You've heard it before: Brick-and-mortar retail is dying and Amazon is the one pulling the trigger. But department stores, with their old-fashioned business models, middle-of-the-road merchandise and mall-based locations have been hit especially hard. And it's not just e-commerce that has a gun to its head.
Department stores are facing a particularly tough set of circumstances. They've devalued their brands with constant discounting, which kicked into high gear at the start of the Great Recession. They're located in malls, which are not the hot shopping destination they once were. They're losing their most profitable brands, such as Ralph Lauren and Michael Kors, which are pulling out and, in some cases, opening stores of their own. And the middle-class population that used to sustain department stores is disappearing. Those families, now earning less, are turning toward discount retailers such as Walmart.
Consumer tastes and expectations have also changed drastically. Shoppers have found themselves newly enamored with fast-fashion retailers, where they can find of-the-moment fashion at impossibly low prices. They have turned away from the sprawling department store format in favor of more specialized shops in retail plazas. And they have turned their noses up at the nearly identical merchandise stock. Consultants at AlixPartners found a 40 percent overlap among specific merchandise at department stores it studied.
Each of our local malls have lost at least one mall anchor. Losing a second (or third in some cases), could start a domino effect that could be difficult to halt.
"Typically when you talk about a loss of anchors, it's that second anchor that's the most difficult to come back from," said Edward Dittmer, a Commercial Mortgage-Backed Securities analyst with Morningstar Credit Ratings.
On top of those woes, each department store has its own unique challenges.
The Bon-Ton Stores
- Filed for Chapter 11 bankruptcy protection last week
- Has 8 stores in the Buffalo-Niagara market
- Will close 47 stores this year and is taking a hard look at 120 others
- Anchors the Eastern Hills, McKinley, Chautauqua and Olean Center Malls, as well as the former Summit Mall
Of all the struggling anchors, Bon-Ton faces the most immediately uncertain future. Besides its recent bankruptcy, chain hasn't been profitable since 2010. It has more than $1 billion in debt, sinking sales and just $7 million in cash.
"Even with breathing space, the future of Bon-Ton is uncertain. In our view, there are many stores and locations, which are in terminal decline and where closure is the only sensible option," wrote analyst Neil Saunders, managing director of GlobalData Retail, in a report.
Even if the company can work some financial magic with its restructuring, the company's outdated stores just aren't offering today's shoppers what they want, he said.
"Even if the debt load was cut and unprofitable divisions culled, Bon-Ton would still be running up a down escalator to survive," Saunders wrote.
- Has closed 191 stores since 2014
- Closed 139 stores last year
- Closed its Dunkirk store last year
- Anchors the McKinley, Boulevard and Eastern Hills malls, as well as the Walden Galleria and Batavia City Center
After the failure of a high-profile reinvention and years of struggling sales, J.C. Penney has surprised analysts who had all but written it off.
A three-year turnaround plan that jettisons excess inventory and closes underperforming stores seems to be working, as evidenced by improving same-store sales and revenue. It's riding the wave of a strong holiday season (driven by home, beauty and fine jewelry sales) and a 17 percent stock increase in January.
J.C. Penney has closed a handful of smaller stores this year, but has said a strong brick-and-mortar will be crucial to its brand recognition and online fulfillment. Situated in mostly Class B malls, it is in a good position to negotiate lower rent in leased stores, and isn't likely to close stores in order to sell them for (likely negligible) real estate value. It is also working on capturing the beleaguered Sears chain's market share, with appliance and home services sales being its most recent attempt.
- Has closed 156 stores since 2008
- Closed anchors at the McKinley and Eastern Hills malls in 2016
- Closed a home store at McKinley Mall and a men's store at Boulevard Mall last year
- Anchors the Boulevard Mall and Walden Galleria
After years of disappointing sales, Macy's saw a modest increase in same-store sales over the holiday season. It has worked with vendors to create merchandise exclusive to its stores, differentiating itself from other department stores, and has revamped its loyalty program.
Being an early adopter of e-commerce, Macy's may have an edge on other department stores still learning to navigate the brave new world of omni-channel retail.
It has turned its focus to Macy's Backstage, its more affordable spin-off, and begun putting the concept into its traditional stores – a move met with mixed reactions from retail analysts, some of whom think Macy's is undercutting its value and cannibalizing its sales.
Most recently, it has begun testing a pop-up store-within-a-store concept at locations in 10 major cities. Dubbed The Market @ Macy's, brands rent space in Macy's stores and products are sold by Macy's employees. In addition to the rent revenue stream, the pop-up products give customers something new to look forward to in stores, and attract new traffic.
- Closed more than 400 stores last year, will close 39 more this year
- Closed stores at Boulevard Mall and Walden Galleria last year
- Anchors Eastern Hills, McKinley and the former Summit malls
- Cutting 220 jobs at its corporate offices
Despite borrowing $210 million to keep it afloat (much of it from lenders controlled by its CEO, Edward Lampert) and embarking on several cost-cutting measures that have trimmed billions of dollars in expenses, Sears faces an uphill battle. No one is sure it will emerge successfully.
Bleeding red ink, Sears has scrambled to close stores and sell off real estate, and has cashed in its Craftsman and Lands' End brands. Still, its same-store sales fell 17 percent during the holiday season. Last month, S&P Global downgraded Sears' credit rating twice in one week.
A prevailing sentiment among analysts is that Sears should have entered bankruptcy long ago and has avoided it without warrant because of Lampert and his cash infusions. The ailing brand could use the fresh start a bankruptcy could bring, they said.
Lampert has also been criticized for what some investors have said are conflicts of interest, making decisions that could soften the blow to his personal financial losses if the chain goes under. Investors are also unhappy with his focus on the Shop Your Way rewards program, while avoiding in-store basics such as staffing, stocking and inventory.
Department stores aren't the only ones struggling. Nearly two dozen retailers declared bankruptcy last year. They included:
- The Limited filed in January 2017, closed all its stores and went online only.
- Wet Seal filed in February 2017 and also went online only
- BCBG Max Azria filed in March and has one store left, at Walden Galleria
- Radio Shack filed in March, closing its seven remaining local stores.
- Gander Mountain filed bankruptcy in March, closing its Tonawanda store.
- Payless ShoeSource filed in April. It has 11 stores in the local market.
- Rue21 filed in May. It has one remaining store in Lockport.
- Gymboree filed in June. It has two stores left locally.
- Papaya Clothing filed in June. Its store at Walden Galleria closed.
- Alfred Angelo filed in July. Its Town of Tonawanda store closed.
- Perfumania filed in August. All its local stores have closed.
- Vitamin World filed in September. It has three local stores.
- Toys R Us filed in September. It has three stores.