Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Retail Recovery Not at Department Stores

  • Revenue figures indicate that department stores like Macy’s are not participating in the retail recovery.


  • Falling gasoline prices have not helped department store revenues.


  • Revenue figures show that shoppers are concentrating their spending on next generation retailers like and Costco Wholesale.


  • Stagnant household incomes could be holding back the retail recovery.


  • Store traffic fell on Black Friday, indicating that the 2014 holiday season and the year of 2015 will be tough on department stores.

The long-awaited retail recovery does not seem to be doing department stores much good. Traditional department store operators like Macy’s (NYSE: M), JC Penney (NYSE: JCP), and Kohl’s (NYSE: KSS) are afflicted by stagnant or declining revenues.


On Oct. 31, 2014, Macy’s reported a TTM revenue of $27.94 billion, slightly lower than the $28.08 billion it reported in October 2013. JC Penney reported a TTM revenue of $12.15 billion on the same day, slightly higher than the $11.96 billion it reported in October 2013. Kohl’s reported a TTM revenue of $18.79 billion on October 31, 2014, which was down a bit from the $19.27 billion it reported in October 2013.

Judging by the revenue figures, it looks as if all of these department store operators are losing revenue and market share. What’s interesting here is that these are the department store chains that are supposed to be doing well.

None of these chains is facing the kind of catastrophe that’s going on over at Sears Holdings Corp (NYSE: SHLD). Yet not one of them is going through the kind of retail recovery that the traditional rules say they should be experiencing.

So Where Is the Retail Recovery?

Some of the signs out there do point to a retail recovery, including gasoline prices. Bloomberg reported that gasoline prices in the Midwest had fallen to within 20¢ of the $2 a gallon mark on Dec. 1.  The Washington Post calculated that Americans were spending $690 million less a day on fuel on Dec. 1, 2014, than they were in June 2014.

Yet some other signs do not point to a retail recovery; median household income in the U.S. is still stagnant according to the U.S. Census Bureau. The Bureau reported that average household income rose by .3% in 2013, or around $180, an increase that doesn’t even come close to keeping with the rate of inflation. Since the U.S. rate of inflation in 2013 was 1.5%, most families actually lost ground in the struggle for prosperity.

It looks as if the recovery has not reached the average American household yet, a state of affairs that seems to be verified by the revenue figures at another department store operator: Nordstrom (NYSE: JWN).

Nordstrom reported a TTM revenue of $13.17 billion on October 31, 2014, a nice increase over $12.53 billion in October 2013. Judging by Nordstrom’s revenues, the upper class has increased its spending. Yet Macy’s, Penney’s, and Kohl’s revenues indicate that the middle class is still pinching its pennies.

The recovery isn’t here yet, or if it is here, it is only confined to certain segments of the retail market. A quick look at some other revenue figures might show us where the recovery is taking place and where to invest to take advantage of it.

Where the Recovery Is

The first obvious place we should look for signs of recovery is the company that has become middle-class America’s new “department store” of choice: Inc. (NASDAQ: AMZN). If we look at Amazon’s revenues, it looks as if a recovery is well under way and has been for some time.

Amazon reported a TTM revenue of $70.13 billion in September 2013 that grew to $85.25 billion on September 30, 2014. The Everything Store’s revenue grew by $15.12 billion in one year. It looks as if much of Amazon’s growth is at the expense of brick and mortar retailers that cater to a middle-class market. competes directly with department stores by selling many of the same products, including shoes (at and clothing. Yet it offers a more convenient shopping experience, lower prices, and a larger selection. It has also succeeded in getting Americans, especially millennials, hooked on online shopping. Many Americans now do all or most of their clothes shopping online because of Amazon.


Then there’s the retail behemoth known as Costco Wholesale (NASDAQ: COST). Sales at Costco’s U.S. locations increased by 9% in November, even though the warehouse club stayed closed for Thanksgiving. That beat estimates by analysts and shows us exactly where the recovery is taking place. It also shows that Costco’s phenomenal revenue growth is continuing; the wholesale club’s TTM revenue grew from $105.16 billion in August 2013 to $112.64 billion in August 2014.


Americans are now doing a lot of the shopping that they used to do at department stores at Costco. Costco’s clothing selection is not as great as that at department stores, but it contains most of the items real people actually wear at good prices. Costco also offers large selections of items like appliances, jewelry, bedding, luggage, and fragrance—in other words, the stuff you used to buy at a department store.

Black Friday a Bust

Nor is the holiday season likely to bring the consumers back to the department store. The National Retail Federation reported that the number of people that visited stores over the Thanksgiving holiday weekend was down 5.2% from the same period in 2013. Store traffic on Black Friday, traditionally one of the biggest days of the year for department stores, fell by 5.6% from last year’s numbers, ShopperTrack reported.

It looks as if holiday shopping season 2014 could be something of a bust. That means 2015 could become a very ugly year for department stores with lots of store closings, cutbacks, restructuring, layoffs, and losses. The retail recovery could be turning into a retail apocalypse for the department store industry.