Macy's and Kohl's Are Hit by Weak Holiday Sales
05 January 2017 - 9:52AM
Dow Jones News
By Suzanne Kapner
Macy's Inc. and rival Kohl's Corp. warned of weak holiday sales,
more evidence that department stores have lost their central place
in American retailing and the chains haven't been able to solve the
shift to online shopping.
Macy's outlined restructuring plans Wednesday to eliminate more
than 10,000 jobs, or 6% of its workforce, as the first nationwide
department store chain retrenches and looks to find new ways to
draw back shoppers.
"We are closing locations that are unproductive or are no longer
robust shopping destinations owing to changes in the local retail
shopping landscape, as well as monetizing locations with highly
valued real estate," Chief Executive Terry Lundgren said.
The retailer said it would eliminate about 3,900 jobs with 63
store closings this spring, which are part of a plan announced last
summer that will shut about 100 locations. It will also eliminate
about 6,200 other positions as part of an effort to streamline
operations so it can invest more in digital efforts and other
growth areas such as the expansion of its Bluemercury and Macy's
Backstage concepts.
Analysts generally expect the recently completed holiday season
to be a strong one for retailers. The National Retail Federation,
for instance, expects retail sales to increase 3.6%, more than the
3% gain of a year ago.
But department stores face particular challenges given their
large size and dependence on brands, which now have their own
retail stores that compete with the big box chains for
customers.
On Wednesday, Kohl's warned of weak results, saying comparable
sales declined 2.1% in the months of November and December from a
year earlier. The chain, which operates 1,800 stores, lowered its
profit targets for the current year.
"Strong sales on Black Friday and during the week before
Christmas were offset by softness in early November and December,"
said Kohl's CEO Kevin Mansell.
Shares of Kohl's tumbled more than 12% in late trading, while
Macy's fell 8%. The news pressured other retailers, with Nordstrom
Inc. and J.C. Penney Co., also trading lower after the market
closed.
Macy's said its sales declined 2.1% on a comparable store basis
in November and December from a year earlier. As a result, Macy's
lowered its earnings estimate for the current fiscal year to
between $2.95 and $3.10 a share from a prior estimate of between
$3.15 and $3.40.
Mr. Lundgren said he expects 2017 sales to decline at a similar
rate to its holiday performance. The company has ramped up its
digital efforts and Mr. Lundgren said online sales were strong this
holiday, but Macy's continues to "experience declining traffic in
our stores where the majority of our business is still
transacted."
Macy's said the latest store closings would result in a $250
million charge in the fourth quarter and reduce its 2017 revenue by
about $575 million. However, Macy's expects annual savings of about
$550 million as a result.
"The big thing we're focusing on is what should our stores look
like going forward?" said Karen Hoguet, Macy's chief financial
officer, in an interview.
Ms. Hoguet said that Macy's will be testing new strategies this
spring, but has already moved to eliminate back office space in
some stores to enable it to provide the same level of service at
lower costs.
She added that the addition of Macy's Backstage, a discount
concept similar to T.J. Maxx, to existing Macy's department stores
has helped boost traffic. As a result, Macy's plans to add 50
Backstage locations to existing stores over the next few years.
Ms. Hoguet said that despite the challenges, brick-and-mortar
locations will continue to be crucial to retailers. "Research tells
us that customers are visiting stores, and then buying online," she
said.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
January 04, 2017 17:37 ET (22:37 GMT)
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