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Department Stores Look to Women’s, Active and Lean Inventories to Propel Sales, Margins

As department stores executives look ahead to FY 2018, they’re focused on leveraging the women’s apparel business, driving continued interest in activewear and lowering inventory levels through speed initiatives and a better use of data analytics.

Eye on women’s

Both J.C. Penney and Kohl’s underscored their keen focus on their women’s businesses in 2018 during last week’s earnings calls.

Incoming Kohl’s CEO Michelle Gass said sustaining the retailer’s momentum in this category is “critically important” because it represents 30 percent of the business.

Gass attributed the company’s performance in women’s apparel to two key areas. First, Kohl’s has been focused on speed to market in its proprietary brands, which make up 70 percent of the women’s business. By the close of Q4, the company reports 40 percent of those goods were part of its speed initiative. In the future, Kohl’s is looking to increase that to 60 percent.

“Speed brands outperformed the total proprietary brand results by 250 basis points due in large part to our ability to chase receipts,” said chairman and CEO Kevin Mansell.

In addition to speed, Gass attributed the strong women’s sales to an improvement in Kohl’s assortment. She said the women’s team is better able to weed out poor performers, zero in on fewer SKUs and go deeper into the best pieces.

Citing it as an improved but still underperforming department for the quarter, J.C. Penney too is laser focused on its women’s apparel business. Though both the kids’ and men’s clothing categories are also in need of a shot in the arm, CEO Marvin Ellison characterized turning women’s around as “essential.”

“As you know, women’s apparel is one of the healthiest margin rate categories in our stores,” Ellison said during the company’s earnings call. As such, he said, a boost there would have a positive impact companywide.

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Like Kohl’s, the company is turning to speed to help solve its issues in this category and others. And as it boosts women’s clothing sales, Kohl’s expects to be able to capitalize on other opportunities.

Along with the retailers’ focus on the home department with appliances and mattresses, Ellison apparel can also help it take advantage of market share opportunities in malls where its competitors’ have closed doors. “The consumers are not going to stop shopping just because stores close,” he said, pointing out that JCP sees an uptick in sales in locations where other retailers have pulled out. “We also see the tremendous upside benefit that if we continue to fine tune our strategic assortment in these locations, we can continue to see a growth.”

Active still has legs

The two companies are also leaning more heavily into activewear, a category they each feel still holds a lot of promise.

Ellison has characterized active as a big part of the plan to fix women’s. The retailer will be expanding Adidas and Nike and has added Puma, Champion and Copper Fit. Though sales for JCP’s Xersion line is “performing exceptionally well,” Ellison admitted that overall, active is an area where Penney’s is in catchup mode.

At Kohl’s active is racing ahead with a reported 25-percent growth in comp store sales in the fourth quarter. The retailer credits Nike, Under Armour and Adidas sales with the strong performance.

Looking ahead, Mansell said, the company will continue to invest in inventory, increase floor space for those goods and update fixtures as necessary. “It goes without question, active was a massive importance. I think the bet that Michelle and her team made on active and wellness three years ago, while it’s been consistently good, has now turned into great, and there’s just huge opportunity looking forward,” he said.

At Macy’s, chairman and CEO Jeff Gennette said active “has been a very strong growth strategy for us.” As such, the company is looking for growth this year to mirror 2017. To achieve this, he said expect the retailer to continue to refine its assortment.

Inventory

Last year this time bloated inventories piled onto the list of apparel retail woes. This year, the story is quite different.

Speaking during Kohl’s Q3 earnings call in November, Mansell said speeding up development would lead to lower inventory levels. By the end of 2017, the retailer reported stock levels were down by 7 percent.

Mansell credits the achievement in part to the company’s Standard to Small initiative through which it’s shrinking its average store size to make them more efficient. In 2018, the company will shrink 200 additional locations, which he said will have a positive effect on inventory and margins. As a result, up to 500 stores could get the Standard to Small treatment, the company said.

During its fourth quarter results, Macy’s reported its inventory level was 3.5% lower than the same period last year. “This good inventory position should help drive sales in early 2018, due to the available open-to-buy and resultant ability to bring in fresh merchandise receipts,” said company CFO Karen Hoguet.

Gennette said this inventory position allows the company to chase in-demand brands and trends in season. He said a better markdown strategy fueled by pricing analytics has also helped the retailer keep stock in check. By being able to plan better, Gennette said the team is able identify poor performers early and mark down to attractive prices sooner—all of which allows it to move out excess merchandise.