This morning’s announcement of Abercrombie’s failed sale process served as a startling reminder of just how toxic mall-based retailers have become to investors in the post-Amazon era. News that not a single suitor was willing to touch the once high-flying, teenage-catering, cologne-infused, mall-based wonderland has wreaked havoc, yet again, today on retail apparel chains, with Abercrombie down over 20% and several others plunging to new all-time lows.
Of course, it’s not just the specialty apparel stores that are getting crushed. As we’ve noted several times in the past, the beloved anchor tenants of mall REITs have been among the hardest hit as a new generation shoppers have shunned over-priced department store products.
As the Wall Street Journal points out today, department stores like Macy’s, Sak’s and Lord & Taylor are even being forced to discount their last bastion of hope in order to lure customers into their dying stores: cosmetics.
Desperate to get shoppers in the door, department stores are discounting the one item they had long been able to sell at full price: cosmetics.
Last month, Lord & Taylor offered 15% off almost all cosmetics and fragrances. Bloomingdale’s gave members of its loyalty program a $25 reward card for every $100 beauty purchase. The moves followed a decision by Macy’s to offer 15% off cosmetics, which it touted in nationally televised advertisements this spring.
“We’ve seen our competitors start to discount items like cosmetics, and I’m sure they’re saying we’re doing it,” said Jerry Storch, the chief executive of Saks Fifth Avenue and Lord & Taylor parent Hudson’s Bay, on a conference call last month. “Once you get into that kind of a situation, everyone is fighting for every inch.”
A decade ago, shoppers would have been hard-pressed to find any Estée Lauder lipsticks, Bobbi Brown mascara or Shiseido blush on sale. These “prestige” brands are sold mainly at department and specialty stores and tend to be pricier than the so-called mass cosmetics sold at drugstores.
Meanwhile, today’s move isn’t really a new trend for the department stores…
Of course, as the former CEO of Bloomingdale’s notes, discounting the one product where you still make margin is just a “short-term” fix that will inevitbly speed up the ‘race to the bottom’ for mall-based retailers…
Some department-store industry executives say discounting is a short-term fix. While promotions initially encourage shoppers to buy, they can damage brands over the long term. And because shoppers soon become numb to the deals, retailers are forced to offer ever-deeper price cuts.
“Department stores shoot themselves in the foot when they do this,” said Michael Gould, a former CEO of Bloomingdale’s, who ran the upscale department store chain for 23 years until his retirement in 2014. “It’s like they’re putting themselves on drugs.”
…as it fails to address the underlying issue which is shifting consumer habits.
Sales of prestige makeup in the U.S. are growing, totaling $8 billion in the 12 months to May, an 11% increase over the same period a year ago, according to market-research firm NPD Group Inc.
But department stores’ share of the market fell to 19% in North America last year from 23% a decade ago, according to Euromonitor International data analyzed by Bernstein Research. Over the same period, specialty beauty retailers increased their share to 20% from 14%.
But perhaps nothing sums up why the mall-based retailers are doomed than the following comment from a former Lord & Taylor executive:
“It’s a disease that retailers have to discount more to make the sales numbers,” said Barbara Zinn Moore, who was Lord & Taylor’s vice president of cosmetics and fragrance from 2001 until last month. “But how else do you get the sales growth?”
Last we checked, profit per square foot is what generates returns for shareholders…not revenue per square foot…
via http://ift.tt/2u5UHFZ Tyler Durden