Do not tell me about the weather. That was lesson No. 1 when I joined the ranks of retailers. Tell me about anything else that went wrong – but not the weather. “We have weather every year,” a CEO sternly told me. It is a lesson I never forgot.
I search for reasons why people did not shop at Macy’s and Kohl’s last quarter but managed to buy at Nordstrom, Target and Walmart. Despite any weather forecast or the Almanac prediction, something should have been selling at Macy’s and Kohl’s. I know that you cannot sell winter boots or snow jackets when it is 60 degrees outside. But apparently some stores were only ready for demand that never materialized and had nothing else going to make up for that miss. Like I learned early on, weather happens but doesn’t play favorites.
Then there is Amazon. The online giant has certainly robbed some retailers of their selling power. For many customers, the priority is to shop around to see where you can get the best deal. Online sales have conditioned shoppers to look for the best values. Online shopping makes comparisons easy. The Amazon experience has also taught consumers that some merchandise is cheapest when it is direct from the factory to consumers.
Nike has just discovered that selling directly to consumer and through traditional outlets preserves the brand and guarantees authenticity. Therefore, Nike just dropped Amazon to regain control over their brand. Brand integrity is important because customers want fit, quality and innovative designs. Nike’s action was daring, but it will pay off. I think other leaders will follow Nike’s example. (By the way, 50% of Amazon’s product sales in the past second quarter came from third-party retailers. These players allow anybody to sell anything at any price, even below the minimum advertised price.) Nike’s move will help traditional retailers and enhance their brand at the same time.
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Is Amazon the reason why Macy’s and Kohl’s had disappointing results? Well, no. It is the whole internet syndrome that allows shoppers to kick off their shoes at 11 pm and start surfing the net. Oh, what joy! But you need discretionary money to shop. Some people just stay glued to their little screens and forgo going to the big store. After all, the big store is far away, less convenient, and the weather may not be that good. Delivery is free, returns are free, and maybe the boots will really be as great as you think when you find them online.
Blaming the weather or the convenience of internet shopping are excuses by retailers not willing to face some of their problems. I’d like to see more stores focus on what can be their competitive edge, rather than point fingers at outside factors. There are several opportunities for the stores to attract more visitors. I believe that customers spend money when in the right mood. It is time for stores to be more creative and not just concentrate on sales. I do not believe that the industry is dying. Rather, it is just at a low point. Department stores once had an 18% share of market that now it is about 3%, but I believe it can grow again. Here are my eight suggestions.
1. Show fashion trends. The industry thrives on fashion, and the stores that show us what the next trends will be in the most exciting way will be winners.
2. Teach customers how to accessorize themselves properly. Most customers are terrible dressers and often lack confidence to make the best fashion decisions. Stores that set standards and have clinics to advise customers will earn their trust and respect.
3. Test new designs. Department stores are the best venues for testing new ideas and innovative designs. There should be signs such as, “From our design room” or “new from our incubator” that capture attention and draw customers in to explore.
4. Blockbuster events. Many stores have abandoned—erroneously in my opinion—local events, everything from fashion shows to art exhibitions. These activities added something different and unavailable. They created customer traffic in the past and will again in the future. It can even be a traveling road show that goes from state to state.
5. “How to” clinics are fun and attract young people. Customers like the idea of learning something, and the hands-on use of fashion products will be attractive and may add sales.
6. Home furnishing can be very exciting and designers can be very creative. They should be honored as exclusive team members.
7. Food service in department stores should be easily accessible and attractive. And, if carried out in a lifestyle atmosphere, it could be very profitable. The new Nordstrom store in New York has something to eat on every selling floor.
8. Integrate tablets on every selling floor. Customers like to find what they saw the night before, and the tablets can also entice customers to discover additional items they may purchase.
The stores that adopt even a few of these ideas will show a commitment to give customers more valuable shopping decisions that will drive sales. Adding more energy and personal engagement with their customers can’t be matched online and make the trip worthwhile even when some bad weather hits.
Now, let me wrap up with some earnings comments.
Macy’s: After blaming the weather and announcing a drop of 3.5% in the quarter, CEO Jeff Gennette cut estimates for the fiscal year to $2.57 to $2.77 from $2.85 to 3.08. Earnings in the quarter were just $0.01 vs. $0.20 last year. Ouch! He also blamed the late Thanksgiving and lack of foreign visitors as factors as well. Macy’s was able to precisely pinpoint these external challenges at 6.9% for Macy’s and 2.9% for Bloomingdale’s. It is a surprise how accurate Macy’s can be with data. There was also a slowdown on the website. The outlook for Macy’s remains cloudy, but the company will soon announce how the Herald Square location will be transformed into a multi-use center. I have no idea what that will mean for the business.
Kohl’s: Net sales dropped 0.3% to $4.358 billion from $4.369 billion. Net income per share dropped to $0.78 from $0.98. The company’s CEO, Michelle Gass indicated that the company had strong sales in August and September. Comparable store sales gained a paltry 0.4%, but it compared favorably with the drop of 2.9% in the second quarter. Gass sees her company has momentum for the holiday season. The updated projection for the company is $4.75 to $4.95 per fully diluted share compared to a previous projection of $5.15 to $5.45.
Nordstrom: The excitement at Nordstrom during this quarter was centered on the October 24 opening of the flagship store in New York City. It is flanked by 3 Nordstrom Local stores, which will allow customers to make returns easily and enjoy more service. During the quarter, net sales decreased 2.2%; full price stores dropped 4.1% while off-price store sales increased 1.2%. Digital sales increased 7% and now represent 34% of total company business. Earnings per share were $0.81 compared to $0.39 last year.