We’ve long known that e-commerce is creating turmoil in retail, as it gives rise to new start-ups and business models while taking a sledgehammer to old-school brick-and-mortar selling.
But it feels lately as if the signs of trouble are piling up at a particularly fast clip. Here’s a look at some of the hints of upheaval we saw this week.
Department store disaster. As several major department stores reported quarterly financial results, it was a steady stream of gloom. Kohl’s saw a 2.7 percent decline in comparable sales, a measure of sales at stores open more than a year. Nordstrom saw its store traffic slip, and Macy’s stock got hammered on Thursday after it delivered a startling 5.2 percent drop in comparable sales. Investors punished J.C. Penney, too, for a weak quarter.
These companies have a tangle of problems, including waning foot traffic to shopping malls and a customer that is often choosing to spend on experiences instead of goods. Those are big-picture cultural shifts that the long-standing retailers have little ability to control.
Where they have more power is in their efforts to fend off the mounting pressure from the likes of fast-fashion players such as H&M and off-price stores such as Marshalls. And there’s little evidence that department stores are doing that well. Nordstrom said there was weakness in the portion of its shoe assortment aimed at younger, more value-oriented customers — exactly the kind of shopper that is probably peeling off for rivals that offer low prices. J.C. Penney said its crucial women’s apparel category was “challenged” this quarter; while Macy’s saw weakness in handbag and costume jewelry sales.
There are glimmers of hope if you look hard: Nordstrom, for example, now draws almost a quarter of its total sales online, and sales in that channel are growing robustly. It suggests there is a path forward for the retailer in a digital world.
Abercrombie & Fitch is looking for a buyer. It has been years since it first became clear that Abercrombie’s screaming logos and sexed-up imagery were no longer attracting teens’ attention. It has dumped its longtime chief executive and closed stores in pursuit of an as-yet elusive turnaround. This week, as its challenges continue, the apparel chain acknowledged it is exploring a sale. Suitors reportedly include American Eagle Outfitters and Express.
If Abercrombie goes under the wing of one of its key rivals, it would emphasize just how dramatically the retail landscape has been reshaped recent months. Walmart has been scooping up e-commerce players such as Moosejaw and Modcloth. Familiar names such as The Limited and American Apparel have closed all of their stores; Payless Shoe Source filed for bankruptcy and pulled out of hundreds of malls.
And buckle up, because the retail roller coaster could have more twists ahead: The parent company of Saks Fifth Avenue reportedly is exploring acquiring Macy’s or Neiman Marcus. Grocery behemoth Albertsons may be considering a bid for troubled Whole Foods Market. Rue21 appears to be weighing whether to file for bankruptcy.
Gillette makes another run at your mailbox. On Tuesday, the Procter & Gamble-owned shaving behemoth announced a new service it is calling Gillette On Demand, its latest effort to beat back intense competition from upstarts Harry’s and Dollar Shave Club, the e-commerce outposts that sell razors on subscription models. Gillette had previously answered the challenge by launching a subscription service of its own, but now it is trying a different tactic.
In addition to subscriptions, it is to offer one-off purchasing. And once customers have used the service initially, they can reorder by texting the word “BLADES” to a certain phone number.
The service itself is not exactly a game-changing disruption, but its arrival underscores how urgent the fight is for Gillette. A key P&G rival, Unilever, bought Dollar Shave Club last year and can put serious muscle behind expanding the young brand.
The showdown between 110-year-old Gillette and the razor start-ups is symbolic of a broader shift in the industry. Niche players are increasingly pulling dollars away from big retailing monoliths to the tune of $200 billion a year, according to research by Deloitte. Everyone from Macy’s to Campbell Soup is facing similar pressure from boutique-like insurgents, to which customers are flocking for a unique, exclusive vibe.
Meanwhile, Gillette’s maneuvers serve as an interesting case study for the wider consumer goods industry. Many brands are currently dabbling in what’s known as a “direct-to-consumer” model, in which they sell through their own branded stores and websites, rather than through general merchandise or department stores. In the digital era, it gives them more control of how their product is distributed, displayed and priced, but it also requires them to add a new competency to their business. If Gillette can do well with a direct-to-consumer model, it might not be long before other familiar drugstore and grocery store brands begin going in the same direction.