LIFE SUPPORT

The long, painful death of the American department store

Obsession
How We Buy
Obsession
How We Buy

The last few days have been miserable for some of the largest department stores in the US. On Nov. 11, Macy’s reported quarterly revenue that didn’t meet expectations, and its stock took a nosedive. Nordstrom followed the day after, reporting a dismal 42% drop in profits, and suffered a similar battering in the market. JC Penney, which is trying for a turnaround after years of struggling, actually did better than expected, but still not great—and shares tumbled.

Every quarter offers an opportunity for department stores to please shareholders, but the long-term trend has been consistent: Department stores are slowly withering, as the internet and other apparel retailers suck the life out of them.

Total department store sales dropped 35% between 2001 and 2013, according to data from the American Apparel & Footwear Association. That number includes sales of all items, not just apparel, a critical category for Macy’s, Nordstrom, and JC Penney.

In the same period, sales at apparel stores—think every clothing retailer in your local mall that isn’t a department store—grew 52%. Those include ultra-cheap fast-fashion chains such as H&M and Zara, which is likely part of the reason for the sliding sales at discount stores, including as TJ Maxx and Marshalls.

The growth of cheap, trendy fast-fashion has been unstoppable in the US in the past decade. To illustrate the point, Macy’s famous Manhattan flagship store on 34th Street now shares the corridor with three H&M stores, including the world’s largest, which is literally across the street from one of its other locations.

Internet retailers have been grabbing customers from department stores, too, and reducing foot traffic to their brick-and-mortar stores. Financial firm Cowen and Company predicts department-store apparel sales will grow a little in the coming years, but Amazon will blow past them to surpass Macy’s as the biggest clothing retailer in the US by 2017.

Tellingly, one of the bright spots in Nordstrom’s earnings was its online discount business, including Nordstromrack.com and flash-sale site HauteLook. Their combined net sales increased 39%, outperforming Nordstrom’s expectations.

Department stores aren’t the shopping and social hubs they once were, and while retail as a whole is currently slowing down in the US—with e-commerce being a very notable exception here—this quarter underscored that point.

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