U.S. department stores have produced widely divergent results over the
last year in the face of minimal industry growth, according to a Fitch
Fitch projects flat to slightly down sales for the department store
industry in 2013 and 2014 compared to $186 billion-$188 billion in
2011-12. Within Fitch's rated portfolio, an expected top-line decline of
high single-digit sales for J.C. Penney and Sears Domestic will largely
offset the 2% sales-weighted growth projected for other large department
stores. Fitch expects Macy's, Dillard's and the luxury department stores
will continue to gain share with comps growth in the
The more successful chains have differentiated product offerings, strong
customer service, and a successful omnichannel strategy that
incorporates strong store presentation and merchandise offering with
growing online sales. Fitch expects a market consolidator would need to
generate top-line growth of 2% or above to grow market share and ward
off competition from other channels such as specialty, discount, and
online, to sustain healthy profits and cash flow.
Fitch remains concerned that with sales for the whole sector expected to
be flat to down, more store closings or potential restructurings will
need to occur over the next 24-36 months. This could have growing
implications for traffic patterns and competitive dynamics within the
mall, as department stores are key anchor tenants. Fitch notes that
overall square footage has remained flat since 2008.
Promotional pressure remains intense, particularly within the mid-tier
department stores given a lack of growth in household real income and
inflationary pressures over the last couple of years on staples such as
food and gas. J.C. Penney and Sears are the notable laggards, and Kohl's
has recently produced sub-par sales growth.
The report details key industry dynamics and includes full rating
profiles on each of the nine Fitch-rated department store retailers.
Each company report includes Fitch's assessment of the business and
financial profile, key selected financial data, a detailed debt
organizational chart, and covenant analyses.
The full report 'Department Stores: In a State of Flux' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research Department Stores: Diverging
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