Down in the Dumps
Sep 1, 2008 12:00 PM, By Lauren Shepherd
Sears Holding Co., based in Hoffman Estates, Ill., was once the largest department store chain. It has lost that rank and struggled to find an identity, especially since its merger with Kmart in 2005.
Sears has struggled to keep its sales and profits growing mainly because it has had to significantly mark down merchandise to clear it out and make way for newer items. Sears has also been weighed down by a somewhat stale image anchored by its home items like washing machines and vacuum cleaners. To attract more customers, the company is adding a line of street clothes and accessories from rapper LL Cool J. The September launch of the collection will coincide with the release of the rapper's latest album, called “Exit 13.” The launch comes after the company saw its profits drop 44 percent in its most recent fiscal year. It posted a pre-tax loss of $64 million in comparison to a pre-tax gain of $381 million a year ago.
Some chains have fared even worse and have had to go out of business, largely due to an inability to make enough money to pay off debts. As sales have dropped, restructuring debt has become much more difficult due to tightening credit markets. The confluence of both factors has proved to be too much for a growing number of department store chains and other retailers.
According to Thomas Weisel Partners LLC analyst Jim Duffy, 19 mid-sized or larger retail chains have filed for Chapter 11 bankruptcy protection this year. The bankruptcies include four regional department store chains — Knoxville, Tenn.-based Goody's, Hayward, Calif.-based Mervyns, Reading, Pa.-based Boscov's and Lexington, Ky.-based Dawahares. In 2007, only 17 retailers filed for protection for the entire year. Duffy estimates that by the end of 2008, 30 retailers could file for bankruptcy — the highest number in five years.
More bankruptcies, of course, mean more store closures. ICSC estimates that 7 percent more locations will close their doors in 2008 than in 2007. Stores closures wouldn't necessarily be a bad thing for some retailers, particularly once the economy begins to stabilize and consumers ramp up their spending.
But before most department stores think about expanding, most are looking to the back-to-school season for a boost in sales. The National Retail Federation (NRF) expects the average American family with school-aged children to spend $594.24 on back-to-school purchases, compared to $563.49 last year. But much of that increase will likely come from electronics purchases like computers and cell phones.
Deborah Weinswig, a retail analyst with New York City-based Citi, says even if back-to-school spending increases, it may not help department stores, which rely largely on sales of clothing during the back-to-school season. “While households will continue to spend on the back to school necessities, we are concerned that discretionary spending will be limited, especially on apparel, as consumers try to stretch their wallets,” she says.
The NRF survey also indicated that more shoppers plan to go to discount stores like Wal-Mart for their back-to-school necessities. That could leave department stores in the sales doldrums for at least another few months. Ullman says even though the chain has seen a “good response” for its back-to-school merchandise, “we do expect it to be weaker than a year ago and perhaps occurring later.”
| Retailer | 2007 U.S. Sales (in millions) |
Share of Top 10 |
Total Stores |
Sales-Growth (2006-2007) |
Compound Annual Growth (2002-2007) Sales |
Stores |
|---|---|---|---|---|---|---|
| Macy's (1) | $26,313 | 23.2 | 853 | -2.4 | 11.3 | 13.4 |
| Sears (2) | 20,100 | 17.7 | 860 | -4.4 | -2.7 | -0.3 |
| JCPenney | 19,860 | 17.5 | 1,067 | -0.2 | 2.7 | 0.5 |
| Kohl's | 16,474 | 14.5 | 929 | 6.0 | 12.6 | 15.2 |
| Nordstrom (3) | 8,828 | 7.8 | 155 | 3.1 | 8.4 | 2.5 |
| Dillard's | 7,207 | 6.3 | 326 | -5.6 | -1.8 | 4.4 |
| Neiman Marcus Group (4) | 4,390 | 3.9 | 65 | 9.0 | 9.5 | 6.3 |
| Belk | 3,825 | 3.4 | 303 | 3.8 | 11.3 | 7.2 |
| Bon-Ton Stores | 3,366 | 3.0 | 280 | 0.1 | 36.4 | 31.2 |
| Saks (5) | 3,230 | 2.8 | 102 | 11.8 | -11.4 | -22.0 |
| Total Top 10 | 113,593 | 4,940 | 0.0 | 1.0 | 2.0 |
- Data include furniture galleries
- 2007 sales exclude 75 Sears Grand and SearsEssentials stores
- 2007 data exclude two Jeffrey stores from store count, but include their sales; 2002 data exclude five Faconnable boutiques and a shoe store from store count, but include sales
- 2007 data include sales for three Cusp stores and the Horchow direct business; 2002 data include sales for Horchow and two Galleries of Neiman Marcus stores
- Excludes sales of 75 stand-alone Club Libby Lu stores and 20 Club Libby Lu concessions
Sources: Company reports and TNS Retail Forward
Acceptable Use Policy blog comments powered by Disqus
