First Research US Industry Profile

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Department Stores
SIC Codes: 5311
NAICS Codes: 452210
Last Quarterly Update: 5/30/2022
Companies in this industry operate physical retail establishments that sell items such as clothing, cosmetics, footwear, and home furnishings, typically from registers within individual departments. Major companies include JCPenney, Macy's, and Sears (all based in the US), as well as Debenhams and Marks & Spencer (UK), El Corte Ingles (Spain), Galeria Kaufhof (Germany), Galeries Lafayette (France), Hudson's Bay Co (Canada), and Isetan Mitsukoshi (Japan).
While department store sales historically have been strongest in Europe, Japan, and the US, growth in these markets is declining amid increasing sales in China, Latin America, and the Asia-Pacific region. The global department store sales are expected to reach over $12 billion by 2030, with a compound annual growth rate of 4% during the forecast period of 2020 to 2030, according to PMR.
The US department store industry includes about 4,500 stores with a combined annual revenue of about $70 billion.
Department stores differ from discount department stores, such as Walmart and Target, in that most department stores have checkout registers within individual merchandise departments instead of a central checkout area. A separate Discount Department Stores profile covers that industry.
Competitive Landscape
Technology and changing shopping preferences, particularly among younger consumers, are disrupting the retail industry. Online giant Amazon has surpassed Walmart as the biggest apparel retailer in the US, according to a CNBC report. Department stores also face competition from other digital retail platforms, such as YouTube, that offer transactional functionality direct from video. New digital marketplaces also offer a social component and sense of community desired by the next generation of consumers.
Apart from online rivals, department stores compete with discount department stores and mass merchandisers, specialty stores, off-price and outlet stores, and mail-order retailers. Largely as a result of this competition, department store sales have declined since 2000, both in dollar terms and as a proportion of total retail sales. Major companies, including Macy's, the US's largest department store operator, have shut stores and cut thousands of jobs.
Consumer spending and fashion trends drive demand. The profitability of individual companies depends on effective merchandising and marketing and high customer traffic. Large companies have economies of scale in purchasing, distribution, and marketing. Small companies can compete effectively by offering unique merchandise, providing superior customer service, or delivering a distinctive store experience. The US industry is concentrated: the top four companies generate more than 70% of industry revenue.
Competitive Advantages:
Compelling In-Store Experience - To draw customers to stores, retailers are focusing on creating experiences for shoppers that can't be matched online, including destination restaurants, trunk shows, in-store makeovers, and celebrity meet-and-greets.
Omni-Channel Business Model - As more consumers migrate online, retailers that successfully merge the in-store experience and their digital operations to offer quick home delivery and in-store pickup for items ordered online will come out ahead, especially among younger, tech-savvy consumers.
Supply Chain Efficiency - Rapidly changing consumer tastes and pressure to provide different delivery options to multiple destinations is pressuring retailers to optimize their supply chains. Retailers who can't deliver products to customers how and when they want it quickly will lose sales to those who can.
Smaller Footprint - Closing unproductive locations to focus on fewer, more productive stores and free up cash to invest in digital operations is a winning strategy for bloated department store chains that have too many unprofitable stores for today's retail environment.
Low Debt - To survive in the digital age, department stores must invest heavily in technology and facilities. Chains with lots of debt on the balance sheet, including Neiman Marcus, struggling Sears, and Bon-Ton (which recently liquidated), may lack the financial resources to invest in the store improvements and digital assets required to win over today's consumers.
Companies to Watch:
Macy's is America's largest department store chain and a bellwether for the industry with approximately 680 Macy's and Bloomingdale's locations. The company has closed some 100 of its main chain Macy's stores in recent years to focus on fewer, more productive and inviting stores, and to invest in its digital transformation. The company is under attack from Amazon -- which is poised to topple Macy's as the largest apparel seller in the US -- and discount retailers. Macy's is responding by investing in technology and experimenting with new concepts, including adding off-price Backstage departments to 45 locations and acquiring New York-based concept store Story. After three years of declining same-store sales, Macy's is growing again.
Canada's Hudson's Bay Company (HBC) operates department stores across North America and parts of Europe. The company owns upscale Lord & Taylor and Saks Fifth Avenue in the US, and Galeria Kaufhof in Germany, in addition to its namesake Hudson's Bay (aka The Bay) chain at home. While HBC is exploring the sale of Lord & Taylor, the company is investing in digital properties such as online flash sale site Gilt Groupe.
Like Macy's in the US, Marks & Spencer (M&S) could lose its status as the UK's top apparel seller to discounter Primark following plans to close 100 stores by 2022. Amid a prolonged sales slump, the iconic British department store is trying to shed its frumpy image by upgrading its stores and improving the customer experience. M&S has invested heavily in food and aims to improve its website to eventually get a third of its sales from online purchases.
More than any other department store chain, Nordstrom is embracing technology. The 118-year-old company is experimenting with ways to make upscale, high-touch retail relevant in today's e-commerce-driven market. Indeed, 30% of sales for Nordstrom's full-service store division come from online. The company's successful off-price format Nordstrom Rack (accounting for more than a third of US sales), reputation for stellar customer service, and early enthusiastic embrace of technology all have helped it weather the retail storm disrupting its competitors.
Products, Operations & Technology
Major products include apparel (about 55%), which typically generates most sales for the industry, and cosmetics (more than 10%), footwear (about 10%), ... plus:
Sales & Marketing
Finance & Regulation
Regional & International Issues
Human Resources
Also includes the following chapters:
Quarterly Industry Update
Industry Indicators
Business Challenges
Trends and Opportunities
Call Preparation Questions
Financial Information
Industry Forecast
Industry Websites
Glossary of Acronyms

Historical Profiles (PDF format)