Department stores fight for relevance ahead of Black Friday

US department store Kohl’s has a plan to counter competition from Amazon, which has stolen a march on the retail chain and its rivals. It has set out to become a dumping ground for unwanted gifts bought from the online retailer.

The Amazon return initiative topped chief executive Michelle Gass’s list of reasons to be cheerful as she sought to convince Wall Street that the chain would sparkle this holiday season, which begins this week with Black Friday.

The tie-up, which Kohl’s has expanded nationally after a successful pilot, shows the lengths that mid-market department stores on both sides of the Atlantic are being forced to go to in an effort to convince consumers to set foot in their stores.

Kohl’s now lets customers bring back items they buy from Amazon to any of its 1,100 outlets, and the store will pack and send them back to the internet retailer free of charge. Ms Gass said she expected the initiative to attract shoppers to Kohl’s and ultimately improve sales.

While Ms Gass talked up Kohl’s move to cosy up to its biggest existential threat, the stock market did not appear to share her optimism. As she was detailing Kohl’s holiday plans to analysts last week, its shares fell about 18 per cent after its third-quarter sales targets fell short of analyst expectations and it warned it expected profits to drop at least 12 per cent this year. Kohl’s rival Macy’s followed up two days later with its third profit warning this year.

As department stores head into the busiest shopping period of the year, the outlook for them is bleak. IHS Markit forecasts US department store sales will drop 6 per cent in November and December, worse than the 2.8 per cent decline in the 2018 season. This bucks the wider trend in US retail, where IHS expects sales to rise 4.6 per cent year-on-year during the two months, to reach more than $730bn.

“In the old days [department stores] acted as a curator of other people’s products under one roof,” said Peter Williams, former chief executive of Selfridges in the UK and now chairman of Superdry. “The internet has blown a hole in that process.” He added: “All the products are available elsewhere and they don’t have a strong enough identity as destinations in themselves.”

Stacey Widlitz, founder of SW Retail Advisors, said that product offerings were “a sea of sameness” that left department stores with only price as a distinguishing feature — “hitting the promotional panic button” to encourage footfall and ultimately eating into profit margins.

Against this backdrop, department stores’ share of US retail spending has dropped from about a tenth in the 1980s to less than 1.5 per cent, said Craig Johnson, president of Customer Growth Partners, a consultancy.

An index of large-cap US department stores has lost 35 per cent of its value this year, making it the worst-performing subsector in the S&P 500 index. Privately-held groups such as mass-market Sears and luxury chain Barneys New York have been through bankruptcy proceedings in the past year. This echoes the fortunes of their counterparts Debenhams and House of Fraser in the UK, both of which have been through administration processes in the past 18 months.

“The basic concept [of department stores] is simply not relevant to most shoppers today, particularly millennials,” said Mr Johnson.

In the face of all of these pressures, department stores are having to stretch far beyond their roots to reinvent themselves as destinations that offer experiences that are unattainable on a laptop computer. Experiments being run from Dallas, Texas, to Southampton in England include in-store spas, bread-making classes and photography workshops.

JCPenney this month opened a store with a “completely reimagined format” just outside Dallas. It features a spa, a barber and fitness classes — as well as in-store Sephora and Disney outlets, a nod to the pulling power of more popular brands.

Similarly, the UK’s John Lewis has set up what it describes as “experience playgrounds” in Southampton, where customers can take part in workshops on pursuits from calligraphy to wreath-making. Interior designers, personal stylists and wine experts are among the specialists on site.

There are some bright spots, notably in Paris, where the upmarket grands magasins Printemps, Galeries Lafayette, and LVMH-owned Le Bon Marché, have managed to appeal to consumers through a combination of exclusive collections, pop-ups and cultural collaborations — backed by substantial private investment. LVMH is reopening La Samaritaine department store in April following a €750m renovation.

High-end UK operators such as Selfridges, Harrods and Harvey Nichols, which are exposed to the London tourist trade and prime sites in larger regional cities, have also fared better.

Meanwhile, pressure is on mid-market operators to prove that they can differentiate themselves and turn round their fortunes. At Kohl’s, Ms Gass highlighted launches including a partnership with Elizabeth and James, a clothing brand from the twins Mary-Kate and Ashley Olsen. Macy’s pointed to a womenswear collaboration with Becca Tilley, a dating show star turned social media influencer. Hal Lawton, Macy’s president, said the company had been “working on fashion and trends, and really rejuvenating our exclusive brands”.

These strategies are yet to prove they can pay off. “They’ve been throwing a lot of stuff at the wall to see if it sticks,” said Ken Perkins, president of Retail Metrics, a consultancy. “But it’s an uphill battle.”

And more widely, the fact that the US department store sector is struggling, even as overall US consumer spending is relatively robust, raises the question of how they will cope in a recession. “It’s scary,” added Mr Perkins.