Commentary: Everything Must Go
The term “post-department store era” was once considered so controversial that many in the retail world avoided using it, fearing backlash from powerful industry giants like Macy’s and Sears. Some saw the very idea of department store obsolescence as pure folly while others saw it only as a vague possibility too far in the future to consider.
In fact, the “post-department store era” has been with us for more than two decades, and many retail developers are now actively planning for a world without these retail giants in the not-so- distant future. Consider that, today, the entire department store industry generates less than $75 billion in annual sales, while Wal-Mart alone takes in more than $500 billion in the nearly $4 trillion industry. Amazon, with over $85 billion in annual sales, has now eclipsed the entire department store industry and continues to grow at a robust pace.
Department stores and the malls they anchor have, in fact, been steadily losing market share for decades, and the data continues to trend in the wrong direction. The systematic removal of retail categories from department stores that began in the 1970s with Toys “R” Us, has spread to virtually every other retail category and shows no sign of abating. This ongoing restructuring has been wreaking havoc on the full-line department store business model ever since, bringing with it a steady decline in the viability of all but the most potent regional malls.
A recent Mall Sector Special Report by Green Street Advisors noted that “industry-wide, department store sales have been declining for nearly a decade, and the pace is picking up.” Not only are most department stores “far below their pre-recession sales peaks,” but Sears and J.C. Penney are around 40% lower. The report points out that department stores are “losing share to specialty, discounter/mass merchants, off-price retailers,” and highlights the fact that e-commerce apparel sales are “growing at a breakneck pace.”
The numbers in the report bear out those ominous conclusions. Between 2006 and 2015, traditional department store sales decreased from $94 billion to $72 billion (a 25% drop). At the same time, apparel sales at mass merchants like Target and Walmart have increased from $35 billion to $45 billion (a 30% increase), and sales at off-price brands like Ross Dress for Less, Marshalls and T.J. Maxx have spiked from $18 billion to $35 billion (an eye-opening 95% boost), and that doesn’t include the market share being steadily eaten away by online brands like Amazon.
Although apparel represents one of the few categories still standing in today's department stores, 30% of apparel sales are now occurring online, and brick-and-mortar retailers from H&M and Zara to T.J. Maxx, Marshalls, Ross Dress for Less and Nordstrom Rack are opening some 500 stores annually.
Primark’s entry into the U.S. market marks yet another milestone in the ongoing process. The Irish clothing retailer, now approaching 300 locations worldwide, opened its first U.S. location in 2015 in Boston’s Downtown Crossing, followed shortly thereafter with a second location in the King of Prussia Mall outside of Philadelphia.
Additional plans for several more locations across the country are in the works. Primark’s pricing isn’t just low, it’s ridiculously low, with eye-popping deals on everything from clothing to luggage and houseware items. From $6 womens blouses to $25 suitcases, Primark takes the race to the bottom in pricing to a new level. At close to 100,000 square feet, Primark is more than just an alternative, it’s a viable anchor replacement. Primark presents itself as a true department store alternative, and as we continue to see new Primark locations popping up in major malls, pressure on traditional department stores will only rise.
Some observers have been noting the decline of the department store format for years, but there are now strong indications that even the most pessimistic of projections may have underestimated both the pace and impact of the decline. As it becomes obvious that the all-out assault on traditional department store apparel sales is nearing its final act, the result will almost certainly be a rout, and it appears inevitable that the number of department stores left operating in the U.S. will contract by 75% or more over the next decade.
Likewise, the number of viable malls, which has already decreased from about 3,000 at the industry’s peak to less than 1,000 today, could easily drop to under 250 in the coming years. With all this data pointing in one direction, it’s hard to avoid the conclusion that the department store party may, in fact, be just about over.
Endings come with new beginnings, and in the Darwinian world of retail, wherever there are big losers, there are usually big winners too. In this case, look to discount brands like T.J. Maxx, Ross Dress for Less, Home Goods, Ulta Cosmetics, Dick’s Sporting Goods and Primark to find the winners. Beyond the discounters, a whole host of emerging brands that carved out reputations and footholds online are beginning to move into brick-and-mortar outlets. From Bonobos to Best Brands, these merchants are popping up with increasing frequency.
In the end, there is little doubt that consumers will come out on top as new and appealing apparel offerings replace fading department stores in the final stages of the “post-department store era.”
Nick A. Egelanian is president of SiteWorks, a strategic retail real estate consulting firm providing highly targeted retail and mixed-use development consulting services to retailers, developers, owners and municipalities. The firm applies its knowledge of specialty and commodity retail shopping centers throughout the United States and internationally — along with leading research, development, and leasing capabilities — to provide real-world solutions to the ever-changing issues facing today's increasingly global, post-department store era retail industry. Connect with Nick at [email protected].