Cramer: The Department Store's Decline Is Secular in Nature

 | Feb 06, 2017 | 5:44 AM EST
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The reverberations of the decline in the department store are being felt deeply throughout the industry and they cannot be dismissed as one-time only.

For example, the latest in the hammer- in-the- nails- of -the-coffin story is the perfume and make-up section, which has the best of the best in terms of gross margins for stores like Macy's (M) , which sell a ton of the stuff.

If you go over the Estee Lauder (EL) conference call, you will hear that other than a drastic drop off in the Middle East and Turkey, the department store really cut into growth. EL cited the mid-tier department store, which in many cases would be Macy's, but I know first-hand that Macy's in midtown New York is the perfume capital of America, and that can't have been too strong either. Even as I love the make-up business because of the selfie-Instagram-Snap generation, it's pretty clear that the department stores have become a far smaller part of the industry sales, and that decline has happened with lightning speed.

Now, make-up's selling well, and to listen to the Lauder call is to want to go buy Ulta Beauty (ULTA) . That mid-to-lower-end chain is highlighted as one of the Este Lauder's best venues. But the department store is so challenged, it was mentioned repeatedly on the call.

The implications are horrendous here for a host of entities. North Face is a department store brand that has to be taking it on the chin, and that's got to be the chief reason for the seemingly endless tumble for VF Corp (VFC) . I know PVH Corp (PVH) has been having some good and some bad moments and it has a hefty business overseas. But Tommy Hilfiger and Calvin Klein have to be hurting from that last holiday season.

Needless to say, it doesn't bode well for Kohl's (KSS) or Fossil (FOSL) either, and the speculators in Kate Spade (KATE) better be right about a deal.

The oddity? The desire of Hudson's Bay (HBC) to buy Macy's itself. The sales are so weak at the department store, that it's hard to get your arms around why anyone would want it. Until you go back over the presentation by Starboard a couple of years ago at CNBC's Delivering Alpha conference, where the hedge fund talked about the incredible value of the real estate -- something that Starboard was touting as a way to be able to get to much higher prices than the stock was then. It was at $72 when the presentation occurred.

Now it is at $32 even after the hype about a possible fire sale deal. All I can say is that real estate hasn't gone down as some of the big city stores since that presentation, it's gone up. So has the loosening of credit. So I think Hudson's sees it as a real estate play that can be developed without much trouble, because it has other stores that it can shift the business to, including Saks.

So will it happen? I don't know. However, I think it may be the only way out, given the secular nature of the decline and the unlikely nature of a quick turn in the company's fortunes.

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