By Suzanne Kapner
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 22, 2019).
Retailers offering deals, from bargains on brand-name goods to
conveniences such as free shipping, are snaring customers at the
expense of chains that have been slow to innovate.
Walmart Inc., Target Corp. and T.J. Maxx parent TJX Cos. have
reported strong sales growth and an uptick in visitors to their
stores. Macy's Inc., J.C. Penney Co., Nordstrom Inc. and other
middle-market chains continue to struggle.
"The common thread among retailers that are doing well is that
they offer some type of value," said Chuck Grom, senior analyst at
Gordon Haskett Retail Advisors. "But, today, value is about more
than just price. It's also about convenience."
Convenience can take many forms. It can mean pulling into a
Walmart or T.J. Maxx parking lot and dashing directly into the
store, rather than navigating a shopping mall maze. It can also
mean free two-day shipping, no minimum purchase required, as Target
offered last holiday season.
On Wednesday, Target said sales at its stores open at least a
year rose 3.4% for the three months ended Aug. 3, and it raised its
guidance for full-year earnings. Total revenue for the recent
period increased 3.6% to $18.4 billion. Profit climbed to $938
million from $799 million a year earlier.
Target's shares soared 20% to close at $103, their largest
single-day gain on record.
Home-improvement retailer Lowe's Co. also reported higher sales
and earnings on Wednesday, though some of the profit increase came
from cost cutting.
A day earlier, TJX said sales at stores open at least a year
rose 2% in the most recent quarter, which was lower than some
analysts had expected but on top of a 6% increase a year earlier.
TJX Chief Executive Ernie Herrman told analysts that customer
traffic to its stores -- growing for 20 consecutive quarters --
drove the sales increase.
TJX stores rapidly turn over limited quantities of goods at
bargain prices. The result is a constant treasure hunt as shoppers
come back to ferret out deals. There is no glut of stock in the
backroom. Customers know if they don't buy it today, the item might
not be there tomorrow.
Nordstrom, on the other hand, is suffering along with other
department stores as shoppers make fewer visits to malls and buy
more online. Also, unlike Walmart and Target, department stores
don't have large grocery offerings to prompt frequent visits.
Nordstrom said on Wednesday that second-quarter net sales fell
5.1% to $3.78 billion. Profit fell to $141 million, from $162
million in the year-earlier period, and the company lowered
earnings guidance for the full fiscal year.
Nordstrom's second-quarter profit beat analysts' estimates. In
after-hours trading, the stock gained 12%.
Kohl's Corp. is struggling even though it has tried to boost
traffic by adding services. Under a partnership with Amazon.com
Inc., shoppers can return items bought on the e-commerce site to
any of Kohl's more than 1,100 locations. Nevertheless, the
retailer's sales fell for the third consecutive quarter in the most
recent period, leaving it with excess merchandise that it had to
mark down, hurting profit.
Illustrating the retail divide, Kohl's shares have fallen 41%
over the past 12 months, while Walmart's stock is up 17%.
More than a decade after the last recession, consumers still
remain "extremely focused on getting value for the dollar," said
Neil Saunders, a managing director of GlobalData PLC, a research
firm. "A lot of retailers haven't added that value, and consumers
are just going elsewhere."
Even some higher-end brands are performing poorly, including
Michael Kors and Kate Spade, both of which reported a drop in
same-store sales in their most recent quarter.
They can't blame weak consumer spending and fears of a possible
recession. In July, retail sales increased at their strongest pace
since March, giving the economy a boost.
"The consumer is still healthy," Macy's CEO Jeff Gennette said
in an interview last week.
Other factors are upending traditional retailers, from higher
rent and labor costs to the rise in online shopping. Department
stores in particular are heavily dependent on apparel that can be
found almost everywhere, making it easy for shoppers to compare
prices online.
Retailers also have to contend with the Trump administration's
tariffs on goods imported from China, which are pressuring
profits.
Consumers' love affair with a good deal is evident in the rise
of thrift shopping, which is on track to overtake sales of fast
fashion at the likes of Zara and H&M within a decade.
"If off-price chains like T.J. Maxx wooed shoppers with promises
of 20% to 60% off regular retail prices, resale websites like
thredUP offer discounts of as much as 90% off," said Oliver Chen,
an analyst at Cowen & Co. "That is making it harder for
traditional retailers."
Macy's and Penney are jumping into the secondhand market. Both
unveiled partnerships last week with thredUP Inc. to sell used
clothing and accessories in some of their stores. Macy's has also
gotten into the off-price game by opening Macy's Backstage discount
stores, which compete with T.J. Maxx.
Macy's last week lowered its full-year earnings outlook after it
missed profit expectations, sending shares tumbling, while Penney
said sales at stores open at least a year fell 9%.
Analysts say these stores aren't doing enough to adapt to the
changes in consumer behavior.
"They are jumping on someone else's bandwagon, rather than
innovating," Mr. Saunders, of GlobalData, said. "They are playing
catch-up, and that's not good enough in retailing today."
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 22, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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