Shrinking Sales The reasons are many and varied (and will be explored in this Profiler), but department stores continue to see industry revenues decline, with 2015 revenues of $164.7 billion decreasing 2% from 2014’s $168.1 billion. According to US Census Bureau data, US department stores revenues decreased another 4.4% during the first 5 months of 2016, or $58.5 billion compared to $61.2 billion for the same period during 2015. Foot traffic at 4 department stores were essentially flat during Q2 2016 (April, May and June): Macy’s, 49, 49 and 50; Sears, 45, 46 and 46; JC Penney, 38, 38 and 40; and Kohl’s, 23, 22 and 23; respectively. (Based on Placed’s 100-point scale.)

A Multi-Front Fight Not only have the number of shopping malls declined from the industry’s peak of 3,000 to 1,000, but also property owners have replaced more than 10% of department stores in many locations with specialty shops, fitness centers, restaurants, etc.   According to a very revealing Green Street Advisors report, department stores would have to close 25% of their stores to return to their 2006 sales-per-square-foot levels; however, they need those stores in strategic locations to support their online sales. During August 2016, Coach announced that it was removing its products from 25% of the department stores that offer Coach goods. It, as well as Michael Kors, is concerned with losing their luxury brand appeal because of department stores’ discounts.

Running on Empty Macy’s has obviously seen the handwriting on the wall, as it announced during August 2016 that it would be closing 100 "full-line namesake” stores during 2017 and as their leases expire. This follows a net loss of 77 stores from 2010 through 2015. During Q1 2016, these major department stores’ sales all declined: Macy’s, -7.4%; JC Penney, -0.4%; Kohl’s, -3.7%; and Dillard’s, -4.6%. Q2 2016 sales also declined at Macy’s, -2.0%; Nordstrom, -2.8%; Kohl’s, -1.8%; and Dillard’s, -5.0%; but JC Penney continued its recovering with a 2.2% increase, although the market had expected a 2.4% increase.

Search for Shoppers According to The Media Audit’s Fall 2015–Winter 2016 surveys in 14 representative Greater Metropolitan Areas (GMA), 63.7% of all adults who had shopped at JC Penney and 59% of all adults who had shopped Kohl’s during the past 6 months were women.   Sears had a higher index of Hispanic American and Asian American adults shopping there during the past 6 months than JC Penney and Kohl’s. JC Penney had the highest index among African Americans, and Kohl’s among European Americans. In The Media Audit’s Spring 2016 survey results for the Chicago GMA, Nordstrom skewed a bit younger than Macy’s, at 19.8% and 15.4%, respectively, of adults, 25-34, who had shopped at each store during the past 6 months.

Internet Interruptus Undoubtedly, department stores’ biggest dilemma is the growth of online shopping. Almost a third (30%) of apparel sales occurs online and since 2005, Amazon’s apparel revenues have increased $27.8 billion while department stores’ decreased $29.6 billion. A broader indication of consumers’ online shopping spree is that department stores sales decreased 4% during the first half of 2016, compared to a 10.6% increase in digital sales. Within the traditional department store sector, The Drum’s Good Growth Benchmark found that JC Penney was the best online performer with a score of 6.2 of 10.0. Macy’s also scored 6.2. Nordstrom, at 4.6, and Kohl’s, at 3.6, had the worst scores of the four.

Advertising Strategies To remain competitive, local and/or regional chains must offer new services similar to national chains: free shipping for online orders, order online/pick-up at store, online consultation via chat, etc.   Promote a series of graduated discounts for early Christmas holiday shopping, especially on apparel, with the largest discount for September, and then progressively lowering the discount for early October, late October and prior to Thanksgiving. Create and promote a “Rainbow Gallery” in-store, displaying items from various departments that will specifically appeal to African American, Hispanic American and Asian American consumers.

New Media Strategies To remain competitive, local department stores should move forward with implementing geo-location apps and other technologies to attract nearby foot traffic in malls or on Main Street thoroughfares.   Local department stores can attract more Millennials by promoting the opportunity to experience the use of virtual reality and other advanced technologies in-store and asking shoppers to post video stories of their experience on social media. Confront the growth in online shopping directly by posting an online poll/survey, asking customers (and rewarding them with a coupon/discount) wat they like/dislike about online shopping versus the in-store shopping experience.