In the not too distant future, teens will hang around malls in the outskirts of towns just as we did, only this time instead of buying Fro-Yos and hitting the shops with friends, they’ll be rollerblading through derelict buildings.
The future for department stores looks bleak and it begins with J.C Penney. Here’s why:
J.C. Penney Co. was poised for a comeback this year; management changes, new products and aggressive debt management brought them back from the brink, but so far this hasn’t been enough to drive long-term sustainable growth and it’s unlikely to.
The department store’s shares plunged by as much as 12 percent in pre-market trading last Friday after they released weaker than expected third-quarter earnings results. Same store sales fell 0.8 percent, well underperforming analysts’ expectations for 2.7 percent growth. As a result, management trimmed full-year sales forecasts from 3 to 4 percent to between 1 and 2 percent, for the fiscal year ending in January.
These numbers come off the back of a strong retail sales report last month, which showed that U.S. consumers are spending money, they just aren’t spending it at department stores. The divide between the winners and losers in retail is ever-expanding.
There are two reasons for this: price and product offering.
When it comes to national brands, J.C Penney is likely to lose out because of pricing pressures from online competitors. Its solution is to focus on the private label, which can be sold cheaply and still have higher profit margins. The problem is, consumers would rather pick up designer clothes for a bargain at off-price retailers such as TJ Maxx than pay the same price for J.C Penney’s less glamorous signature styles. Unless they can make consumers loyal to the brand, it doesn’t have legs long-term.
Customers are uninspired by what’s on offer, and bored of traipsing around these massive stores that all look the same. This is why Zara thrives. It has quick turnover of cheap and fashionable clothes, styles that don’t get stale, and a store that is constantly refreshed – quenching millennials’ thirst to be trendy.
To differentiate itself from rivals, J.C Penney has grown its beauty and homeware sections. This has helped drive foot traffic but not been enough to replace flagging apparel sales, which make up 50 percent of the business.
The store either has to consider scaling back, or face the inevitable: that department stores are destined for failure.