Department stores experienced a brutal reality check during the 2016 holiday season, and 2017 hasn’t brought much relief. We continue to hear about store closures, missed sales estimates, and declining traffic – in sum, the general consensus being that something is off, but no one knows how to fix it. The rise of e-commerce crept up behind department stores while they were still basking in the thrill of expansion mode, and now the internet has lunged ahead, changing the very nature of the retail game. Department stores have invested heavily in order to keep up, but adapting old systems to this new retail has proven to be a challenging task. And yet, according to Macy’s CFO Karen Hoguet, e-commerce isn’t even their biggest competitive threat. The real culprit? Off-price retailers.
As brands and retailers pivot to follow the growth in our industry, they’re shifting more and more resources into the off-price business. Product in this channel falls into one of two categories: closeouts or make-up product. Closeouts are extra inventory in styles that were originally shipped to mainline department stores. At the end of the season, this inventory is sold to off-price retailers at a discount. Make-up product, on the other hand, is produced specifically for off-price accounts. It’s manufactured to meet their pricing requirements, meaning the product is usually a stripped-down version of what department stores sell – cheaper materials and construction, fewer hardware accents, etc. This product was never sold in department stores – in fact, that was never the intention. Continue reading