Economic prognosticators have been predicting the death of department stores for generations, only to be proven wrong. These days, though, the doomsayers have numbers on their side. Department stores had $155.5 billion in total sales in 2016, down from $230 billion in 1999. And big brands like Kohl’s (KSS), Macy’s (M), J.C. Penney (JCP) and Sears (SHLD) are coming off a downright awful holiday season where each reported lower sales than they’d reported the previous year—even as retail sales overall were rising sharply.
In a feature in this month’s issue of Fortune, senior writer Phil Wahba spotlights the trends, business practices and strategic mistakes that have weakened the big department stores, and explores what the retail giants could do to reverse their decline. One of the problems working against the national chains: An addiction to discounts.
As Wahba explains, department stores today focus much more heavily than they used to on apparel (think clothes, handbags, and shoes). That means that the major chains are largely selling the same brands and products; by one measure, about 40% of their product “assortment” overlaps. With so much sameness, the only way they can stand out is by offering steep markdowns, including online, where two-thirds of apparel orders in the holiday season were sold at a discount (see graphic at lower right).
As their customer base gets more accustomed to buying goods on the cheap, the department stores find themselves competing more directly with off-price stores like Marshalls and Ross Dress for Less, and with mass merchants like Walmart (WMT), both of whom have been gaining market share at department stores’ expense (see lower left). The result of this race to the bottom: A climate where four of the six biggest department store chains had lower sales this fiscal year than they did 10 years ago. You don’t need to be a retail genius to know that trend isn’t sustainable. For more on the rise and fall of the industry, read “Can America’s Department Stores Survive?”
These charts appear in the March 1, 2017 issue of Fortune, in the story “Everything Must Go.”