While Amazon is partying its best holiday season sales ever, the two leading U.S. department store chains struggle with falling sales in hundreds of their locations across the country.
Kohl's (NYSE: Kohl's Corporation [KSS]) and Macy's (NYSE: Macy's [M]) disappointed investors and caused a ripple effect across the market as they reported a significant drop in sales volumes of what was supposed to be the busiest and most profitable shopping period of the year. Kohl's said its comparable sales dropped 2.1% in the holiday months of November and December as compared to a year ago whereas its rival store chain Macy's also reported a 2.1% sales decline.
Both companies adjusted their earnings forecast for the full fiscal year as a result of the unexpectedly weak holidays season sales. Kohl's lowered its earnings per share forecast from $3.12-$3.32 to $2.92-$2.97, said Fortune, while Macy's slashed its earnings goal from $3.15-$3.40 to $2.95-$3.10, added the Wall Street Journal. This was particularly disappointing for investors as, normally, holiday season allows retailers to make 25% of their annual sales value and as much as 30% of profits within just a few weeks. As a result, Kohl's shares tumbled almost 15% to $43.75 while Macy's stock dropped more than 9.5% to $32.40 in yesterday's after-hours trading. For Macy's this would be the eighth consecutive quarter of dropping sales.
"Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December," Kohl’s CEO Kevin Mansell said in the statement.
However, lowered full fiscal year earnings forecast is not the only consequence of the sluggish sales. In yesterday's statement, Macy's announced its plan to eliminate some 10,000 jobs and approximately 100 retail stores by the end of the year in order to cut costs and invest into development of its online business since physical stores lose more and more popularity. According to the Wall Street Journal, in the next few months, the company will slash first 3,900 jobs and close at least 60 locations. By carrying out such an extensive restructuring, Macy's plans to generate $550 million in annual cost savings.
"Our plan to close approximately 100 stores over the next few years is an important part of our strategy to help us right-size our physical footprint as we expand our digital reach. We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape," said Macy's CEO Terry Lundgren, as reported by International Business Times.
Weaker than expected sales of Macy's and Kohl's, some of the most popular department store chains in the U.S., might make it seem that customers' interest in holidays shopping this year was somehow lower. In fact, the analysts discovered that this year's holiday shopping season was the best since 2000's, what can be explained by higher incomes and growing employment, among other factors. However, most of the benefits of higher consumer spendings this season were enjoyed by online retailers like Amazon but not the retail stores. According to the Wall Street Journal, Mastercard recorded a 19% jump in e-commerce spendings during this holiday period while the increase in retail spendings was only 4%.
Interestingly, sales of Macy's and Kohl's digital shops during the holiday season were far from being as weak as those of their physical locations. Kohl's CEO Mansell told Fortune in November that Kohl's managed to set a company-wide record for the highest one-day online sales on last year's Black Friday. Macy's departing CEO Lundgren told the Wall Street Journal that the chain's online sales during this holiday period also remained strong despite the "declining traffic" in the offline stores.
"While we are pleased with the strong performance of our highly developed online business, we continue to experience declining traffic in our stores where the majority of our business is still transacted," Lundgren said.
One day before the two major retailers, Macy's and Kohl's, shared their holiday sales results, Deutsche Bank analysts issued a note warning investors about the future of the retail industry. They said the sector was facing such serious issues as dropping consumer demand, growing operations costs and accelerated shift towards online shopping that was eating into the shrinking market shares of offline retailers. More specifically, the analysts downgraded several retail stocks from "hold" to "sell" including such U.K. stores as Halfords (LON: HFD), Next (LON: NXT) and Debenhams (LON: DEB). All three companies saw their stock decline on Wednesday, with Halfords shares tumbling 5.7%, reported the RetailWeek. Other retailers like Nordstrom (NYSE: Nordstrom [JWN]), J.C. Penney Co. (NYSE: JSP) and Ross Stores (NASDAQ: Ross Stores [ROST]) were also down in yesterday's after-hours.
Overall, with a rapidly growing popularity of online shopping, which was only recently confirmed by Amazon's best-ever holiday shopping season sales, retail players will need to fight for their place in the market with e-commerce giants and prepare for a difficult year ahead.