Macy’s And Kohl’s Keep Running To Stand Still

Last year many pundits and analysts who frankly should have know better, declared that department stores were back. It made for good click-bait, but was clearly nonsense.

As a card carrying BS dispelling enthusiast I called it out years ago, revisited it last year, and continue to point to what should now be obvious. Without radical action the collapse of the unremarkable middle will continue. And moderate department stores are the poster children for having mostly watched the last twenty years happen to them. Let’s take a look.

This morning the US’s biggest department store reported its quarterly results and while they beat Wall Street expectations, they were objectively terrible. Macy’s and Bloomingdale’s comps were down 8.7% and 3.9% respectively. Year over year net income nearly halved. All CEO Jeff Gennette could point to were some modest productivity gains. This is the guy who said six months ago that the company’s “Polaris Strategy” was working. I bet he can’t wait to retire early next year.

Kohl’s earnings were on a different day, but essentially the same story. Comparable store sales fell 4.3%, with the only good news being that they squeezed out a small profit, primarily due to cost cuts. Wall Street liked that, apparently thinking that Kohl’s has an expense problem rather than huge customer relevance and remarkability issues. Both companies guided to continued negative sales growth for the balance of the year.

When we take the longer view we can see that both brand’s strategies are, as we sometimes say here in Texas, all hat and no cattle.

Macy’s has a long history of making bold claims about innovative strategies while mostly delivering a heaping pile of nothingness. Terry Lundgren, Gennette’s predecessor, championed “omni-channel” and the “My Macy’s” inventory localization program, among many other efforts that barely moved the dial.

As part of the more recent Polaris Strategy, Mr. Gennette has launched off-the-mall concepts like “Backstage” and the confusingly named “Market by Macy’s,” along with rolling out Toys R Us shops, acquiring Story (which seemed destined to failure from the jump, as the kids say), and updating the company’s rewards program.

Despite a ton of focus and investment, and despite their competitors closings many hundreds of locations, Macy’s first quarter sales in 2019 went from $4.98 billion to $5.5 billion most recently. Net income went from $136 million to $155 million, a nice improvement, but still well below its much smaller rival Dillard’s.

Kohl’s, which continues to tout the roll-out of Sephora shops, a new small store format, Amazon
AMZN
in-store returns, and various merchandising initiatives has done even worse. Kohl’s 2019 first quarter sales were $4.1 billion and now they are all the way down to $3.4 billion. And it’s great that they managed to turn a small profit, but the $14 million they delivered is down from $62 million pre-pandemic, which was a hardly strong number to begin with.

Year after year the retailers stuck in the unremarkable middle fail to win, keep, and grow sufficient numbers of valuable customers. Their relative market share continues to wane. Remarkable retailers like Ulta Beauty
ULTA
(which now has a market value more than three times Macy’s and Kohl’s combined!) continue to kick their respective butts. Facts are stubborn things.

In response, these struggling brands keep applying cosmetics to a particular species of domesticated animal. A timid transformation is not going to change the fortunes of these iconic retailers. Nothing on their current agendas is going to keep them from continuing their slow slide into oblivion.