Macy’s and Kohl’s on Thursday posted strong quarterly results showing there is plenty of life left in those well-established retailers. But news reports of Amazon diving into the department store world provided a fresh reminder that they cannot let up in their turnaround efforts even for a second.
Kohl’s said that sales in its second quarter rose 31.4% to $4.4 billion compared with a year ago, bringing them to a higher level than two years ago as its business continued to heal from severe pandemic sales losses. As a result of that and the expectation of a strong back-to-school season, its second busiest season after the holidays, Kohl’s raised its full-year sales forecast.
Macy’s also bounced back as consumers—especially men—replenished their wardrobes, bought luggage, and resumed going to stores. The department store giant said its sales rose 58.7% to $5.6 billion in the quarter, prompting it to raise its own 2021 sales forecast by more than $1 billion. Its shares rose 16% in midday trading, while Kohl’s were up 8%.
“The strength of the ‘pandemic’ categories continued,” Macy’s CEO Jeff Gennette told Fortune, referring to casual wear and home furnishings. But, other “dormant” product categories, as he called them, such as men’s clothing and luggage, were thriving.
At Kohl’s, the company’s big bet on athletic wear and outdoor clothing continued to pay off, with an assist from a robust spending environment, CEO Michelle Gass told Fortune in a separate interview. “This is our strategy playing out, but it’s being amplified by the favorable consumer backdrop.”
Both companies will need to keep their momentum going if they want to counter a formidable rival on the horizon: The Wall Street Journal on Thursday reported that Amazon, which has stolen enormous market share from countless brick-and-mortar chains, was planning to open retail locations that would be much bigger than its 4-star and Go stores and would help Amazon increase its sales of clothing, household items, electronics, and other products.
Amazon’s physical retail has so far not been nearly as damaging to rivals as its e-commerce, and these department stores have no guarantee of success. But Macy’s and Kohl’s are not waiting to find out if Amazon will succeed with this format. Macy’s announced on Thursday that next year, it would open Toys “R” Us shops at 400 of its stores in a bid to continue reducing its reliance on apparel and entice new shoppers, particularly young parents. “It was a category where we had a very low [market] share and the opportunity to massively expand—and getting them into the brand that way,” said Gennette. And Kohl’s recently opened the first of hundreds of Sephora beauty boutiques in its stores.
Gennette said however that Macy’s continues to feel the pinch of reduced international tourism, which has traditionally generated 3% to 4% of sales. What’s more, the delay in a return to the office could hurt stores in areas like New York’s Herald Square, Chicago’s [hotlink]State Street,[/hotlink] and San Francisco’s Union Square, three of Macy’s top-grossing locations.
As for navigating the pandemic, both Gass and Gennette say their respective chains have the tools they need to react should the impact of the Delta variant worsen and create havoc as they look to continue their comebacks. “We’ve been operating in this environment for a year and half,” Gass said.
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