The death of department store
‘The genre is toast’ and ‘there are very few who are likely to survive’
American department stores, once allpowerful shopping meccas that anchored malls and Main Streets across the country, have been dealt blow after blow in the past decade.
J.C. Penney and Sears were upended by hedge funds. Macy's has been closing stores and cutting corporate staff. Barneys New York filed for bankruptcy last year.
But nothing compares to the shock the weakened industry has taken from the coronavirus pandemic.
The sales of clothing and accessories fell by more than half in March, a trend that is expected to only get worse in April.
The entire executive team at Lord & Taylor was let go this month. Nordstrom has canceled orders and put off paying its vendors. The Neiman Marcus Group, the most glittering of the American department store chains, is expected to declare bankruptcy in the coming days, the first major retailer felled during the crisis.
It is not likely to be the last.
“The department stores, which have been failing slowly for a very long time, really don't get over this,” said Mark Cohen, the director of retail studies at Columbia University's Business School. “The genre is toast and looking at the other side of this, there are very few who are likely to survive.”
At a time when retailers should be putting in orders for the all-important holiday shopping season, stores are furloughing tens of thousands of corporate and store employees, hoarding cash and desperately planning how to survive this crisis. At the very least, there is expected to be an enormous reduction in the amount of stores in each chain, which once sprawled across the American continent like a pack of many-headed hydras.
Department store chains account for about 30% of the total mall square footage in the United States, with 10% of that coming from Sears and J.C. Penney, according to a January report from Green Street Advisors, a real estate research firm.
Even before the pandemic, the firm expected about half of mall-based department stores to close in the next five years.
Even as they have worked to transform themselves for e-commerce with apps, websites and in-store exchanges, the outbreak has laid bare how dependent the department stores have remained on physical outposts. Macy's said on March 30 that after closing its stores for two weeks, it had lost the majority of its sales.
The Commerce Department's retail sales report for March, released last week, was disastrous. Overall retail sales numbers for this month are expected to be even worse, given that some stores were open for at least part of March.
Across chains, prices for new merchandise sold via e-commerce have already been slashed by 40% in some cases. Order cancellations for the pre-fall season — which would normally have started delivering next month — have been increasing.
Some brands said shipments have even been turned away upon delivery to warehouses, and extensions of payment terms are cascading through vendors, who are then forced to negotiate with their own manufacturers, marketing agencies, fulfillment centers and landlords.
“Nobody knows what Q4 will be like, but you have to start putting the orders in now,” Sucharita Kodali, a retail analyst at Forrester, said of the holiday season, normally the most lucrative time of the year for the chains. “Some people don't even have the money to put in Q4 orders, and may have to cancel Q4 orders anyway, and it's a mess. There's never been this much uncertainty.”