The Daily Dose: Malls Are Dying

 | Jan 09, 2014 | 12:00 PM EST  | Comments
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jcp

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arow

Four years after the Fire Sale Holiday Season of 2008 that unleashed a tsunami of store closures across the U.S. to match a new normal level of consumer demand, there is a new wave hitting the shore after a profitable, but below-expectations, 2013 holiday season.

Aeropostale (ARO) is on track to close more than 100 stores over five years (up from its prior forecast) as it has had to become more competitive on an already-cheap, chic brand promise.

Sears is closing stores in rural America without even issuing a press release.  JCP recently announced some store closures. The buzziest, and newest, company to join the store-closing party is Macy's, which is saying "peace out" to five giant stores as it restructures its operations, again. 

It was once unfathomable that a profitable department store like Macy's would leave a huge void at the end of a mall it had been a partner in for double-digit years. But Macy's (M), and even a non-traditional anchor tenant like Dick's Sporting Goods (DKS), have invested aggressively to facilitate a seamless inventory movement. Each store has essentially been transformed into a distribution center that aids in getting merchandise into the hands of the consumers wherever it's ordered, in store or on tablet.

Stores are making a long-term bet on technology continuing to advance from systems from IBM (IBM) and SAP (SAP) to wearables. It simply doesn't make strategic sense to enter a new 15-year lease as consumers are likely to continue curtailing physical visits to the mall. 

In addition to shopper behaviors changing, remember what new technology in the hands of people also spurs: greater price discovery abilities in real time as well as targeted promotional offers. Macy's is fully aware that the days of borderline ripping off consumers with excessive markups are on a path to extinction. The consumer has been trained to find, or wait for, the lowest possible price on a t-shirt that cost $3.00 and would normally showcase proudly on the sales floor at $14.99. During an economic upswing, I think the consumer that spent beyond his or her means in 2006-2007 will stay on the hunt for new technology that finds the best deal on a non-essential item.  

Some Notes on J.C. Penney

J.C. Penney's (JCP) pickup in clearance inventory in the second week of December came as consumers responded in a meh manner to Black Friday engagement efforts.

In other words, the company has to go outside of its comfort zone in terms of promotions to reconnect to consumers that were let down by the Ron Johnson era. 

There remain pockets of J.C. Penney's sales floor, for example big-ticket furniture, that are simply not moving despite increased promotions. I continue to believe it will have to have a fire sale on slow-moving furniture packages to reset the floor space.

To get a better handle on why you should be extremely skeptical of how public companies disseminate information, e-mail me at briansozzi@gmail.com for a Dec. 6, 2013 report I issued on JCP as the stock plummeted in response to an unsatisfactory November sales release.

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