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Online sales are putting a dent in brick-and-mortar retailers

By
Catherine Curan
Published Jan. 8, 2017, 12:20 a.m. ET

From Victoria’s Secret to Macy’s, brick-and-mortar retailers took it on the chin this holiday season, while online sales jumped nearly 20 percent.

One notable exception: Gap Inc., which seemed to benefit from demand for bargains as same-store sales spiked 12 percent at its low-price Old Navy chain, contributing to a 4 percent comp-store gain overall for November and December, and sending Gap’s stock soaring.

Overall, however, so many shoppers shunned brick-and-mortar stores that sales plunged 10.3 percent in December, and traffic declined even further, according to RetailNext, which analyzes shopping trips across specialty and large-format stores nationwide. Sales dipped 0.4 percent during the same period in 2015, an easy comparison stores still couldn’t beat.

“This is the beginning of the end for a lot of retailers — or at least the beginning of a major conversion of their platform, from brick-and-mortar with a small online presence, to a large online presence with a limited brick-and-mortar base,” said Peter Schaeffer, a principal at financial advisory firm GlassRatner.

The National Retail Federation expects holiday sales, excluding cars, gas and restaurants, to rise 3.6 percent, to $655.8 billion, for 2016. But it was a season of stark contrasts, with online sales expected to surge 19 percent, to roughly $98 billion, even as sales and profits slumped at thousands of traditional stores.

“Sales were volatile throughout the holiday season,” said Kohl’s Chief Executive Kevin Mansell. “Strong sales on Black Friday and during the week before Christmas were offset by softness early in November and December.”

This pattern played out at many stores. The Friday before Christmas emerged as the top day for sales in the November-December period, knocking Black Friday out of its traditional spot and into second place, said RetailNext. A last-minute bump of 6.5 percent in the week before Christmas was too little too late.

Poor holiday sales can lead to layoffs and store closures, like those announced last week by Macy’s and Sears. January is also a common month for retail bankruptcy filings.

Here, a snapshot of brick-and mortar chains that slumped during the holidays:

  • Macy’s: Same-store sales slid 2.1 percent in the November-December period, denting profits and the stock price, and prompting a massive restructuring. Macy’s said last week that in the fourth quarter, it will take a $250 million charge — on top of $249 million charge in the second quarter — for restructuring, including slashing 10,000 jobs and closing 100 stores in the next few years. Macy’s, which operates 730 Macy’s locations, slashed its estimates for earnings per share before special charges to a range of $2.95 to $3.10, from $3.15 to $3.40.
  • Kohl’s: Same-stores sales slid 2.1 percent in November and December. The retailer, which operates more than 1,100 stores, slashed earnings expectations to $2.92 to $2.97 per share, from $3.12 to $3.32.
  • Barnes & Noble: Same-store sales fell 9.1 percent for the nine weeks ended Dec. 31, and the company, which has 638 stores, slashed its full-year sales forecast.
  • Victoria’s Secret: Same-store sales slid 4 percent in December at the L Brands unit, which operates 1,001 stores.
  • The Limited announced — ironically on its website — late Friday that it was closing all 250 of its stores, but would continue its online operations. Its owner Sun Capital Partners had no comment.

The broadest challenge facing stores comes from online retailers — the clear winners this year.

Amazon set the pace with its popular voice-activated Echo devices and one-hour delivery service in some cities. The e-tailer is expected to post strong profit margins following robust sales of Echo and fewer holiday-season bottlenecks at its fulfillment centers, Morningstar analyst R.J. Hottovy said in a note.

In addition to Gap, L Brands’ Bath & Bodyworks division logged gains, with December same-store sales up 3 percent. And although Barnes & Noble’s comps plunged, CEO Len Riggio said cost controls will help boost operating profits.