Department Stores Try Different Tacks to Weather E-Commerce -- Update
November 09 2017 - 1:16PM
Dow Jones News
By Suzanne Kapner and Austen Hufford
Macy's Inc. and Kohl's Corp. reported mixed third-quarter
results, underscoring the challenges department-store chains face
as shoppers buy more online and setting the stage for a competitive
holiday season.
Kohl's pointed to a strong back-to-school season, leading to
surprise growth in its stores open at least a year. Macy's,
meanwhile, said it increased its gross profit margin, thanks to
efforts to control spending on inventory.
Shares of Macy's rose 8.6% in Thursday morning trading as the
company's profit exceeded Wall Street's estimates, while Kohl's
fell 3.2% after its margins fell short of expectations.
Kohl's Chief Executive Kevin Mansell said the gross margin
decline was partly due to higher shipping costs associated with an
increase in online orders. He added that traffic and sales picked
up in late October, after a lull in September, setting the retailer
up for a strong year-end finish.
"We're super confident as we go into the fourth quarter," Mr.
Mansell said.
The shift to online shopping has hurt retailers across the
board. The impact on department stores has been particularly sharp,
since they sell branded goods whose prices shoppers can easily
compare online. The shakeout has prompted chains such as Macy's,
J.C. Penney Co. and Sears Holdings Corp. to close hundreds of
stores, many of them in malls that shoppers aren't visiting as
frequently.
Kohl's, whose stores aren't located in malls, has refrained from
mass store closures and, according to Mr. Mansell, has picked up
market share from rivals that are pulling back. It has also added
popular athletic gear from Under Armour Inc. and partnered with
Amazon.com Inc. to sell its Echo device and other products and to
accept returns for items purchased at the online retailer.
Macy's has revamped its shoe and jewelry departments, added its
Backstage discount concept to its department stores and leased
space to third parties such as LensCrafters, but analysts say the
moves haven't been enough.
"As much as these things are valuable, they do not address the
fundamental issues facing the business," wrote Neil Saunders, a
managing director of research firm GlobalData Retail, in a note to
clients.
Macy's CEO Jeff Gennette acknowledged the challenges in an
interview. "This is clearly the era of the consumer," he said.
"They are very smart. They have more choices than ever. We at
Macy's have to earn our share of their wallet."
Sales at Macy's stores excluding recently opened or closed
locations fell 4% in the three months to Oct. 28, extending a
string of declines. Total sales fell 6.1% to $5.28 billion, partly
due to store closures.
Macy's profit more than doubled to $36 million from $17 million
in the year-earlier period, as the company did a better job of
controlling costs.
Kohl's comparable sales rose 0.1%, the retailer's first uptick
in more than a year. Total sales rose 0.1% to $4.33 billion. Net
income plunged 18% to $117 million from $142 million a year ago,
thanks in part to the gross-margin decline, which fell to 36.8%
from 37.1% over the same period.
Sales at both chains were hurt by the recent hurricanes and
unusually warm weather in September, the companies said. Macy's
also said it felt the impact from less foreign tourism. Still, both
companies managed to reduce inventory in the period, leaving them
with less excess merchandise to clear out at steeply reduced
prices.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
November 09, 2017 13:01 ET (18:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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