While other retailers see rising sales, department stores falter in Q2 2016.
While other retailers continue to see rising sales, department stores continue to report woeful earnings in the second quarter, according to research firm Retail Metrics in its report “Retail Headwinds Persist,” which includes an index of 116 chains, CNBC reported. In fact, department stores are the only retail segment to report losses in Q2.
The report states that Sears has been hit particularly hard by recent losses according to Retail Dive, and operating income is expected to drop substantially for six of the eight publicly traded department stores. Just four of the eight (Macy’s, Kohl’s, Nordstrom, and Dillard’s) anticipate a profit in the quarter.
This same group kicked off the [first-quarter] retail reporting season in May with less than stellar results that initiated a brief period of 'the sky is falling' mentality," Retail Metrics President Ken Perkins told CNBC. "We may be setting up for a similar scenario here in August and would not necessarily read through tough department store results."
According to Retail Metrics forecasts, second quarter retail revenues will rise 2.9 percent, or 3.6 percent excluding retail giant Wal-Mart. Drugstores, home improvement stores and personal care retailers like Ulta, along with “entertainment retailers” should see at least modest growth.
Morgan Stanley analyst Kimberly Greenberger told CNBC that, "Despite a potential warm-weather boost in June and July, we're still seeing signs U.S. department stores are struggling," including two months of sales declines in the second quarter, as reported by the Commerce Department.
Retail Metrics founder/president Ken Perkins explained that retailers are facing new challenges in selling, particularly to the new Selfie Generation, ”But perhaps most significant is that all retailers, and department stores in particular, are getting hit by a variety of factors that have undermined an otherwise healthy economic environment. Lower fuel prices, strong employment gains, solid auto and home sales, rising home prices, and low interest rates have not been enough to underpin what is now a story of a diminished American middle class.”
And Pew Research Center data shows that the percentage of American adults in middle income households has eroded from 61 percent in 1971 to just 50 percent in 2015, while low-income households increased from 16 percent in 1971 to 20 percent in 2015, and high-income households also grew from 4 percent to 9 percent. America’s Research Group found in July that some 26 million Americans are simply too poor to shop, except for necessities.
“Often left unsaid, and in our opinion underestimated, in terms of retailers’ struggles has been the long, slow steady erosion of the American Middle Class,” Perkins said. “A large vibrant middle class fueled economic growth and consumption for much of the post-war period.” With the shrinking of buying power, dollar stores, off-price stores, big box stores, and a sharing economy have emerged to meet new shopper needs. And unfortunately Department Stores are feeling the sting of the shift.
