NEW YORK — There’s more trouble for the nation’s malls heading into the crucial holiday shopping season.
A slew of mall-based clothing retailers delivered weak third-quarter earnings reports in recent days, the latest indication of shoppers’ increasing shift online and away from traditional shopping meccas.
Macy’s on Thursday cut its profit and sales expectations for the year after posting a steeper-than-expected 3.5% drop in sales at stores opened at least a year, including business from licensed departments like jewelry. It marked Macy’s first quarterly comparable store sales decline in almost two years.
Macy’s, which also operates Bloomingdale’s, cited the late arrival of colder weather and meager tourist business. But it also blamed a steeper-than-anticipated sales decline in stores at lower-tier malls.
Kohl’s Corp. cut its profit outlook for the year after a disappointing third quarter dragged down by poor women’s clothing sales. It posted an overall anemic 0.4% increase in same-store sales. Meanwhile, J.C. Penney has long been struggling and is in the throes of another reinvention. Same-store sales fell 9.3% in the quarter.
Gap Inc. and Nordstrom Inc. are slated to report their results late Thursday.
“They’re all dependent on malls, but the problem is a lot of people aren’t going to malls,” said Neil Saunders, managing director at GlobalRetail.
There are other issues at play. Some chains like Gap have been slow to innovate, while they face new competition from the likes of off-price chains like T.J. Maxx and discounters such as Target. T.J. Maxx and Target, which operate stores at strip centers, have been upping their game when it comes to affordable fashion assortments.
Target’s clothing sales rose 10 in the latest quarter, helped by its expansion into new fashion brands it created. It also added mannequins to display their merchandise for the first time two years ago. T.J. Maxx parent TJX Cos. reported a better-than-expected consolidated same-store sales increase of 4%.
However, many traditional retailers have been aggressively overhauling their businesses. Kohl’s, for example, is hoping to drive more customer traffic by accepting Amazon returns at all 1,150 stores. Nordstrom has been trying out new formats like service hubs that don’t even sell clothing.
Still, their fate is tethered to the mall.
A report from Credit Suisse published two years ago predicted that up to a quarter of the shopping malls will close by 2022 given the increasing popularity of online shopping and a rash of store closings.
Still, not all malls are struggling. While vacancy rates on average at the nation’s malls are currently at 4%, top malls have been the industry’s bright spot, boasting strong traffic and currently averaging a 2% vacancy rate, says CoStar Group, a real estate research firm. That’s compared with the bottom rung of malls, which are wrestling with a 7% average vacancy rate.
Macy’s has pursued a number of strategies as a way to get shoppers back. That includes recently teaming up with resale site ThredUp. The company’s Bloomingdale’s division just launched a rental service. About 50% of the customers are millennials.
Macy’s has also been upgrading the look of its top 150 stores in healthy malls.
“Where we’re investing and our mall developers are investing, we’re getting great outcomes,” Macy’s CEO Jeff Gennette told analysts during the earnings call. He noted that the 150 stores account for over 50% of its brick and mortar business.
Macy’s has been also been closing stores as part of a restructuring announced in February.