Retailers are suffering in a changing retail world

Macy's isn't the only store taking a hit in a rapidly changing retail world.

More shoppers are mining their phones and the web for deals and flocking to off-price chains to save a buck. They're also choosing stores that can turn around stylish merchandise fast and specialty merchandise such as comfortable and stylish athletic gear. The shift is making business challenging for some traditional retailers. Even as stores typically on solid footing, including Macy's and Nordstrom, have scrambled to keep up with the shift in shopping habits, they're finding it difficult to maintain an edge.

Macy's

Macy's announced a significant round of layoffs and 36 store closures last week, the same day it said holiday season sales fell a disappointing 4.7%. Macy's struggled with poor sales of winter gear during an unseasonably warm end to 2015 and continued to see tourism dollars drain from the business. The stock has fallen 47% in the last 12 months.

While Macy's has implemented services such as being able to buy online and pick up in store, it's still a large department store chain that relies heavily on categories that aren't doing so hot right now, such as handbags and clothes.

"There's not a whole lot of newness in apparel," says Bob Drbul, Nomura equity analyst. Macy's and other department stores also face competition from brands like H&M and from off-price retailers such as TJ Maxx, which continue to pull in shoppers with steep discounts on designer goods, says Ken Perkins, president of Retail Metrics.

Macy's announces layoffs, lists 36 store closures

Though with strategic shifts on the horizon, Drbul expects Macy's to weather the change. "They have a great balance sheet, a very experienced and seasoned leadership team, and they’ll come through this," he says.

Asked for comment, Macy's spokesman Jim Sluzewski pointed to the retailer's press release about its restructuring plans. Macy's announced plans Wednesday meant to streamline the way it does business to become more efficient, including those layoffs and store closures, which are expected to lead to $400 million in savings.

Target

Target has been shaky with their sales growth and profitability. Based on Target previous trends and financial analysts predictions and expectations, Target continues to show sign of struggles including their profitability as well as meeting and exceeding their customers' needs. One of Target's mistakes is implementing change too fast while being a little bit behind of current times. If you’ve been shopping less at Target lately, you’re not alone. Foot traffic in stores is down 2.2%. Comparable store sales fell 1.1% during the May-July period, the first time in two years there’s been a decline during these months.

And Target is now saying that it anticipates further strife in the months ahead: The company is projecting that sales will dip as much as 2% during the third and fourth quarters of 2016—which include the key back-to-school and holiday shopping seasons—after previously forecasting growth between 1.5% and 2.5%.

This is all according to the earnings report released by Target on Wednesday for the second quarter of 2016, ending July 30. Understandably, shares of Target stock have been taking a beating as a result, down around 5% early on Wednesday. Why are shoppers turning away from Target? Here are some reasons:

Groceries. As we reported earlier this week, Target has struggled mightily with its decade-long push to become a go-to grocery destination for shoppers. Target sits “in the middle of no man’s land” among grocery competitors, Target COO John Mulligan has admitted, because it lacks the quality and selection of Whole Foods and has higher prices than Walmart and Aldi.

One of the reasons stores like Target have grocery sections in the first place is to boost foot traffic, as shoppers tend to need groceries more regularly than clothing or electronics. The idea is that shoppers are more likely to make other, non-planned purchases during grocery runs. But if consumers do their regular grocery shopping elsewhere—and by most accounts, that’s what they do—then Target misses out on all the peripheral and impulse buys shoppers theoretically would have made had they been in the store to pick up milk, eggs, and such.

Target’s failure to attract a broad swath of grocery shoppers, you see, has a negative trickle-down effect on sales in aisles throughout the store.

Prescription Medications. As the (Minneapolis) Star Tribune reported, one of the reasons cited by Target CEO Brian Cornell for the company’s 2.2% decline in foot traffic was the transition of its pharmacy operations to CVS.

Consumer advocates worried that Target’s decision to let CVS run its pharmacy operations and in-store clinics would hurt competition in the marketplace and perhaps result in higher drug prices for consumers. While it’s unclear if there’s been across-the-board impact on prescription pricing during months of transitioning to CVS, Target said the change has led to some disruptions in sales.

As with groceries, many consumers need prescriptions on a regular basis. So if these shoppers are not going to Target to pick up their meds, Target is also missing out on all the potential trickle-down sales as well.

Apple. During Wednesday’s conference call, Cornell called out poor sales of electronics—and Apple in particular—as another reason for the company’s underwhelming performance. Apple sales were down 20% in the quarter at Target.

Part of the reason for declining Apple sales at Target is that Apple sales  haven’t been as strong as they have in previous years. But clearly, another reason is that shoppers have found other outlets other than Target for picking up their Apple devices.

Fashion. It’s been a long time since people referred to Target as “Tarjhay.” During the first decade of the millennium, Target enjoyed a reputation as a hot cheap chic destination thanks to frequent partnerships with fashion lines like Isaac Mizrahi and Missoni. With each launch of such goods, Target could expect sales crazes with huge lines and the kind of in-store excitement that Walmart could never dream of.

Not all the partnerships worked out well, though. The Target-Neiman Marcus collection was a disaster. More recently, Target introduced a collaboration with the Finnish designer Marimekko in the spring of 2016. The response from shoppers was fairly tepid, but not anywhere near the over-the-top successes of past fashion partnerships, including one with Lilly Pulitzer a year ago.

Overall, Target says sales of its “signature categories” (including stylish apparel) “outpaced the total business by 3 percentage points” in the second quarter of 2016, according to CNBC. But no one can honestly say that the Target fashions of today are the draw that were five or ten years ago.

Amazon. It’s not just Target that’s been having trouble with apparel sales. Macy’s, Sears, J.C. Penney, Gap, American Eagle, and others have been huge sales declines—and huge store closures as a result.

One of the reasons people aren’t shopping at these stores is that they’re turning to cheaper “fast fashion” retailers like H&M and Primark. Another is that they’re more likely nowadays to shop online for clothes—specifically at Amazon. Amazon has quietly but massively been expanding its apparel options, and as with nearly every other shopping category under the sun, the world’s largest retailer is rapidly stealing clothing sales from the competition.

Target’s online sales were up 16% during the most recent quarter. That may sound pretty good, but it’s poor compared to the increase in the first quarter of 2016 (23%) and the second quarter of 2015 (30%). What’s more, analysts say that Target’s e-commerce operations, which got off the ground more slowly than most of the field, are still far behind the competition. So the only result that would be viewed as positive is if Target’s digital sales increases were blowing away everyone at this point.

“Target being in line is not good enough,” JP Morgan analyst Chris Horvers said on CNBC, discussing how Target’s online sales growth has basically just been keeping pace with competitors of late. “They’re playing catch up so they should be outperforming the market at this point.”

Nordstrom

Nordstrom is one of the stronger players in the department store space, but it too faces challenges. (Photo: Bloomberg)

Nordstrom faces many of the same problems as Macy's, including competition from fast-fashion retailers like H&M that are experts in turning around stylish new merchandise quickly. Plus online competition generally is leading to lower traffic and fewer impulse buys at mainstream stores, says Efraim Levy, an equity analyst with S&P Capital IQ.

Nordstrom has long been known for superior customer service and a loyal customer base, but sales have faltered recently. The company lowered its fiscal year expectations after experiencing soft sales in the third quarter and its stock is down 42% from a year ago.

And unlike Macy's, Nordstrom isn't known for offering very compelling discounts, which makes it "tough to counter mid-tier competitors that frequently offer 50%-70% sales," writes Citi analyst Paul Lejuez in a recent note to clients. Plus Nordstrom Rack, a competitor in the off-price sector, suffers from a lack of traffic drivers by stocking mostly apparel — a weak category at the moment — and not the home goods found at competitors like TJ Maxx, Lejuez says.

Citi cut its investment rating on Nordstrom from "buy" to "neutral," citing concern about whether Nordstrom will be able to keep up with intense promotions at competitors. Nordstrom spokesman Dan Evans said the company doesn't comment on sales results outside of earnings calls.

Aeropostale

Aeropostale faces major competition from fast-fashion and off-price retailers that are pulling away teen customers with cheap, stylish goods. (Photo: AZR)

The teen retailer faces an incredibly competitive environment, up against H&M, Zara, Forever 21 and now Primark, a U.K. brand that started opening in the U.S. last year. Compared to those stores, Aeropostale hasn't been quick enough turning out desirable apparel and relied on stamping merchandise with the Aeropostale logo for too long after that fashion went out of style, says Perkins of Retail Metrics.

With more than 800 stores, many have questioned the viability of Aeropostale's business as it's struggled to appeal to its target audience. Perkins also expects brands, including Aeropostale, to start downsizing their store count as they build leaner business models set up to better compete online.

Aeropostale shares are trading under a dollar, down from nearly $3 a year ago. Sales fell 20% in the third quarter. "When your stock is down under a buck, it’s troubling territory to be in," Perkins says.

Sears

Sears store associates in Schaumburg, Ill. help customers shop more than 1,000 doorbuster deals on Thanksgiving Day, Nov. 26, 2015. (Photo: AP Images for Sears)

The long-beleaguered Sears may not get by on its significant real estate portfolio much longer. The former king of the catalog business has seen revenue fall by nearly half in the last decade and has only posted positive same-store sales growth once since 2005. Sears, which also owns Kmart, faces an affront from all sides — companies like Lowe's and Home Depot are chipping away at appliance sales, Target and fast-fashion brands have encroached on apparel and then there's Amazon, which is squeezing pretty much everyone.

Plus, its stores are dated and uninspiring.

"They haven’t invested in display or merchandising," Perkins says. "They haven’t upgraded their stores. They really have just watched the business slowly dry up."

The one thing Sears has going for it is its impressive array of real estate holdings, which it started spinning off into a real estate investment trust last year. Still, shares have fallen by nearly half in the past year and Perkins questions how much longer the company can rely on revenue from its property sales without overhauling its merchandise.

"Sears Holdings is highly focused on restoring profitability to the company," company spokesman Brian Hanover told USA TODAY, citing Sears' strategy to turn into a "member-centric" business centered around a loyalty program that allows it to do more targeted marketing and promotions. He also points out Sears has seen five consecutive quarters of improved year-over-year performance on EBITDA, a measure of earnings before taxes and other financing expenses are factored in.

HH Gregg

As a regional player, with 227 stores in 20 states, HH Gregg has to contend not only with falling traffic in more rural areas but stiff competition in consumer electronics, which is dominated by retailers such as Amazon and Best Buy.

The company said last week that it estimates same-store sales for the third quarter ended Dec. 31 fell 11%, with steep declines in appliances and consumer electronics. Sales of computers and tablets are estimated to have fallen 35%.

HH Gregg launched an overhaul in 2014 that included a national ad campaign and updated logo. It's also trying to make inroads into the home furnishings business, a category that saw sales increase an estimated 16% in the current quarter. But investors remain skeptical. Its shares are down nearly 64% from a year ago.