The outlook for department stores is looking grim. A new report from Fitch Ratings notes that sales for the top 10 U.S. department stores have remained essentially flat since 2001, while competitive pressures mount.
Secular and competitive pressure could lead to more store closings or potential restructurings over the next 24 to 36 months, according to Fitch Ratings' "Department Stores: A Shrinking Slice of the Pie" report. Sales declines and store closings would obviously have implications on mall traffic patterns.
"Department stores are the most pressured category in domestic retail," said Monica Aggarwal, senior director of Fitch Ratings, in a statement. "Department stores that actively invest in and manage both physical store space networks and online platforms are strongly positioned to generate incremental sales and gain market share."
While Macy's (NYSE:M), Nordstrom and Neiman Marcus Group are gaining share by growing their online businesses and using their stores to serve customers with differentiated goods. Mid-tier retailers such as Sears (NASDAQ:SHLD), Bon-Ton, Kohl's (NYSE:KSS) and JCPenney (NYSE:JCP) are struggling, Fitch notes.
However, it is not all bad news for department stores. An industry growth rate of 2 percent could be achieved by relatively flat to modest comps growth at the store level, Fitch estimates. The category would also require mid- to high-teens growth from online sales for retailers that currently generate 10 percent of their revenue from online.
Good weather, promotions spur May sales
U.S. retail sales hit $4.53 trillion in 2013, e-commerce jumps 17 percent
Winter weather cripples retail sales
Macy's tests Facebook video ads
Macy's Lundgren on marketing to millennials