Retailers like Nordstrom, Macy's, Kohl's, and J. Crew are opening lower-priced outlets to drive sales. As consumers spend less on apparel and more on technology, healthcare, and travel, discounts are necessary to draw in new customers.
Watch out, Macy's. Nordstrom is expanding its off-price chain, Nordstrom Rack, like crazy. The brand plans to bump its current 180 stores up to 300 by 2020, Women's Wear Daily reports. While the outlet model may devalue other retailers, Nordstrom has seen a huge cash influx with its Rack expansion by catering to a different demographic.
This earnings season has been tough for retailers, and for more than one reason. But it has become clear that an industry-wide shift toward e-commerce is still evolving, with some faring well but most facing problems in setting up a smooth and streamlined “omnichannel.” Be it Walmart, JC Penney, Macy’s, or Dillard’s- an overall weak retail environment coupled with a shift toward online sales has impacted quarterly performances for physical retailers.
Nordstrom reported ugly third-quarter earnings results on Thursday, and the stock got wrecked. Shares fell by as much as 16% in after-hours trading. The upscale retailer reported earnings per share of $0.42, missing Bloomberg's consensus estimate of $0.72. The company said this reflected transaction costs related to the $2.2 billion-sale of its credit card portfolio to TD Bank in October. Sales rose 6% in the third quarter, to $3.3 billion. Comparable sales, at stores open for at least one year, rose 0.9%, missing the forecast for growth of 3.6%.
The department stores that once ruled the world are struggling to keep up with discount retailers. An emerging trend in consumer psychology is contributing to the shift toward discounting, according to Neil Saunders, CEO at industry analysis firm Conlumino.
Macy’s, Inc. (M) is down over 4.5% as of 11:28AM EDT today, after it missed analysts’ revenue and earnings estimates. However, the news is not as big as the statement from the retailers’ CEO, Terry J. Lundgren:
“We are approaching the second half of 2014 with confident optimism in our business strategies, merchandise assortments and marketing plans, tempered with the reality that many customers still are not feeling comfortable about spending more in an uncertain economic environment.”
By Takeover Analyst:With employment figures improving, investors would benefit from gaining exposure to department stores. In theory, retailing is directly correlated with consumer expenditures, but investors tend to act irrationally in times of booms and busts. Thus, retailers have high betas that are capable of generating high risk-adjusted returns. Between Nordstrom (JWN), JCPenney (