Mix bag of result for clothing retailers... Store closures to continue
STORE CLOSURES TO CONTINUE
Overall retail in the US has been looking up with business forecaster Kiplinger’s latest prediction on retail sales and consumer spending, indicating growth in sales, excluding gasoline and autos by 4.2%, a bit better than 2017’s 4.1% pace. Although cool spring weather across most of the country is hurting clothing, home improvement and department stores’ sales, the situation should turn around once warmer weather sets in. However, what is for sure is that department stores will see only modest growth, as will clothing retailers. The reasons are many, but surprisingly yearend results announced in March and first quarter sales for 2018 of many department stores and clothing retailers, have shown improved results, fooling many into thinking that the crisis is over!
There was a buzz in the stock market, as retailers that were considered down and out, included Macy’s, Kohl’s and even Dillard’s, beating Wall Street expectations in their latest financial reports filed in March. Many forecasters upscaled their predictions, but others prudently warned that better performance comes mostly against a backdrop of easy comparisons, an unusually strong holiday season and tight inventory management. Industry watchers also pointed out that large store closing also affects the remaining ones positively, as the competition among seemingly similar stores, decreases.
Store closures have been on a high with almost all department stores closing ‘unprofitable’ locations across the country. Nearly a dozen more of Macy’s department stores will soon be closing their doors as a part of the retailer’s plan to close approximately 100 stores, which was announced back in August 2016. After closing more than 140 stores in 2017, JCPenney is shutting down one of its distribution centres and eight more stores nationwide, affecting about
670 jobs with the closing of the distribution centre and around 480 employees by the eight stores that are closing. The retailer has failed to gain any real traction despite Sears’ flagging fortunes and has been continuously disappointing the retail analysts. Just days after the holiday shopping season ended, Sears Holdings announced that it has decided to shut down more than 100 stores, of which 64 are of Kmart and 39 are Sears’ stores. “Sears Holdings continues its strategic assessment of the productivity of our Kmart and Sears store base and will continue to right size our store footprint in number and size,” the company said in a statement, adding, “In the process, as previously announced, we will continue to close down some unprofitable stores as we transform our business model so that our physical store footprint and our digital capabilities match the needs and preferences of our members.” The company shut more than 350 locations last year.
Ascena Retail Group, the women’s clothing retailer that operates the brands Ann Taylor, Loft, Dress
Barn, Lane Bryant, Justice and several others, is planning to windup hundreds of stores. In June 2017, the company executives announced that 667 stores are part of its fleet optimisation programme. At least
268 of those stores will definitely be closed by July 2019. The remaining
399 stores will be shut down if rent concessions aren’t obtained through negotiations with landlords, as maintaining these stores have become a financial burden on the company. Even retailers doing relatively better, are looking to downsize. With
J.Crew sales decreasing 8% and its comparable sales decreasing 10% following a decrease of 8% last year, the J.Crew Group announced in March that it plans to discontinue with 20 stores in 2018. However, the retailer says it’s seeing results in its most important business – women’s apparel, with Madewell sales rising 23%. Abercrombie & Fitch hasn’t finished with shrinking its retail footprint, though net sales increased 15% for the last quarter of the financial year and 5% for the year ending February 2018. The teen apparel company said it plans to shut down about 60 stores in the US during the fiscal year as leases expire and there seems no reason to renew them. Overall, 2017 was a year of significant progress for A&F as the company achieved several important milestones, including Hollister growing to US $ 2 billion in sales, Abercrombie returning to positive comparable sales for the fourth quarter and record digital sales across all brands. Meanwhile, Gap Inc. plans to shut
200 Gap and Banana Republic locations over the next three years, simply because they are all ‘underperforming’. At the same time, Gap Inc. will open 270 locations for its growing brands, Old Navy and Athleta. In the most recent quarter, same-store sales at Old Navy jumped 9%, driving an overall same-store sales increase of 5% for Gap Inc. In fact, Gap is making a big bet on Old Navy, its discounted apparel brand for shoppers who enjoy browsing off-price retailers like T.J. Maxx and Ross Stores in search of a deal. This is in pursuit of the retailer’s updated growth strategy announced late last year, which called for roughly 200 Gap and Banana Republic stores to close by 2020. The move is to shut stores at old malls that are no longer exciting customers, and move to more open-air centres and streetlevel retail where the customers are happier shopping. Winding up cash-draining stores and tweak assortments is not the real solution to the downfall of department stores; a serious evaluation needs to be made to address the fundamental reasons why department stores have been ceding market share to the offprice, value-oriented, fast-fashion and more focused specialty players for more than a decade. Just how much impact will be felt with the current flow of store closures is uncertain, but the impact will definitely be felt. Also, an incremental improvement in margin and comparable sales growth rates, merely a point or a two above inflation cannot be really defined as an improvement in the fortunes of the retailers.