U.S. department stores and apparel retailers will be looking to rebound in 2020 after a dismal year. They may close more stores, reduce store size, and add more experiences to attract customers.
In 2019, consumers continued to steadily turn to other online competitors such as e-commerce giant Amazon (Amazon), resulting in physical retailers in various fields being impacted. . The authoritative rating agency Moody’s Investor Service (Moody’s) listed a total of 17 retail or apparel companies with credit ratings of Caa1 or lower as of December 5. Such companies will be considered high risks by lending institutions. Department store J.C. Penney , Neiman Marcus, fashion brand Forever 21, and home furnishing retailer Pier 1 are among them.
Although traditional retailers such as Macy’s Inc. and Gap Inc. have made progress in e-commerce and in-store experience investment, but whether this will be enough to restore them to their former status remains questionable.
U.S. department stores were the worst-performing sector in the S&P 500 Index (S&P 500) in 2019. The S&P 500 department stores index index fell nearly 30%, with Macy’s, Gap, Kohl’s Corp., L Brands Inc. and Nordstrom Inc. among the worst performers on the index.
Meanwhile, the situation in the retail industry continues to worsen. Data from Credit Suisse showed that as of the end of October 2019, more than 7,600 stores had been closed, setting a record for the same period in previous years. Credit Suisse said that the outlook for 2020 is also not optimistic. If these retailers cannot achieve sales growth with increased investment, their prospects may become even bleaker in the event of an economic recession.
Analysts said that next year The key trends are:
Closing stores
Morningstar Investment Service analyst David Swartz said department stores must reduce the size of their store networks. For example, Macy’s does not need hundreds of large shopping malls, especially second- and third-tier shopping malls that are at risk of bankruptcy. J.C. Penney Co. is also facing the same problem.
Macy’s has approximately 640 department stores of the same name, and has been gradually closing stores since 2016. J.C. Penney, which has about 850 stores in the United States, closed 27 of them this year and ended sales of appliances and furniture to focus on categories such as clothing.
David Swartz said: “Retailers with large numbers of very large stores, like Macy’s and J.C. Penney, must make decisions quickly before profit margins decline further. . I think we will see some big changes next year.”
At the same time, Gap plans to close about 230 stores, completely change its business model, and more Focus on Old Navy and Athleta brands. Clothing retailer Abercrombie & Fitch Co. will also close its flagship store.
Forrester Research analyst Sucharita Kodali said even if stores don’t close, they will reduce store size. As consumers shop more online, their need for large sales spaces is decreasing. Take Lord & Taylor, a long-established luxury department store, for example. The company is evaluating the size of its stores and plans to launch new, more compact formats.
Focus on customer experience
For those who want to reduce inventory backlog For department stores, creating a memorable experience is key to attracting customers, and one such effort is to transform the retail space.
David Swartz said: “In fact, the clothing sold in various channels is not very different, so retailers must provide a variety of different experiences.”
David Swartz said: o:p>
More retailers may follow the model of new concept store Nordstrom Local, focusing on customization, returns and helping customers find specific styles, rather than just selling merchandise.
Gabriella Santaniello, founder of retail consulting firm A Line Partners, said restaurants in retail spaces should be taken more seriously, and that Neiman Marcus and Nordstrom have integrated their bars with The cafe is repositioned closer to the merchandise area, which “blurs the lines between retail and dining.”
J.C. Penney also renovated a new store, adding a yoga room, a video game room, high-tech personalized dressing rooms and launching some fashion classes. Kohl’s, for its part, allows Amazon users to return items in its stores to entice customers to stay and buy other items.
Introducing second-hand consignment business
Second-hand consignment business will also push retailers in new directions. According to GlobalData’s global data research on ThredUp, a second-hand clothing consignment e-commerce platform, the second-hand clothing market is expected to grow to US$32 billion in 2020.yuan, up from $28 billion in 2019.
Gabriella Santaniello said: “We will continue the trend of consignment, which is legitimately affecting the way we buy many products. Retailers are going to have to adapt to it. ”
She said clothing companies may be forced to improve services or join the consignment bandwagon. It is expected that more clothing retailers will form partnerships with second-hand trading platforms, such as ThredUp, which announced in August last year that it would cooperate with J.C. Penney and Macy’s. (See “Luxe.Co” for details: thredUP, a second-hand clothing consignment e-commerce company, raised US$175 million and reached cooperation with traditional retailers such as Macy’s Department Store)
Financial services revenue declines
Morgan Stanley says retailers, especially department stores, are losing revenue due to new accounting rules Credit Income is also likely to see a sharper decline. Credit income is the profit share that retailers receive from partner financial institutions.
From January 1, the United States will replace the existing Allowance for Loan and Lease Losses (ALLL) accounting with the Current expected credit losses (CECL) accounting standard The standard requires financial institutions (banks) to include future credit losses (such as bad debts) in the financial list. The new policy will take effect on January 1, 2020.
Department stores will be more affected by the change than the market realizes because of their exposure to credit, Morgan Stanley said in a client note Revenue dependence has increased, while operating income continues to decline. Morgan Stanley said: “We expect Macy’s to be the most potentially impacted by lower credit income. Target is relatively the safest.”
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