If there’s a panacea for American retailing, it might just be e-commerce.
Major department stores like Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. are shuttering hundreds of locations, while malls suffer from consumer shifting their shopping habits in favor of e-commerce and the rise of Amazon.
The total number of store closings is expected to hit a record in the U.S. this year, with Credit Suisse Group estimating the number could hit 8,640.
The negative trend reached out to the major brands that serve these chains and trickles down through the supply chain.
Richard Peretz, UPS chief financial officer, said on a conference call discussing its most recent earnings, “We are a little challenged because the number of stores that are closing is having an impact on growth” in business-to-business shipments. Store closing hurt UPS because they cut down on the number of commercial customers, a side of the business that’s more profitable than home delivery, which is surging thanks to e-commerce boosting the demand.
David Abney, UPS chairman and chief executive officer, said UPS has been picking up some business from retailers as an increasing number of people are ordering items online and having them delivered to nearby stores. That puts the spotlight on UPS’s efforts to improve the efficiency of residential deliveries, with investments in warehouse automation, new jets and upgraded technology.
The Macy’s syndrome
Macy’s Inc. is perhaps the symbol of the ills of U.S retailing, with over expansion, an overly promotional environment and questionable merchandising strategies.
Jeff Gennette, president and CEO of Macy’s Inc., acknowledged the situation and noted potential solutions in the company’s August conference call with analysts. He said a new strategy and fashion campaign, and customer loyalty program to be rolled out this fall is nothing less than a desire and need to “re-engineer the entire marketing machine at Macy’s.”
“We want to reduce overlapping of discounts and rebuild our credibility as a fashion destination,” Gennette said, adding that Macy’s anticipates that the new initiatives “will further improve our sales trend in the back half of the year.”
“We remain focused on our goals for our brick and mortar stores and the continued growth of our digital program,” Gennette said. “We also know we are operating in an environment of intense and destructive competition, and our customer has more shopping options than ever.”
The executive noted that macys.com continues to do well, with double digit gains for the 32nd consecutive month in July, and more editing and newness on the site.
“We are working with a mindset of continuous improvement and will adapt our business in order to reach our goal of stabilizing the brick-and-mortar business, while investing for accelerated growth in digital and mobile,” Gennette said. “Key to this strategy is engaging our customers with an improved experience that includes more elevated and exclusive assortments, a better integration of technology both online and in the store, and additional enhancements intended to drive traffic and sales.”
Online vs. brick-and-mortar
Retail brokerage JLL reported department store same store sales fell 4.5% in 2016, while e-commerce picked up 13.3%. According to the National Retail Federation, online and other non-store sales increased 1.3% in July compared to the previous month and rose 11.4% year-over-year. This compared to an overall retail sales gain of 0.6% over June and a 3.5% year-over-year increase.
[Read more about e-commerce trends: Are Retailers’ E-commerce Investments Likely to Pay Off?]
Chris Christopher Jr., executive director of U.S. economics at IHS Markit, said e-commerce retail sales are now 15.4% of retail sales excluding auto dealerships, gasoline stations, food stores and food services, and “we expect this share to grow to 16.3% by the end of 2017.”
“In addition, online retailers are expected to take a bigger piece of the pie during the back-to-school retail sales season,” Christopher added. “Non-store retail sales (mostly online) was up 11.4% in July on a year-over-year basis.”
E for earnings
E-commerce has been the saving grace for the top and bottom lines of many major stores and vendors this year.
Following a key industry trend, VF Corp. said direct-to-consumer revenue increased 13 percent in the second quarter ended July 1, with digital revenue up 34 percent, while wholesale revenue fell 3 percent.
VF’s direct-to-consumer operations include own-brand stores and outlets, and e-commerce. Direct-to-consumer revenue is now expected to increase 10 percent to 11 percent in 2017 versus the previous expectation of a high single-digit percentage rate increase. Digital revenue alone is forecast to increase more than 25 percent, compared to overall revenue growth of 2 percent to about $11.65 billion for the year.
The apparel giant credited a “shift toward higher margin businesses,” such as e-commerce, for improving its gross margin 80 basis points to 49.7%.
“We continue to be pleased with our e-commerce business, which achieved year-over-year sales growth of 41 percent on our consumer sites during the quarter…and 15 percent on our business-to-business sites during the quarter,” Delta Apparel’s chairman and chief executive officer, Robert W. Humphreys, said.
Delta’s Soffe division is growing certain sales channels and continues to perform well with e-tailers. Sales on Soffe’s consumer e-commerce site increased 15 percent during the third quarter and were up 24 percent year-to-date.
The company’s Salt Life unit achieved 48 percent year-over-year sales growth in its e-commerce business during the quarter, but softness in the big-box retail sporting goods channel tempered overall growth, resulting in an aggregate sales increase of 2 percent.
Carter’s Inc., one of the largest branded marketers of apparel and related products for infants and children with its Carter’s and OshKosh B’gosh brands, saw net sales and income rise in the second quarter ended July 1, aided by a 27.6% in e-commerce sales, while at Under Armour, direct-to-consumer revenue gained 20 percent to $386 million in the most recent quarter.
Retail giant Hudson’s Bay Company said its emphasizing digital sales by investing further in improving its digital platforms and online capabilities. During the second quarter, Lord & Taylor moved onto the same online platform as Saks Fifth Avenue and Saks Off 5TH, while Hudson’s Bay is expected to migrate over in early 2018. Using a combined platform allows HBC to leverage the same infrastructure across all its banners, including improving the ability to test and implement new features.
The company is also extending Gilt to an intent based offering, while leveraging the Saks Off 5TH banner. Additionally, the “New Gilt,” including a redesigned web site, was just launched to better reflect the buying habits of Gilt’s member base. Saks Off 5TH inventory is expected to be offered on Gilt in time for the holiday season, further integrating HBC’s luxury off price banners.
HBC said its leveraging technology to reduce fulfillment time for digital sales. Following the successful installation of the case shuttle system at its Canadian distribution center in 2016, HBC remains on track with the installation of the same robotic technology at its Pottsville, Pennsylvania distribution center, serving Saks Off 5TH and Lord & Taylor.