Coronavirus Widens the Retail Divide: Macy’s Sales Fall 45%, Best Buy Slips 6%
Date: Friday, May 22, 2020
Source: The Wall Street Journal
Macy’s expects $1 billion quarterly loss; Victoria’s Secret to close 250 North American stores; Best Buy benefits from curbside pickups
The coronavirus pandemic is widening the divide between retailers that are drawing shoppers and those that are losing business, accelerating a split that had been playing out before the health crisis forced some chains to temporarily close stores.
Department stores and apparel retailers are feeling the most pain. Their stores were closed from mid-March through April, and while some buying shifted online, it wasn’t enough to offset the lost sales in physical locations.
On Thursday, Macy’s Inc. offered a glimpse of the damage wrought by the virus, saying that first-quarter sales fell by as much as 45% and that it expects to record a roughly $1 billion operating loss when it reports financial results July 1.
Victoria’s Secret parent L Brands Inc. LB -0.90% said quarterly sales fell 37% and that it would close about a quarter of the lingerie brand’s stores in North America. Kohl’s Corp. KSS -1.39% reported a 41% drop in sales for the spring quarter, while nearly $5 billion in sales disappeared at off-price retailer TJX Cos .
Unlike the clothing sellers, electronics chain Best Buy Co. was able to make up for closed stores with online orders and curbside pickup. The chain, which also now has about 700 stores offering in-store visits by appointment, reported a 6% drop in quarterly revenue.
Best Buy was “able to retain approximately 81% of last year’s sales during the last six weeks of the quarter” even though customers couldn’t enter stores, Chief Executive Corie Barry said Thursday.
Macy’s closed all of its roughly 775 stores March 18. It began reopening locations May 4, and Chief Executive Jeff Gennette said early results are encouraging. The company expects to have all its stores reopened in some capacity over the next month.
Mr. Gennette said its Herald Square flagship in New York City could begin offering curbside pick up in several weeks. But Macy’s also said it is re-evaluating its store strategy, which could eventually lead to more closures beyond the 125 locations it previously planned to shut over the next three years.
Mr. Gennette said he initially expected sales would be down 80% from year-ago levels in reopened stores, but they are down about 50%. “We expect a gradual recovery but are encouraged by these early results,” he said in a webcast conversation with J.P. Morgan analyst Matthew Boss.
Retail executives and analysts said the fallout from the pandemic is likely to be felt even as life starts to return to normal, with more states loosening restrictions and allowing businesses to reopen.
“We will be in a fairly unprecedented period of change for some time,” Kohl’s CEO Michelle Gass said. The retailer has reopened about half of its more than 1,100 stores, but shoppers are coming back slowly. Ms. Gass said sales at the reopened stores are about half to a third of normal.
“As it relates to the balance of the year, we are planning the business very conservatively,” Ms. Gass said.
Off-price chain TJX, which reported a 52% dive in first-quarter revenue after temporarily closing its stores and websites, said it had seen strong demand after reopening some stores this month. “We have been encouraged with the very strong sales we have seen with our initial reopenings,” CEO Ernie Herrman said.
The owner of T.J. Maxx, Marshalls and HomeGoods, has reopened about 1,600 of its roughly 4,500 stores world-wide. Initial sales have been above last year’s for the roughly 1,100 stores reopened for at least a week, it said.
Mr. Herrman said the company has been hitting its e-commerce capacity limits after a few hours each morning. He said that unlike other chains that are shifting more into e-commerce as the pandemic zaps sales in physical stores, TJX has no plans to rely on digital sales to get it through the crisis.
There is a deluge of excess goods available, Mr. Herrman said, ensuring that TJX will have access to plenty of discounted merchandise to offer its customers. For the first quarter, TJX booked an $877 million net loss, including a $500 million charge for unsold inventory.
For the spring quarter, Macy’s expects to swing to an operating loss between $905 million and $1.1 billion, compared with a profit of $203 million a year ago. Contributing to the loss was a $300 million write- down on unsold inventory, executives said. Kohl’s swung to a $541 million net loss in the first quarter, while L Brands booked a nearly $300 million net loss.
By contrast, big-box chains such as Walmart Inc., Target Corp., TGT -0.15% Home Depot Inc. and Lowe’s Cos ., whose stores remained opened, experienced a sales surge, as shoppers flocked to them for food, items for the home and other essentials.
“The big-box chains are winning new customers that will stick around after the pandemic,” Citi analyst Paul Lejuez said.
Mr. Lejuez recently surveyed 1,000 J.C. Penney Co. customers and asked where they would shop if their local Penney closed. Roughly a third of respondents said they would shop at Target and another third said they would visit Walmart.
Penney filed for bankruptcy protection this month and plans to close about 240 stores, or nearly 30% of its locations. Neiman Marcus Group and J.Crew Group Inc. also filed for bankruptcy this month, along with department-store chain Stage Stores Inc., as the pandemic tipped retailers already in a weakened financial state over the edge.
Other chains are expected to close tens of thousands of stores in coming years as more sales shift online. Just this week, Pier 1 Imports Inc. said it would wind down its operations and permanently close its 540 remaining stores after it can liquidate the inventory. The furniture and housewares seller filed for bankruptcy in February.
L Brands said Wednesday that it would close about 250 Victoria’s Secret and Pink stores in North America this year, or a quarter of the lingerie seller’s locations in the region. The company is reeling after plans to sell a controlling stake in Victoria’s Secret to a private-equity firm were scuttled by the pandemic.
Neil Saunders, managing director of research firm GlobalData Retail, said it isn’t just health concerns that will dissuade shoppers from rushing back to stores for nonessential purchases, but also their pocketbooks at a time of record unemployment. More than 36 million workers, or roughly a fifth of the U.S. workforce, have filed for unemployment insurance since March 14.
“Even among those who are going out to shop, there has been financial distress,” Mr. Saunders said. “People don’t feel comfortable spending freely.”
Macy’s Chief Financial Officer Paula Price said the company is seeing credit card delinquencies rise due to unemployment.