Department Stores

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 14 department stores in the US carry a variety of merchandise organized into separate departments, with no one line of merchandise dominating sales. Major product categories include women’s, men’s, and children’s apparel; cosmetics and fragrances; footwear and footwear accessories; and accessories. Other product categories include domestics (sheets, tablecloths, towels) and other textile home furnishings; fine jewelry and watches; and small household appliances.

“Retail Apocalypse”

The impact of digital retailing hit department stores especially hard.

Trends and Fads

Because apparel generates over 50% of industry sales, department store business is subject to fashion trends and fads.

Industry size & Structure

The average department store retailer employs over 34,000 workers and generates between $4 billion and $5 billion annually.

    • The department store industry consists of 14 firms that employ over 480,000 workers and generate over $65 billion annually.
    • The industry is highly concentrated; the top 4 companies account for over 70% of industry revenue; the top 8 companies account for over 94%.
    • Large firms include Kohl’s, Macy’s, JC Penney, Nordstrom’s, and Transformco (Sears/Kmart). The largest companies have locations in almost every state
                              Industry Forecast
                              Department Stores Industry Growth
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              Jun 4, 2022 - …And Then There Were Three…
                              • There are just three Kmart locations remaining in operation in the US: Westwood, NJ; Long Island, NY; and Miami, FL. There were 2,400 Kmarts in operation at the company’s peak. The chain had revenues of $37 billion and owned brands including the Borders bookstore and Sports Authority. Both of those businesses have since been acquired by former competitors. Many experts say that Kmarts current state is due in large part to failure to target its audience and to keep pace with modernization, especially in inventory tracking.
                              • Global retail merger and acquisition (M&A) activity rallied throughout 2021 and the start of 2022 after being hit hard by the 2020 outbreak of the coronavirus pandemic. A total of 802 retail deals took place in 2021 — the highest annual volume in five years. The strong pace has continued into 2022, with 144 deals valued at $25.19 billion announced in the first three months of the year — up 43% in value compared to Q1 2021, while accounting for 29 fewer deals.
                              • An Institute for Supply Management (ISM) barometer of business conditions at service-style companies such as retailers and restaurants decreased 1.2 points in April to 57.1% and signaled that labor and supply shortages as well as high inflation are hurting the economy. Results over 50% are viewed as positive for the economy and anything over 55% is considered exceptional. Experts say that demand is not the issue — businesses still have more than they can handle. Ongoing shortages of labor and supplies, high energy prices, and the worst bout of inflation in 40 years are the biggest hurdles. Service-oriented companies have generally fared worse during major viral outbreaks like the coronavirus pandemic according to the ISM. Their workers deal directly with customers and their businesses are more affected by government restrictions.
                              • Store openings may have exceeded store closures for the first time in five years, according to Coresight Research. Coresight counted 5,083 openings announced by retailers in 2021 and 5,079 closures as of late December. One factor driving the shift could have been the sheer volume of store closures in 2020. Many retailers saw the pandemic as an opportunity to shed underperforming assets, which experts say pulled forward a number of closure announcements.
                              • Retailers discovered during the coronavirus pandemic, however, that e-commerce performance may be related to the brick-and-mortar channel. Macy's, for example, has put dozens of planned store closures on pause because, the department store chain said, its digital performance is stronger in markets where it has a physical presence.
                              • Experts also cite pandemic-related drops in rents for retail space as a key driver of rising store openings. Net absorption, or the actual move-ins by retailers, surged 80.4% year over year to 32.2 million square feet in the third quarter of 2021, according to commercial real estate services firm JLL. That's the highest net absorption figure the company has tracked for a three-month period since 2017.
                              • Many experts note that operating costs may begin to rise for retailers that close too many stores. "It's actually easier to run five stores than it is to run one store," said Nate Checketts, co-founder of men's activewear brand Rhone. "And my guess is, it's going to be easier to run 10 stores than it is to run five." The economics of a store improve as overhead costs are spread out over multiple locations, he explained. "It's the highest margin channel that we have."
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