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Department Store 2022 Summer Update

Ezra Carmel
August 17, 2022
Department Store 2022 Summer Update

With the most recent department store visit data, we dove into the impact of rightsizing measures and looked at the particularly strong foot traffic to higher-end chains to understand how the category is dealing with the current economic situation. 

Rightsizing Bears Fruit in July

Department stores had a rough start to the year due to the January Omicron wave. And although visits began picking up in February, March’s inflation and fuel price surge opened the year-over-three-year (Yo3Y) visit gaps again. Now, following a difficult May and June, the Yo3Y visit gaps began narrowing once more. And thanks to rightsizing – optimizing store fleet by closing, opening, or resizing stores – the visit per venue comparisons to 2019 are looking even better than the overall visit comparisons.

In 2020, Macy’s announced plans to shutter 125 stores in order to focus on small format stores, while continuing plans to diversify offerings to bring more value to each customer. Similarly, JCPenney announced the liquidation of 175 stores as part of its store optimization strategy. Dillard’s has undertaken more moderate steps at store fleet optimization and closed a few dozen stores between 2019 and 2022.

And while both overall visits and visits per venue numbers improved in July 2022 for all three chains analyzed, July’s visits per venue numbers were noticeably closer to pre-pandemic levels. Macy’s was the top performer in July with Yo3Y visits per venue down just 4.1%, improving from the 10.1% Yo3Y visit per venue visit gap seen in June. Dillard’s and JCPenney also narrowed their July Yo3Y visit per venue gap significantly to 15.9% and 12.6%, respectively. 

Kohl’s hasn’t decreased its number of locations, but it is also slated to join the rightsizing trend by opening smaller format stores in new markets. So, while store fleet expansion brought visits per venue numbers just below overall visit metrics, July was also a month of marked improvement for Kohl’s as Yo3Y visits rose from 22.7% down in June to 12.5% down in July. With plans for smaller format stores in the early stages of implementation, it’s likely that we haven't yet seen the full effect of Kohl’s optimization strategy. 

Luxury Rightsizing and Resilience of Affluent Shoppers 

It’s not just mid-range department stores finding success by rightsizing. Nordstrom and Neiman Marcus closed a number of locations during the pandemic, while Saks Fifth Avenue has found ways to rightsize its inventory and grow its online experiences. And this strategy is proving to be even more beneficial to the higher-priced end of the department store spectrum. 

Since March 2022, luxury department store brands are staying near to – or exceeding – pre-pandemic foot traffic levels, with Yo3Y visits per venue down 1.2% for Nordstrom and up 12.3% and 10.5% for Neiman Marcus and Saks Fifth Avenue, respectively. The relative success of these higher-end brands can be attributed to a customer base less affected by inflation that continues to visit these brands despite the wider economic climate.

If You Close It, They Will Come

All of the department stores we analyzed displayed growth in their True Trade Area (TTA) since 2019 – likely the result of rightsizing measures. TTA represents the distance 70% of a brand’s consumers travel, on average, to the brand’s locations, so growth in TTA means that customers are willing to travel farther distances to shop at their favorite store when one nearby closes. 

Kohl’s benefitted from a 2.6% growth in TTA since 2019 – a relatively stable number, likely because it hasn’t consolidated many locations over the past three years. The other chains analyzed grew their TTA since 2019 anywhere from 7.4% for Dillard’s to 28.9% for Neiman Marcus, indicating that store closures are an effective means of generating foot traffic to remaining stores from a wider area. 

But Saks Fifth Avenue, which has also kept its store fleet count relatively stable, posted a whopping 34.6% Yo3Y TTA growth thanks to a wider audience of aspirational shoppers finding comfort in high fashion since the pandemic. Saks’ success indicates that rightsizing is not a “one size fits all” solution – brands with an already optimized store fleet can focus on other strategies, such as location-based promotions, to drive customers to their brick-and-mortar venues. 

Positive Visit Data for Department Stores

Across the board, rightsizing has bolstered foot traffic for the department store category, with the luxury end of the category building on positive visit numbers in recent months. The top brands are finding ways to optimize their locations be it via store closures or other measures aimed at enhancing the customer experience.

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