Will the continued recovery of department stores in this year sustain long-term?
Department stores remained on the decline even before the pandemic, but they've managed to surprise everyone with a resurgence in 2021. Despite the years of troubling trends, the sector's losses against its pre-pandemic status were less severe than expected. Erin Schmidt, a senior analyst at Coresight Research, attributes this trend to innovation, digital investments, and diversification of product offerings.
Traffic to malls, however, is struggling to recover to pre-pandemic levels. Traditional mall anchors like department stores have lost their mutually beneficial relationship, and the decline has been aggravated by the pandemic. In response, Macy's and even Bloomingdale's have started experimenting with new store formats, joining Kohl's at strip-center locations to attract customers.
While foot traffic during the Black Friday weekend has increased compared to last year, it still lags behind 2019 levels, according to research from Placer.ai. The trend is likely to persist. Barbara Kahn, a professor of marketing at the University of Pennsylvania's Wharton School, believes that A malls will continue to attract younger crowds, but she's unsure about the future of B and C malls. Instead, she believes they'll be replaced by better-positioned neighborhood centers.
Malls themselves are finding success by switching to experiential anchors like bowling alleys or arcades, which tend to attract millennial and Gen Z shoppers. According to global data intelligence platform Near, malls anchored by experiential or healthcare centers are performing better than those with traditional anchors. To adapt to the 'buy online curbside pickup' experience, malls are rearranging their physical store layouts and parking lots.
The pandemic may have convinced consumers that they can live with less, exacerbating challenges for department stores. The economic squeeze on the American middle class has impacted retailers, and consumers have been reevaluating their spending habits. Just over half of U.S. consumers have reported spending less in the past three months. As a result, dollar stores, off-price retailers, and mass merchants are seeing increased demand.
The e-commerce surge experienced during the worst of the pandemic has caused consumers to return to physical locations, but mobile and online orders remain elevated. Consumers are now demanding seamless shopping experiences across sales channels, and those that fail to adapt are losing ground.
Investors have added pressure on department stores to spin off their e-commerce operations. While some retailers like Saks Fifth Avenue have taken this route, it remains a debatable strategy within the investment community. Some believe that splitting online and offline operations will interfere with customer experience and under-perform integrated retailers.
While the holiday season brought some progress, the new year is expected to bring a high level of returns, which could interfere with pricing power that retailers have enjoyed due to tight inventories. Kristin Bentz, president of KB Advisory Group, isn't optimistic about brick-and-mortar retail: "I'm not really bullish on brick-and-mortar retail. Dillards eventually will hit the ground. You know, trees don't grow to the sky. Everyone thinks Macy's is back - I really don't think so. I think their turnaround is helping them, but I don't think they're killing it. The shopping experience of being in the store is frightening."
- The government's policy towards department stores may need to adjust, considering the industry's struggles in the face of the pandemic.
- Amidst the resurgence of department stores, research suggests that traditional mall anchors like department stores still face challenges in attracting pre-pandemic levels of foot traffic.
- The decline of department stores has been aggravated by the pandemic, causing retail experts to question the future of B and C malls.
- The pandemic has led to changes in consumer behavior, with more people relying on e-commerce and off-price retailers, while spending less at traditional retailers like department stores.
- In order to stay competitive, malls are adapting to the 'buy online curbside pickup' experience and creating seamless shopping experiences across various sales channels.
- The investment community is debating whether department stores should spin off their e-commerce operations to improve customer experience and compete with integrated retailers.
- In the space of TV, analysts and investors are discussing the future of brick-and-mortar retail, with some expressing pessimism about its ability to maintain profitability in the post-pandemic world.