For more than a year, the biggest names at the shopping mall have cast a hopeful eye on the declining jobless rate and low gas prices, betting that it was only a matter of time before consumers snapped out of a cycle of tepid spending that has left many retailers grappling with weak sales and declining store traffic.
But, with the likes of Gap, Macy’s and Kohl’s reporting this week that they rang up surprisingly dismal sales this spring, retailers — especially apparel chains and department stores — are facing a troubling reckoning. The economy is bouncing back, and customers just aren’t hitting stores or filling up digital carts like the shopping giants thought they would.
“There seems to be some more macro issue, given both performance of ourselves and our competition,” said Wes McDonald, chief financial officer at Kohl’s, on a conference call with investors Thursday. “There seems to be some change in consumer behavior.”
The uncertainty is lending fresh urgency to the challenges facing old-school stores, whether it is adjusting to the reality of online commerce or watching their customer base shift from big-spending baby boomers to the more cautious millennials.
The industry is suddenly awash in talk about being “overstored,” too many physical outlets chasing too few shoppers.
“My personal view of the retail real estate industry in the U.S. is that it is over-retailed,” Sandeep Mathrani, chief executive of General Growth Properties, told analysts this month. “The primary reason retail properties have closed and will close is obsolescence.”
The rise of Internet shopping appears to be reaching a new threshold. Once, it was thought that the online universe might be perfect for selling electronics and books, but things that people need to touch and try on, like clothes, would endure in the cozy realms of bricks-and-mortar stores.
Recent sales patterns suggest retailers have reached an inflection point. Analysts at financial services firm Cowen & Co. predict that Amazon.com is on pace to overtake Macy’s as the largest apparel retailer by 2017.
Meanwhile, airline travel is at record levels and restaurant sales growth has been solid, suggesting that consumers are choosing to shell out for experiences instead of goods that fill their closets or their kitchens.
“It’s finally all coming to fruition, this perfect storm that’s been brewing for so long is finally starting to hit,” said Marcie Merriman, a consumer-engagement consultant at the advisory firm EY. “I think this is only the beginning. It’s only going to get much uglier.”
And so the industry is stepping up its efforts to find new tactics to get shoppers to open their wallets more — and to make behind-the-scenes changes such as trimming expenses to protect themselves in case they don’t.
In some cases, that has meant trying their luck with new store concepts. Kohl’s, for example, is launching stand-alone outlet stores for its Fila brand of activewear and is among a few department stores launching an off-price outlet. With T.J.Maxx and Marshall’s standing out as rare retail bright spots, Kohl’s, Macy’s and Lord & Taylor are all now trying to cash in on the treasure-hunt style of shopping that these off-price sellers are known for.
Some ailing retailers are going even further outside of their comfort zones. Urban Outfitters bought a pizza chain last year to gird itself against the tough environment for selling clothes.
Nordstrom, which released lackluster financial results Thursday and lowered its forecast for business in 2016, is experimenting with technology such as a video-enabled “smart mirror” that allows you to see how your outfit would look in a different color and suggests additional pieces — say, a pencil skirt or trousers — that would make a complete outfit with the blouse you’re already trying on.
Beleaguered retailers are keenly aware that they have to do more than make their stores into destinations to change their fortunes. With foot traffic to retail stores down 6.5 percent in April, according to analytics firm RetailNext, it’s clear that it is increasingly imperative for them to figure out how to better compete with e-commerce behemoth Amazon. (Jeffrey P. Bezos, the chief executive of Amazon, owns The Washington Post.)
Macy’s has been expanding same-day delivery to more markets, trying to offer the immediacy that has lured so many shoppers to become devotees of Amazon’s Prime membership. And across the mall, many retailers are studying how to use their stores as fulfillment centers for online orders, the theory being that they might be able to ship more quickly and cheaply from those locations than from their limited fleet of warehouses.
For some retailing stalwarts, getting out of their slump means overhauling their merchandise assortment.
“The department stores and some of these specialty retailers are just struggling because they have a bunch of apparel that’s not trend-right,” said Brian Yarbrough, a retail analyst at Edward Jones.
That’s why the turnaround efforts underway at J. Crew — as well as at Gap and Banana Republic — center largely on getting the clothes right.
But, Gap, like many of its rivals, is also looking to streamline the parts of the business customers don’t see. The company has said it will announce next week plans to “streamline its operating model to be more efficient and flexible.”
Macy’s has already moved to cut costs, pledging this year to slash $400 million with measures such as cutting 600 back-office jobs and shuttering a customer service center.
To be sure, there are some retailers that are managing to avoid the industry’s doldrums. Cosmetic chains Sephora and Ulta have been on a hot streak, as the upscale beauty category has been a place where women have been willing to spend.
And Home Depot has seen its stock rise nearly 19 percent over the past year as it has delivered steady sales growth. But that success may reflect the very consumer mind-set that is giving other retailers such a headache: Consumers, it seems, are willing to invest something like home improvement, which feels prudent, instead of on a handbag or a new party dress, which feels indulgent.