Department stores keep tinkering with something consumers don't want

Holiday retail sales jumped 3.4% this year according to Mastercard’s most recent report. Economists attribute the gain to high employment, an increase in wages, and positive consumer confidence

But not all retail chains are feeling the holiday cheer.

Jerry Storch, former Toys ‘R’ Us CEO and former Hudson’s Bay Company CEO, says department stores are suffering, and that’s because many are using “a century old business model which basically hasn’t changed.”

“You have a real identity crisis for department stores and I think there’s serious doubt about whether they can make the changes that are required to survive in the future,” Storch told Yahoo Finance’s ‘The Ticker.’ “Most of what they’re doing is tinkering around the edges, working harder at the same thing, but that’s not what the consumer wants anymore.

“The consumer is very healthy, but our preferences have changed,” he added. “It’s a little like people who were making stagecoaches when cars came around. You can make beautiful stagecoaches but if that’s not what people are buying then it’s not going to work.”

Storch is referring to the rise of e-commerce. While department stores saw an overall sales decline of 1.8% during the holiday shopping season, e-commerce sales rose 18.8% compared to a year ago, according to Mastercard SpendingPulse. This followed an 18.4% jump in 2018.

A woman pauses to read a farewell sign from outside Lord & Taylor's flagship Fifth Avenue store which closed for good, Wednesday, Jan. 2, 2019, in New York. (AP Photo/Kathy Willens)

And as online shopping replaces traditional trips to the store, a record number of closings were announced.  According to Coresight, more than 9,300 stores shut their doors in 2019, up more than 50% from 2018. 

To put this in perspective, Storch told Yahoo Finance that the U.S. has about 24 square feet of retailing per capita.  That’s 50% more than Canada and about six to eight times as much as Europe.

“We just have too much retail,” he said. “It’s got to go away and it’s going to go away a chain at a time.”

But as department stores and some traditional retailers struggle, not all brick-and-mortar stores are suffering.  Forward-looking companies that have adjusted their business models are thriving. Storch said some of the retailers that have excelled are Walmart (WMT), Target (TGT), Costco (COST), Dollar General (DG), and TJMaxx (TJX).

Seana Smith is the anchor for The Ticker.


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