Businessinsight RETAIL REPORT Department Stores Have Come Full

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Businessinsight RETAIL REPORT Department Stores Have Come Full businessinsight RETAIL REPORT Department stores have come full circle as prime shopping destinations. his is Apparel’s second annual Top 10 — a ranking of activities and services — and then shop); to devote more T department stores with at least $100 million in annual sales space to in-store digital offerings (as Macy’s is doing with that are publicly traded on the U.S. stock exchange, by profit digital displays side-by-side with physical product, offering margin for their most recent fiscal years, respectively. Last both a touch and feel, as well as an endless aisle of product year’s inaugural report was subsumed within our annual Top and a way to interact with it); and more space for more 50 (which is a similar ranking for apparel companies, and which physical offerings (such as Macy’s soon-to-be-unveiled acre of has never included department stores, primarily because of the shoe-selling space in its flagship Herald Square location, which vast amount of non-apparel they carry), but this year we’ve is in the middle of a massive $400 million renovation). broken it out and taken a closer look at each of the companies Department stores also have the opportunity to blend herein. popular, must-have national brands with private labels that This report is called The Top 10, but it could just as easily cannot be found anywhere else — a strong defense against be called The Only 10, which explains how both Dillard’s, with showrooming — and that offer a higher margin of profit (a a 7.41 percent profit margin and Sears, with a -7.57 percent strategy pursued by all 10 of the department stores). With the profit margin, can both be found within the same short list. right technology, department stores can also leverage, in Over the years, mergers and acquisitions, a difficult economy, different ways, supply chain webs and other assets that may and other factors have whittled the pool of department store be far more vast than those of their specialty apparel owners to just 10 (although if you added in the various competitors (as Sears has done by launching its own data nameplates, including outlets, of each of these, you’d almost management services company, and as Macy’s is doing by triple that number). setting up almost 300 of its stores to serve as fulfillment A few years ago, it seemed the death knell had sounded for centers). Still, it’s important to note that, like many of their department stores, that there was no place for these bloated specialty apparel counterparts, department stores, including beasts of shopping past in today’s fast-paced, digital, 24/7 Kohl’s and Bloomingdale’s are also shifting, in their new shopping environment. While the department store landscape openings, to some smaller-store formats. has shifted, predictions of its demise couldn’t have been more Relative to profit margin, as a group, department stores still wrong. For those players still on the field, the game has lag far behind the apparel companies in the top quartile of the become one of the most exciting in retail, for both industry Top 50, where profit margins hit as high as 20.78 percent in observers and shoppers. this year’s rankings. Of our Top 10, the first half would have As websites, mobile apps, tablets, smartphones and nabbed a spot on the Top 50, were they to be ranked on that everything else digital continue to proliferate, the role of the chart, while the bottom half — Neiman Marcus, Burlington physical store — albeit a quickly changing one — has never Coat Factory, The Bon-Ton Stores, J.C. Penney and Sears — been more important. For department stores that do it right, were not even close. their larger footprints offer added opportunity to entertain their With so many changes afoot, you can’t help but be excited customer (as J.C. Penney proposes to do with its new Town to see the department store of the future. However it unfolds, it Square concept, where shoppers will gather socially for fun seems safe to say there most certainly will be one. 10 AUGUST 2012 • www.apparelmag.com #1 Dillard’s Dillard’s No. 1 spot in the rankings is slightly misleading because it is the result of a net after-tax credit for non-routine items (it reported one last year as well). Excluding that item, the retailer would have recorded net income of $229 million (vs. $163 million last year) for a 40.5 percent increase in net income and a profit margin of 3.7 percent, which would have placed the retailer at No. 4 instead of the top spot. Still, the 304-store company turned in a solid year. While some other department stores have made a big splash reinventing them- selves recently, Dillard’s has more quietly been focusing on inventory control and expense discipline, while striving to “own” the spot as the destination for an edited merchandise selection of revered national and exclusive brands, supported by outstanding customer care. This focus led to an impressive 4 per- cent increase in comp-store sales and improved gross margin growth by 30 basis points (following increases of 190 and 410 basis points in 2010 and 2009, respec- tively). Increased focus on its online store is highlighted by its new state-of-the- art, 850-000-square-foot Internet Fulfillment Center in Maumelle, Ark. #2 Kohl’s Jennifer Lopez and Marc Anthony may have untied the knot, but you can still find them together at Kohl’s, where their namesake collections, respectively, launched last September in multiple departments across the store. Brands are exploding at Kohl’s — already this year the company launched Rock & Republic (as the brand’s exclusive U.S. retailer) and Van Heusen; expanded its very successful ELLE and Simply Vera Wang brands into new categories; and this month launches the Princess Vera Wang juniors’ collection — with exclusive and private brands continuing to rise as a percentage of total sales, up 240 basis points to 50.3 percent in 2011, helping to drive Kohl’s 6.21 percent profit margin. Kohl’s store expansion rate has slowed in recent years and, like many of the apparel retailers that ranked in Apparel’s annual Top 50 report, most of the com- pany’s anticipated 20 new store openings this year will be in a smaller format (55,000-to-68,000 square feet vs. 90,000 square feet), which allows the company to take better advantage of opportunistic acquisitions, especially in urban markets. Kohl’s also continues to remodel its existing store base, completing 236 remodels in the past three years with 50 on tap for 2012, a process the company has honed with experience; a typical store remodel now takes just seven weeks — half the time it took in 2007. #3 Belk The tagline “Modern. Southern. Style.” is just part and parcel of a mas- sive revitalization project going on at the chain that is already pro- ducing strong results for the company with comp-store sales up 5.5 percent and profit margin up 132 points over last year, and which the company is supporting with significant marketing and advertis- ing, including debuting as the title sponsor of the annual college foot- ball bowl held in Charlotte, N.C., in December 2011, which drew more than 58,000 football fans and was televised nationally on ESPN. Game day belk.com sales were up 92 percent with states outside its footprint accounting for 22 percent of total e-commerce sales vs. an average of 10 percent. (Wow, advertising really does work!) Specifically, over a five-year period that began in 2011, Belk is investing approxi- mately $600 million in a number of key strategic initiatives in the areas www.apparelmag.com • AUGUST 2012 11 businessinsight of merchandising, rebranding, e-commerce, store remodels and ner teams trained to work in a collaborative environment where customer service. Just a few highlights: In June, Belk opened a they plan, purchase and travel together, building assortments tai- new $4.5 million 515,000-square-foot e-commerce fulfillment cen- lored to customers by market. They will be aided in their efforts by ter in Jonesville, S.C., to support its growing e-commerce, whose a new Oracle enterprise system providing solutions in areas of pur- sales grew 108 percent, to $72 million, last year. In restructuring chasing, planning, allocation, replenishment, demand forecast- its merchandising and planning organization, the nearly 125-year- ing, pricing and promotion, merchandising, financial planning and old company hired 40 additional planners and formed 59 buyer/plan- size optimization. #4 Macy’s “We’ve spent the last 153 years building sales up 5.3 percent and online sales up 40 warehouses,” said Macy’s chief stores offi- percent — are: 1) My Macy’s localization, cer Peter Sachse in an interview quoted focused on tailoring the merchandise assort- in The Wall Street Journal. “We just called ment and shopping experience by store; them stores.” In a significant move in the and 2) MAGIC Selling, focused on improv- way it conducts business, the iconic retailer ing customer engagement in stores by train- is supercharging its omnichannel strategy, ing associates to “meet and make a one of three key strategic initiatives under- connection” with every customer. Carving way at the company, by integrating stores, out a balance of fashion and value, 43 per- the Internet and mobile devices to put cent of merchandise sold at Macy’s in 2011 the company’s entire inventory at the was exclusive or in limited distribution, with service of customers anywhere, by equip- 20 percent of sales coming from its private ping 282 of its more than 800 Macy’s stores brands.
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