The Holiday Season Wasn't Kind to Macy's, Penney, and Kohl's

Despite a blockbuster 2019 holiday season that saw retail sales (excluding gas, restaurants, and cars) jump 5.1% to $714 billion, according to research firm Customer Growth Partners, department store chains looking for a strong finish to an otherwise weak year fell flat. Kohl’s, Macy’s, and J.C. Penney decked their stores out with new merchandise and programs but the industry’s busiest time of the year did them no favors.

Kohl’s pulled out all the stops for the Christmas period, launching an exclusive apparel and accessories line with the Olsen twins, Elizabeth and James; a limited capsule collection by designer Jason Wu; and a home goods line, Scott Living, by television’s Property Brothers, Drew and Jonathan Scott.

Yet for all its efforts, Kohl’s said on Thursday that comparable sales (a metric that includes business from stores a year old or more and e-commerce) fell 0.2% and blamed a poor showing by its women’s wear. That’s quite a problem considering women’s products generate 28% of Kohl’s revenue. Kohl’s had eked out a small gain in the third quarter only by heavily discounting merchandise.

This was also the first holiday season in which all 1,160 or so Kohl’s stores were handling returns for Amazon, a move aimed at generating store visits by the younger shoppers the department store chain covets. But Kohl’s showing raised concerns that people are simply going to the Amazon returns counter and not walking the rest of the store.

“Initiatives like Amazon returns are good at driving footfall, but Kohl’s needs to convert that traffic into money in its own registers. That needs to be the critical focus in 2020,” Neil Saunders, managing director of GlobalData Retail, wrote in a research note.

Kohl’s has long bristled at being lumped in with the struggling department store sector. Indeed, about 90% of its locations are outside shopping malls. Problem is, Kohl’s is going toe to toe with Target at hundreds of strip malls, and clearly losing market share to its larger rival.

Target, which has not yet reported holiday sales, has been on a tear for two years, helped by the immense popularity of its new proprietary brands, the latest of which, activewear line All in Motion is just launching. The company has also remodeled hundreds of stores to make them feel and look new. In contrast, Kohl’s has struggled to re-energize many of its own store brands.

Kohl’s CEO Michelle Gass said in a statement “we are working with speed to address” and fix the women’s wear business. But that part of the business has been weak for several years now, so it’s not clear how quickly any improvement will come. Kohl’s shares were down 9% in morning trading, and fell by one third over the last year.

As for J.C. Penney, the company again reported a dismal set of numbers, saying that comparable sales fell 7.5% during the quarter. While J.C. Penney CEO Jill Soltau has laid out a credible plan to begin restoring Penney to some semblance of viability, Penney was clearly not on the minds of shoppers this holiday season.

To the naked eye, there was little new on Penney’s store floors to entice shoppers or win them back, according to GlobalData retail. And that will have repercussions beyond the quarter. As Saunders put it: “If people are not coming into stores or onto the website, generating sales is impossible.”

The two reports came a day after Macy’s said its comparable sales were down 0.2% during the holidays, an improvement in that things could have been much worse and were indeed better than its awful third quarter. Macy’s, which will provide investors with a detailed update next month (Kohl’s will do so in March), announced it would close 28 of its namesake stores and one Bloomingdale’s.

Two other troubled retailers, L Brands’ Victoria’s Secret and Bed Bath & Beyond, also reported dismal numbers this week. Victoria’s Secret’s comparable sales fell 12% for November and December, with store visits dropping even more. Meanwhile, during the full third quarter, Bed Bath & Beyond saw sales plummet 8.3% for stores that had been open at least a year. The home goods chain recently ousted six c-suite executives.

One takeaway from the holiday season is that, despite years of turnaround attempts, retailers that had been struggling to adapt to shoppers’ new tastes and habits have little to show in terms of progress. And that’s before the inevitable economic slowdown will do to them.