2024 APRIL ISSUE
THE RISE & FALL OF
AMERICAN
DEPARTMENT STORES
PART 1
Written by TERRI FISHER
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From the Desk of the Publisher
This is the first part of a series that our specialist from the retail industry has decided to contribute to the journal. The report relates to the retailers for their challenges and opportunities. In our opinion, her insight will be so valuable that we can learn from her analysis. In this report, she wrote about Dillard’s and Kohl’s.
We have noticed that the scene of the department stores have changed and experienced challenges during the pandemic. It was very hard for every bricks-and-mortar operator. But now it doesn’t mean that the e-commerce operators are having it easy. Retail has changed a lot and shoppers are looking for fun activities and services, and then shop so casually which Terri has pointed out. Not to mention that profit margins are compared with those pre-pandemic days
We have read from the report that Dillard’s customers are buying on the sport versus going home and buying on-line. They have offered more flexible services.
We have noticed that Kohl’s has becoming the largest department store chain in the U.S. Its adding of makeup retailer Sephora has been a smart move. We can find the Sephora’s signage being added to the Kohl’s main signage. Also, its private brands generate nearly 50% of its annual sales.
But when one is successful, it will draw competitions from everywhere, such as mail order operator Amazon, big-box chains like Walmart and Target, and discount clothing stores like TJMaxx.
Now, we will wait for the second part of the report and we will read more from Terri’s observation of the retail industry.
Apparel Magazine has ranked the top 10 department stores, retailers with at least $100M in annual sales and are publicly traded on the U.S. Stock Exchange. Included are their profit margins for their most recent fiscal years. Privately held retailers were not included, as well as Nordstrom who files with the SEC under Retail-Family Clothing Stores, rather than department stores. Many of the top 10 lists differ as some list the “best”, some list the “most liked”, and some change up each year. Here is an attempt to look at 10 contenders and their rise and fall.
I will be reviewing 2 or 3 each issue starting with Dillard’s and Kohl’s. Please feel free to let me know your favorites.
- Dillard’s
- Kohl’s
- Belk
- Macy’s
- Saks
- Neiman Marcus
- Burlington Coat Factory
- Bon-Ton Stores
- JC Penney
- Sears
For department stores that do it right, their large footprints offer added opportunities to entertain their customers (as JCP proposes to do with its Town Square new concept, where shoppers can gather for fun activities and services, then shop). Many of these large footprint department stores (and other large footprint stores) are leasing out space to brands/stores that they feel will draw a different and better customer base, such as Sephora in Kohl’s.
They also can devote more space for more physical offerings such as Macy’s acre of shoe-selling space in its Herald Square location which finished a $400M+ renovation.
I will start with the first 2 department stores-Dillard’s and Kohl’s and continue with the rest in the next issues.
DILLARD’S
Dillard’s has been quietly focusing on inventory control and expense disciplines, while striving to own the spot as the destination for a well-edited product selection of national and exclusive private label brands, such as Antonio Melani, surrounded by outstanding customer service. This focus led to a 4% increase in comp-store sales and an improved gross margin growth of 30 basis points. They haven’t forgotten about their online business as they opened a state-of-the-art 850,000 square foot Internet Fulfillment Center in Maumelle Arkansas.
Dillard’s Inc is an “upscale” American department store chain with 282 stores in 29 states and is headquartered in Little Rock, Arkansas. The largest number of stores are in Texas with 57 and Florida with 42. In some locations, such as the one I live in (Southwest Florida) really only have Dillard’s and Macy’s to choose from for “upscale” department store shopping. Stock price on March 7, 2024 was $398.60, +3.5 (+0.89%). The President is Alex Dillard, and the company was founded in 1938 by William T. Dillard. Revenue in 2022 was $6.9B. Their motto is” Dillard’s the Style of Your Life”. Dillard’s used to be called the HIGBEE CO. which was a major area retailer operating department stores throughout Northeastern Ohio since 1860. William T. Dillard decided to go into business for himself, opening up the first Dillard’s store-called TJ Dillard’s in Nashville using $8000 in start-up capital that he borrowed from his father. Don’t you just love these “rags to riches” stories? During WWII he sold his store but shortly after the war ended, he reopened and expanded it.
Today the Dillard family owns 7.5M shares, which gives them a 39% stake in the company. They have seen the value of their shares go as high as $3B in November of 2021, up from $400M a year earlier!
On the other hand, Dillard’s has been struggling lately as its earnings have declined faster than most other companies. Many are expecting the dismal earnings performance to continue, which as repressed their P/E, with a price-to-earnings ratio of 8.3X. Dillard’s Inc (NYSE: DDS) may be sending bullish signals at the moment given that almost half of all companies in the U.S. have P/E ratios greater than 17X.
Last year they delivered a frustrating 9% decrease to their bottom line which puts it right back to where it was 3 years ago with EPS growth being virtually non-existent. It appears the company has had a mixed result in terms of earnings growth over the past 3 years.
PROS and CONS for Investors:
Pros: Trading at 37.2% below the estimates of its fair value. It pays a high and reliable dividend of 5.32%.
Cons: Earnings are forecast to decline by an average of 31.1% per year for the next 3 years. There has been significant insider selling over the past 3 months.
In the 52-week period ending January 27, 2024, total retail sales decreased 5%. Sales in comp stores for the same period decreased 4%. Retail gross margin for the 53 weeks ended February 3, 2024, was 41.8 % of sales compared to 43% of sales for the prior year 52-week period.
As compared to Macy’s, Dillard’s carries more inventory in stores allowing the customers to buy on the spot vs. going home and buying on-line the sizes and styles that may have been out of stock in stores.
KOHL’S:
With exclusive and private label brands continuing to rise as a % of total sales, Kohl’s was up 240 basis points to 50.3% in 2011, helping to drive Kohl’s 6.21% profit margin that same year. Now 12 years later it is a tougher retail world out there. Store expansion rate has slowed in recent years and most of the company’s 20 new store openings are in a smaller and smarter format (55,000-68,000 square feet vs. 90,000 square feet.) Kohl’s also continues to remodel its existing store base, completing 236 remodels in the last few years.
According to Wikipedia, Kohl’s currently has 1165 locations, operating in every U.S. state except Hawaii. The company was founded by Polish immigrant Maxwell Kohl, who opened a corner grocery store in Milwaukee, Wisconsin in 1927, (another rags to riches inspirational story!). It went on to become a successful chain in the local area and in 1962 the company branched out by opening its first department store in Brookfield, Wisconsin. British American Tobacco Company took a controlling interest in the company in 1972 while still managed by the Kohl family, and in 1979, the company was sold to BATUS, Inc. A group of investors purchased the company in 1986 from British American Tobacco and took it public in 1992.
NYSE: KSS, S&P 600. Their headquarters are in Menomonee Falls, Wisconsin. The CEO and Director is Tom Kingsbury. The revenue in 2021 was U.S. $19.43B.
They have 99,000 employees and operate Kohls.com.
Kohl’s became the largest department store chain in the U.S. in May 2012, surpassing its biggest competitor, JCPenney. Herb Kohl left the management of the company in 1979, eventually becoming a U.S. Senator and owner of the Milwaukee Bucks!
In 2016, Kohl’s added the Capital One-backed private label Kohl’s credit card to the Kohl’s App to create “Kohl’s Pay”, the first integrated mobile checkout solution for a retailer in the U.S.
Kohl’s private brands generate nearly 50% of the firm’s $19B in annual sales.
In 2021 Kohl’s made an advantageous deal with makeup retailer Sephora, to have certain Kohl’s locations with Sephora mini-stores inside of the Kohl’s stores, many of which were added to outside signage to draw customers into the stores.
The department store sector has been in a structural decline for years against pressure from Amazon, growing big-box chains like Walmart and Target, and discount clothing stores like TJMaxx. Department stores including Kohl’s have been undercut on prices by discount players from the bottom, and prestige by luxury stores at the top said John Fisher, a senior lecturer at Boston College’s Carroll school of Management and former CEO of Saucony running shoes. “It’s been hard to be unique,” Fisher said. “I think Kohl’s is caught right now by death in the middle.”
In my opinion, Kohl’s has a chance to succeed as long as they keep their inventory in line in their stores. Currently they look overstocked which has its pros and cons depending on your point of view. As a customer, you can usually find what you are looking for in-stock in the stores. As the retailer, the cost of carrying all that inventory can hurt margins and future success.
I plan to cover Belk’s and Macy’s next so stay tuned.
I urge you to let me know your thoughts on these retailers and whether or not you think they will succeed or fail, rise or fall.
You can email me at terri@iapparel.com
Warm regards,
