weeks and was purchased by Macy’s last May.
* J. Crew Group. Look for Jim Brett, who succeeded Mickey Drexler as chief executive officer over a year ago, to raise the profile of the brand. He’s been laying low as he institutes changes but brings to J. Crew his success at turning around at West Elm, which he previously ran. New disciplines are being instituted and changes are starting to be evident in the assortment. The brand is striving to be younger in appeal and more accessible with prices and fits. It’s also creating subbrands, emphasizing its signature items like rugby shirts and roll-neck sweaters and an openness to third-party brands to fill voids in the assortment and test new products and fabrics. A “relaunch” of the J. Crew brand is planned for September but, next year, greater change will be evident since the brand just hired a new creative director, Johanna Uurasjarvi.
* At Neiman Marcus Group and Saks Fifth Avenue, owners continue to meet over the possibility of combining the businesses. With Saks’ parent Hudson’s Bay Co. struggling, it’s more likely that Neiman’s ultimately acquires Saks, or at least the retail operations of Saks, while HBC retains some Saks real estate, like the valuable Fifth Avenue flagship. HBC is being challenged to hold its portfolio together, with Lord & Taylor, European operations and Saks Off5th struggling. The company recently sold off Gilt and is expected to close a deal to sell the Lord & Taylor flagship on Manhattan’s Fifth Avenue to WeWork and sell off a big piece of its Europe business. HBC will also rent out space in some of its larger North American and European locations to WeWork to generate revenues. Both Saks and Neiman’s have been seeing improvements in sales this year. Watch for NMG’s new management led by ceo Geoffroy Van Raemdonck and Darcy Penick, president of Bergdorf’s, to introduce their strategies. Curiousity surrounds the Neiman Marcus store in Manhattan’s Hudson Yards, its first in the city. The opening is set for next March.
* Lands’ End. Ceo Jerome Griffith is restoring the heritage of the brand and is orchestrating the wind-down of Lands’ End shop-in-shops at Sears while opening freestanding stores. The brand opened its first store in New York City in August in the Staten Island Mall and is eyeing other locations in the area and elsewhere. The Kildeer, Ill., store, launched at the end of last April in an open-air center outside Chicago, is “the blueprint” for future freestanding stores; 40 to 60 stores are seen operating by 2022.
* J.C. Penney Co. A cloud hangs over the company. Second-quarter results were weak and seemed all the more disappointing given the strong results posted by Walmart, Target, Nordstrom and Macy’s. Turnaround efforts have slowed due to the departures of ceo Marvin Ellison to run Lowe’s, and Joseph M. McFarland, executive vice president and chief customer officer, who became Lowe’s evp of stores. The company has over $4 billion in debt. With improvement in apparel considered critical, Penney’s introduced a string of new private brands including Michael Strahan and Shaquille O’Neal men’s wear. The retailer recently revamped it’s $1 billion private Arizona brand, expanded offerings of Nike, Adidas, Champion and Puma, and is introducing baby departments.
* Target. The spotlight is on smaller formats, from 12,000 to 13,000 square feet. The strategy demonstrates that despite the size of the company — over $70 billion in annual sales — it can be agile and will better understand how to conduct business on a more local level. The retailer also made adjustments on thousands of core items so they’re “priced right daily” and moved away from the ups and downs of promotions, although there are still special offers, especially during the holiday season. Target had a particularly strong second quarter, reporting traffic gains of 6.4 percent, earnings per share ahead 23 percent, and comp-store sales gains of 6.5 percent. Building on that momentum, it raised its earnings outlook for the full year.
* Nordstrom. The Seattle-based retailer reasserted its position as the leading department store by showing improvements across all channels this year. Full-line stores maintain their focus, Rack is capitalizing on opportunities to buy more seasonable market product, and efforts to get consumers to shop across different channels are intensifying, such as getting Rack customers to also visit Nordstrom full-line department stores. Service remains strong, the loyalty program is growing and the company continues to innovate with Nordstrom Local — the latest test to establish a convenient location for alterations, order pickups and styling. Curiosity surrounds Nordstrom’s New York City strategy involving last April’s opening of its first stand-alone men’s store. It’s getting mixed reviews. Next year’s opening of the main women’s store promises to be special. Both stores are on 57th Street on opposite sides of Broadway.
* Kohl’s. There’s a positive aura emanating from the chain, in part due to new ceo and former Starbucks executive Michelle Gass stepping up and innovating the business. Kohl’s showed improvements in apparel, particularly activewear, where comp sales rose 10 percent in the first quarter based on sales from Nike, Under Armour and Adidas. Kohl’s continues its pilot program to accept Amazon returns and has been rightsizing hundreds of stores. The retailer has the geographic advantage of being situated off the mall, making it easy for customers to drive up and get in and out quick. Millennials have been a sweet spot for Kohl’s, which has hooked up with Millennial-minded fashion media platform PopSugar, launching in September at 500 Kohl’s stores and kohls.com. The collection will be another notch in the retailer’s portfolio of brands targeting the cohort, which has helped drive Kohl’s recovery from a long earnings slump.
* L Brands. Chairman and ceo Leslie H. Wexner needs to show that he still has the Midas touch. Victoria’s Secret, once considered invincible in the world of intimates, has been showing cracks in the armor, with competitors like Aerie chipping away at the business, consumers seeking fresher brands, and buying more athleisure. The annual televised VS show is still one of the biggest fashion events of the year and widely watched. However, the company has experienced nearly two years of sales declines, and the questionable strategy of dropping swimwear may be reversed.
* Walmart. Who says the juggernaut can’t be nimble? Walmart’s U.S. Q2 comps grew 4.5 percent and U.S. e-commerce sales grew 40 percent, which was faster than Amazon’s, albeit from a much lower base. The “click and collect” initiative is driving loyalty and more visits to Walmart stores, as the mass chain continues to integrate brick and mortar with online operations. Groceries, Walmart’s largest category, grew impressively in the second quarter, and the Sam’s Club division, down for over a decade, showed new life. “We’re pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient,” said Doug McMillon, president and ceo, just after the company posted strong second-quarter results. “We’re continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico. Customers have choices and we’re making it easier than ever for them to choose Walmart.”