They way society live, conduct and behave changes all the time; and so its taste and preferences. There is no built formula for any department store to keep its customers loyal base and stay relevant over time. On a 327 billion industry, department stores cannot rely solely in its history; it is highly recommendable to take every day as a learning path to grow, to develop a business model that works not only for the department store, but for the whole organization and its business goals. A well designed business model, as part of a business strategy, pursues to develop and catch economic value. So let us see which department stores are catching up on that.
For the 2nd quarter of 2014 the estimated growth rates for Macy’s, Nordstrom, Dillard’s, Saks, and Stage Stores are the following:
Estimated growth rate in revenues, 1.14%
Estimated growth rate in net income, 4.05%
Estimated growth rate in earnings per share (EPS), 11.79%
Estimated growth rate in revenues, 3.38%
Estimated growth rate in net income, -0.84%
Estimated growth rate in earnings per share (EPS), 3.46%
Estimated growth rate in revenues, -0.74%
Estimated growth rate in net income, 7.08%
Estimated growth rate in earnings per share (EPS), 15.19%
Estimated growth rate in revenues, 2.83%
Estimated growth rate in net income, -22.31%
Estimated growth rate in earnings per share (EPS), -19.57%
Estimated growth rate in revenues, 0.16%
Estimated growth rate in net income, -13.81%
Estimated growth rate in earnings per share (EPS), -15.94%
Based on the Bloomberg Industry Report, Macy’s is the department store with the strongest estimated business growth rate, followed by Nordstrom and Dillard’s. And that is not a casualty, let’s take a look.
At the beginning of the year, Macy’s announced through a press release, that it will implement focused cost reductions, including organizational changes, as it prepares to sustain profitable sales growth in the years ahead. This moved is expected to shed cost in approximately $100 million per year beginning in 2014. According to the press release, cost reductions and organizational changes reflect learning from the implementation of business strategies and new technology at Macy’s in recent years.
Macy’s business strategy changes
Within the Macy’s stores organizational structure, combining the Midwest Region with the North Region, thus creating a new North Central Region and reducing the ongoing number of regions to seven from the current eight. Nine existing stores districts also are being combined with nearby districts, thus reducing the ongoing number of districts to 60 from the current 69. In some cases, Macy’s stores are being reallocated within the seven regions and 60 districts to equalize workloads and spans of control; in the merchandise planning organization, eliminating the district planner role for soft home categories.
Other changes are to realign, combine and reduce some positions in Macy’s stores in a manner that improves productivity and efficiency while also fostering high standards for customer engagement and service; and trimming certain central office, administrative and back-of-the-house expenses across the company. This involves reductions in workforce, as well as in non-payroll costs.
Macy’s future store openings
New Macy’s stores will be opening in:
• University Town Center, Sarasota, FL (160,000 square feet; to open in fall 2014; approx. 175 associates)
• Shops at Summerlin, Las Vegas, NV (180,000 square feet; to open in fall 2014; approx. 160 associates)
• Mall at Bay Plaza, The Bronx, NY (160,000 square feet; to open in fall 2014; approx. 225 associates)
• Plaza Del Caribe, Ponce, PR (150,000 square feet; to open in fall 2015; approx. 275 associates)
• Mall at Miami Worldcenter, Miami, FL (195,000 square feet; to open in fall 2016; approx. 150 associates)
Nordstrom real estate growth
Nordstrom real estate growth strategy is staked on the outlet store concept named Nordstrom Rack. This outlet store concept carries merchandise from Nordstrom stores and Nordstrom.com at 50-60% off original price. Nordstrom Rack plans to open a new store in South Carolina at Harbinson Court by fall 2014, which will be occupying a floor space of 34,000 square feet. Nordstrom has opened nearly 140 outlet store concepts and plans to expand its presence in Canada with the future opening of five new outlet stores.
Nordstrom customer orders management
Earlier this year, Nordstrom announced the opening plans of its third fulfillment center at Conewago Industrial Park in Elizabethtown, Pennsylvania. The approximately 672,000-square-foot building, with an additional 470,000-square foot mezzanine, is scheduled to open in summer 2015. In its first three years, the new fulfillment center will offer nearly 400 full-time positions and additional opportunities for part-time and seasonal roles. In the future, Nordstrom expects to increase hiring up to 700 full-time roles or more – as the business continues to grow.
The fulfillment center will enable faster delivery for Nordstrom.com, Nordstrom mobile app and Nordstrom catalog orders, particularly for those from customers on the East Coast. The fulfillment center is located at Conewago Industrial Park, which is owned by Martin and William Murray, and will be built by H&M Company, Inc. Jones Lang LaSalle served as the broker for Nordstrom.
One of Dillard's strategies is to lower its operating costs. As a result, the company has closed its non-performing stores. With this move Dillard’s bets to have wider operating profit margins to avoid the increase of short-term debt, while stimulating capital flow.
Another key ingredient is that Dillard’s has focused in its online store (dillards.com), to enhance its web presence through technological marketing services provided by Acumen Brands. This transaction involved an investment in the amount of $4million dollars. So far, this strategy is helping them to reduce its inventory, while increasing sales revenue.
Regarding their product offering, Dillard’s updated its home goods mix and balanced its pricing approach which leads the company to increase gross margins. Dillard’s is capitalizing on successful initiatives and extending them to additional areas of the business that needs a different direction.
Macy’s, Nordstrom and Dillard’s are not the only department stores that changes its business model, all others do. The key is which better capitalize the current market conditions and shape its business model faster and effectively to obtain competitive advantage and profitability to stay on the top of the leaderboard. Based on the estimated growth rates, it seems that is the Achilles’ heel for Saks and Stage Stores.