It’s true…
The decline of the department store is nothing new. We have seen record retail closures, drastic shifts in business models, and full-blown marketing and price wars.
With Amazon (NASDAQ:AMZN) taking massive share gains and Walmart (NYSE:WMT) moving to online, the department store has been struggling to keep up. However, at some point the department store makes sense. In our view, it will take centralized location, relevant product offerings, fair prices, unique experiences, and top-notch service. Sounds like the ideal restaurant business model.
Below are two charts. The first is a table of all retail sales components within the Retail Sector (NYSEARCA:XRT), and the second is the year over year change in retail sales for online versus department stores.
There are two clear takeaways. Online and building materials are performing well, both up over 7% year over year. The dynamic of online sales and building material growth is good for economic inputs. The second observation is somewhat contrarian. Department stores are shockingly seeing an acceleration in sales from a low base, while online sales are trending lower from a high base. I’ve been on this story for a little while now (see my post back in June), so it is interesting to see the sales trajectory follow through. Sometimes it just takes record bankruptcies, forced store closures, and CEO’S to wake up for industries to change. Our interest is similar to the oil patch several years back. An industry with high demand gets hit with flush capital, supply rises much quicker than demand, the industry peaks, alternative solutions take share, and the incumbent players thin out with stronger business foundations. We will continue to watch this one…
Twitter: @_SeanDavid
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
