Amazon Sizzles, Bitcoin Fizzles And Department Stores’ Winter Of Discontent

It’s a Shakespearean drama, in a sense — a winter of discontent that bedevils department stores to the point of teetering on the very brink of existence. The Shakespearean part is, in essence, an arc: Department stores had a glorious rise and peak and now are strutting and fretting their last hour upon the stage, to borrow liberally from the Bard. But if you’re Amazon, and any number of online-focused tech mavens, this winter is nothing short of balmy.

SIZZLE

Amazon Prime (Now With Credit Card!)

As Amazon does its part to change the way we shop and pay, here’s another shot across the retail bow: Amazon now has a credit card for its Prime members, giving 5 percent back on every purchase, and there is no additional fee for the card (as it is included with the Prime membership). Forget the drones. Show us the money.

Brick-And-Mortar (In China At Least)

The fact that Alibaba ponied up $2.6 billion for Intime, the Chinese mall operator, had some on Wall Street perplexed about the 42x premium being paid for the shares of the brick-and-mortar firm. But apparently, this ain’t Sears, and the Chinese like to mix their clicks with bricks. Alibaba is looking to streamline and grow its online-to-offline business, which means that it sees value in the tactile experience of brick-and-mortar leveraged off the Net.

POS And Rewards

Now, rewards for loyalty are coming to the point of sale, as Verifone’s recent link with FIS shows. In this case, points can be redeemed at checkout as consumers elect to use loyalty rewards in lieu of cash. Similarly, PayPal and Discover are letting PayPal customers use cashback bonuses to pay for goods online. Using loyalty to pay at checkout is a system that might engender more loyalty, of course, in a virtuous cycle.

FIZZLE

American Apparel

The bankruptcy saga is over, and American Apparel will be American no more, having been sold to Gildan for $88 million. The tide is shifting (in brand and intellectual property) to Canada. No stores are tied to the transaction, giving further proof to the malaise of retailing (for some brands at least) via brick-and-mortar in the U.S. Fizzle for a brand that made a lot of missteps.

Brexit

More pain for Brits amid the Brexit saga, said Prime Minister Theresa May this past week. The pain in this case will come as likely limits on migration through the European Union mean British firms are likely to be stymied in efforts to sell into the EU, which means hobbling access to hundreds of millions of would-be consumers. Messy.

Bitcoin And The China Effect

Oh, how far away bitcoin at $1,100 seems. In just the last several days, the euphoria has faded, and bitcoin’s price plunged 30 percent. The culprit? “Spot checks” by China in a move toward greater scrutiny of the cryptocurrency and the exchanges on which it trades. Seems the Chinese don’t like seeing vast sums of capital slip through their banking fingers. Is regulation in the offing, or will China decide to skip over that and just shut it all down?

Fizzle Of The Week: Macy’s, Sears And The Department Store Decline

Department stores have been something of a slow burn fizzle for the last few years, with an awful lot of bad news seemingly on repeat. Foot traffic is falling, sales are declining, revenue is dropping and stores are closing.

Once described as anchors for shopping malls, Macy’s and Sears stores are now being described as “millstones” dragging the shopping malls that house them down with them.

And though it is a harsh assessment, it is not entirely untrue.

Macy’s, battered by yet another disappointing run of holiday sales, is doing another round of big cuts. Over 10,000 employees are heading for the chopping block, and another 68 stores are closing — all housed, according to outgoing CEO Terry Lundgren, in underperforming locations.

Additionally, the retail giant said that it will be cutting “layers of management” at its central operations and paring the number of managers supporting stores.

“We continue to experience declining traffic in our stores, where the majority of our business is still transacted,” Lundgren said in a statement. In regards to the store closings, he added: “We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape … These are never easy decisions.”

And, according to some experts, Macy’s may be running out of decisions it can make, easy or otherwise, as speculation that it could soon be a rather attractive takeover target for the right buyer. Analyst Brian Sozzi recently wrote that Macy’s could indeed prove tempting to none other than off-price retail firm Ross Stores. The tie-up might have once been “unthinkable,” he said, but may indeed be plausible.

And Macy’s isn’t suffering alone. As bad as its recent performance has been, Sears is in rougher shape. It is also doing some big closings — the low number is 104, though it could end up being as much as 150.

But Sears is triaging more than just stores; it is now cutting pretty close to the bone. As of last week, the struggling retailer announced it had officially sold off its extremely popular in-house tool brand, Craftsman, for $900 million to Stanley Black & Decker Inc. in its latest move to keep going. That comes on top of Sears’ announcement of a new credit facility with funds run by Chief Executive Eddie Lampert of up to $500 million, secured by mortgages on 46 real estate properties.

That facility came a week after it said it had secured a standby letter of credit for up to $200 million, also with funds owned by Lampert’s ESL Investments. That facility can also be increased to $500 million, if the lenders agree.

No one takes any of this as a good sign.

“You’ve got a group of symptoms that would lead one to believe a bankruptcy would be imminent,” said Chuck Tatelbaum, director and chair of the bankruptcy and creditors’ rights department at the Tripp Scott law firm and a 50-year bankruptcy law veteran.

His official diagnosis?

“It’s a sick puppy.”

So, what’s going on?

Well, it seems this fizzle, were one to give it name, might best be called a “Stealers Wheel” fizzle, named for the group responsible for the classic “Stuck In the Middle With You.” Except, instead of clowns to the left and jokers to the right, mainstay retailers like Macy’s and Sears have discounters like TJX Companies to the left of them and high-end retailers like Nordstrom and Neiman Marcus (which have been hit, but not nearly as hard) on the right. Then, there’s also Amazon, which is not so much to the left or right as it is everywhere and eating away at the prospects of physical retailers across the board.

“Everyone is carving away at different parts of the business,” said Liz Dunn, chief executive of Talmage Advisors, a retail consulting firm. “It’s sad that these retailers that have this rent advantage can’t seem to make it worth it.”

Hence the “millstone” designation: Stores that can’t draw customers aren’t really anchoring anything, and mall owners are looking to repurpose that space into movie theaters, activity centers and other more attractive tenants.

“Ten or 15 years ago, if a department store left a mall, it was really a problem for the developer,” said Les Wexner, the longtime chief executive of L Brands. “Now, many of the developers are trying to buy back the space from the department stores because they’re an economic detriment, and they can recycle that space.”

Now, neither retailer is taking this situation laying down. Sears, obviously, is working double time to stay afloat, and Macy’s has said it will be doubling down on improving and enhancing the experience in its most productive stores. Apparently, spas are coming soon to some locations.

Macy’s is also making a very big push into leveling up its eCommerce efforts, and while it is hoping for growth in that arena, that growth is lower margin and doesn’t come close to offsetting the drops in physical traffic.

But the experts aren’t convinced that these actions are much more than deck shuffling on a sinking ship.

Turnarounds are possible. Twenty years ago, Apple was teetering on the edge of being bankrupt. Now, analysts report that it is approaching $1 trillion in revenue from iOS. Always darkest before the dawn and all that. But it also always darkest right before it goes pitch black, and it seems unlikely Macy’s or Sears has an iPhone level of innovation to pull out of its pocket.

We’ll keep you posted on how — and if — they manage to pull through.