‘OVERSTORED’ INDUSTRY FACES A RETAIL RECKONING

Old-school companies grappling with streak of dismal sales reports

For more than a year, the biggest names at the shopping mall have bet it was only a matter of time before consumers snapped out of a cycle of tepid spending that has left many retailers grappling with weak sales and declining store traffic. But, with the likes of Gap, Macy’s and Kohl’s reporting this week that they rang up surprisingly dismal sales this spring, retailers — especially apparel chains and department stores — are facing a troubling reckoning. The economy is bouncing back but customers just aren’t hitting stores or filling up digital carts like the shopping giants thought they would. “There seems to be some more macro issue, given both performance of ourselves and our competition,” said Wes McDonald, chief financial officer at Kohl’s, on a Thursday conference call with investors. “There seems to be some change in consumer behaviour.” The uncertainty is lending fresh urgency to the challenges facing old-school stores, whether it is adjusting to the reality of online commerce or watching their customers shift from big-spending baby boomers to the more cautious millennials. The industry is suddenly awash in talk about being “overstored,” too many physical outlets chasing too few shoppers. “My personal view of the retail real estate industry in the U.S. is that it is over-retailed,” Sandeep Mathrani, chief executive of General Growth Properties, told analysts earlier this month. “The primary reason retail properties have closed and will close is obsolescence.” The Washington Post

Nordstrom

Nordstrom, in the midst of an expansion into Canada, could not escape the woes bedevilling the apparel retail sector as the company reported first-quarter earnings on Thursday that were far below Wall Street expectations. The results were “primarily driven by lower than planned sales and higher markdowns to better align inventory to current trends,” the company said in a news release. Last month, the retailer said it expects to lay off 350 to 400 people, mainly from its corporate headquarters.

Macy’s

On Wednesday, the U.S. department store chain is expecting a decline in sales of 3.5 to 4.5 per cent for the year. If the drop in sales adds more locations to the heap of closures (they are already slated to shutter 40 of its nearly 800 locations), it could accelerate the demise of malls rapidly because of the heft that Macy’s and other anchors have in drawing shoppers to the stores that surround them. Experts have already been predicting in recent years that of the 1,100 enclosed malls in the U.S., as many as a third or even half may end up closing.

Kohl’s

The mid-price U.S. department store chain reported first-quarter results Thursday that missed analysts’ estimates, weighed down by hefty costs as its sales dropped. Still, it’s hard to gauge how much of the weakness has been from the economy versus specific issues related to Kohl’s. Like its department-store rivals, Kohl’s is aiming to reinvent itself through a number of initiatives. It’s pushing national brands, while aiming to localize its assortments to local markets.

Gap

Gap chief executive Art Peck had promised investors that spring would be an important inflection point for the retailing giant, when a spate of merchandising and design fixes would be clearly visible on store shelves. But on Tuesday, Gap reported that company-wide sales were down 5 per cent at stores open more than a year, a worse performance than the 4-per-cent decrease charted in the same quarter the previous year. Each of its three major brands — Gap, Banana Republic and Old Navy — reported significant declines in sales.

Aeropostale

Last week, the teen-friendly clothing retailer announced it was shuttering all its stores in Canada, as it filed for Chapter 11 bankruptcy protection in the U.S. The closures represent 20 per cent of the retailer’s presence in North America. It will continue to operate 626 stores in the U.S. Going-out-of-business sales began on May 9 at the Canadian locations. Retail consultant Maureen Atkinson said Aeropostale had faced stiff competition in Canada, vying for the same customers as other apparel retailers like H&M, Forever 21 and Old Navy.