Department Stores Scaling Back as Consumer Spending Slows

Department stores are adapting to slowing consumer demand by shrinking their operations.

Macy’s is rolling out smaller format stores, while Nordstrom is ending its operations in Canada and focusing on the United States, The Wall Street Journal (WSJ) reported Friday (March 3).

These moves come after a quarter in which three department stores reported year-over-year declines in sales, with Macy’s comparable-store sales down 3.3%, Nordstrom’s net sales down 4.1% and Kohl’s comp-store sales down 6.6%, according to the report.

The three retailers expect this trend to continue. During recent earnings calls, both Nordstrom and Macy’s said they have seen a slowdown in consumer spending in all income levels, Kohl’s said it has seen consumers trading down to private-label brands, and all three retailers said they have had to offer more promotional pricing, the report said.

All three also told analysts during the call that they expect this trend to continue through 2023, per the report.

The department stores’ credit card operations are also under pressure. Repayment rates are slowing, bad-debt levels are rising and a White House proposal to reduce late fees on credit cards may cut into their profits, according to the report.

While these three department stores have seen their collective sales slide 3% since 2019, off-price retailers Ross Stores and TJX have gained 17% and 20%, respectively, over that same period, the report said.

The three department stores aim to meet this challenge with some additional recently announced changes.

Nordstrom said Thursday (March 2) that it will focus on rehabbing and growing Rack, its off-price division that now accounts for 30% of Nordstrom’s sales and nearly half of its new customers.

On the same day, Macy’s said it plans to keep ramping up the Market by Macy’s and Bloomies locations that are only about one-fifth the size of a typical mall store. The company launched these smaller-format stores two years ago and reported they are outperforming the larger locations in almost every key metric.

Kohl’s said Wednesday (March 1) that it plans to replace its longstanding use of coupons, QR codes and other promotions — a strategy that cost it dearly in the fourth quarter — with “everyday value pricing.”

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