Department Stores and Off-price: What it Means for Brick and Mortar Retail
Initially, seeing that JC Penny announced that it would be closing 140 stores this year, one might conclude that the same story as we’ve seen with the likes of Macy’s and Sears — cut stores for temporary cost savings with no well-defined future strategy. In contrast, JC Penny made the announcement on the heels of strong sales following the holiday shopping season where investment in experiences like the “store within-store” Sephora and home sections drove sales growth. Per Penny’s statement, closing these 140 stores will free up resources to double down on the brick and mortar experience in the remaining fleet.
At the same time, Nordstrom’s latest earning report indicates that the brands off-price Rack stores softened the blow of slow sales in the retailer’s main line. This highlights an increasing dilemma for department store retailers:
On one hand, they face increasing external pressure from off-price outlets such as TJ Maxx and Marshalls. On the other, they face internal pressure from their own discount outlets, which derive at least a portion of their appeal from the brand pedigree of their struggling full price stores.
Speaking of TJ Maxx and Marshalls, their parent company TJX announced plans to open a new store format for their growing home outlet Homegoods. TJX, one of the few retailers out their aggressively opening new stores is aiming to bring open doors at 80 new Homegoods stores this year. This includes the new format stores which will focus more heavily on home furnishings compared to existing formats.
Keep in mind, home is one of the categories JC Penny leadership announced as a major driver of sales in 2016. Only time will tell if their strategy to focus on a leaner fleet of stores will help combat the pressure from TJX, not to mention the online retailers like Wayfair, all competing for customer dollars.
Regardless, of the outcome, retailers facing challenging decisions this year on how to deal with off-price, both internally and externally, and how to best leverage their stores as it has become evident that there is no one-size fits all strategy.
-Sandeep
@sbhanote
