Department Stores in Decline: Why Retail Sales Are Down

Posted June 26, 2017 | By Tricia Hussung

Several store fronts with title text overlay

With department store giants such as Sears and J.C. Penney closing flagship stores at a rapid pace, the retail sales decline has been making headlines, especially over the last two years. Due to years of building new retail spaces only to be eclipsed by the rise of online shopping, traditional retail is in trouble. According to eMarketer, U.S. department stores sales “have been on a steady decline over the past decade, shrinking from $87.46 billion in 2005 to $60.65 billion in 2015.”

And this trend is expected to continue. As Mark Cohen, director of retail studies at Columbia Business School, told The Wall Street Journal, “There is no reason to believe that this will abate at any point in the foreseeable future.” In fact, as of April 6, the same article notes that retail store closings are expected for 2,880 locations, including large national brands such as Payless ShoeSource. “That is more than twice as many closings as announced during the same period last year,” the article continues, citing Credit Suisse. This means that there will be more retail stores closing in 2017 than during the 2008 recession.

When it comes to brick-and-mortar stores, consumers are more interested in fast-fashion and discount chains, making it difficult for other retailers to stay competitive in terms of price. As more companies turn to e-commerce in order to boost sales, they can expect smaller profits. Because of shipping and technology costs, online retail is more expensive for businesses. Retailers don’t have much of a choice, however, according to the WSJ: “Retail margins on average fell to 9% last year from 10.5% in 2012, according to consulting firm AlixPartners LP. Over that period, e-commerce sales increased to 15.5% of total sales.” For most companies, that means accepting smaller profits and shifting focus toward online sales.

Major Reasons for the Retail Sales Decline

Several factors combined have caused retail sales to decline in the past few years. The first is that consumers have become more aware of their own agency and options. Customers take a new approach to making purchases, one that emphasizes price comparison and the ability to purchase through different platforms. They might combine online shopping with a visit to a specific retailer or third-party seller in the same trip in order to find the best deal.

Perhaps most obviously, an increase in online shopping has directly led to a decline in retail sales. In fact, Amazon alone accounted for 53 percent of all U.S. e-commerce growth in 2016. Of course, most retailers offer online shopping in addition to brick-and-mortar locations, but the overall rise of online shopping has been detrimental to in-store sales. Many customers choose to shop online because of convenience, and that’s something retailers just can’t compete with.

To stay competitive, companies also have to offer steep discounts and near constant promotions, and their brands have suffered as a result. Deep discounts devalue the brand because it’s no longer aspirational to consumers. In addition, once retailers begin offering frequent sales, customers come to expect a discount rather than paying full price. Finally, as millennials make up more and more of the buying public, retailers have to adapt to a new type of customer. Millennials want to feel entertained and engaged when they shop, so retailers are faced with overhauling their layout and buyer approaches to create a more boutique experience.

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Results of Decline

As a result of the overall decline in retail sales, both shopping malls and department stores are experiencing high rates of closure. According to Business Insider, around 15 percent of U.S. malls will either fail or convert to non-retail space by 2024. Together, J.C. Penney, Macy’s and Sears have closed hundreds of stores since 2010 and laid off employees; Sears even closed its flagship store in Chicago, the same article explains. As these once-ubiquitous department stores close more doors, malls are choosing to replace them with movie theaters and restaurants rather than more retail spaces.

Department stores are often referred to as “anchors” because, at one time, they were the main reason consumers came to shopping malls. With that no longer being the case, malls are decreasing the number of anchors they need to stay afloat. “You’re seeing centers that used to have four anchoring department stores get away with just one,” an expert told TIME Money. In addition, many department store brands are shuttering altogether. Less than two decades ago, there were about 20 department store brands in American malls. Today, TIME Money reports, there are only eight.

Shoppers just aren’t as interested in the all-purpose shopping experience as they used to be. “For the most part, department stores have been painted as boring, overpriced, middle-of-the-road, and inconvenient compared to the other options out there … Nowadays, having Macy’s or Sears as an anchor is arguably a bad thing; it’s keeping the mall stuck in the past, preventing it from being where shoppers want to go,” TIME Money says.

Future Predictions for Retail

While the situation appears stark, there is a future for retail if companies are willing to adapt. It’s time to modernize in order to compete with the convenience of online shopping and changing consumer tastes. The “stores of the future” will need to create engaging shopping experiences that make coming to a brick-and-mortar store worthwhile. Forbes recommends incorporating elements like “active participation, the co-creation that makes memories, and loyal customers.”

One of the ways to achieve this is through omnichannel retailing. This strategy means that retailers “will be able to interact with customers through countless channels—websites, physical stores, kiosks, direct mail and catalogs, call centers, social media, mobile devices, gaming consoles, televisions, networked appliances, home services, and more,” according to the Harvard Business Review.

If incorporating all those channels into a cohesive strategy sounds daunting, think of it in terms of what customers want. Omnichannel retailing combines the benefits of shopping online, such as a wide selection and customer reviews, with the advantages retailers bring to the table, like personal service. It’s all about reaching consumers wherever they are. Because different types of customers value different things, integration is the smartest way for retailers to innovate and bring shopping into the modern era.

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