Retailers Hope Smaller Stores, Personalization and Digital Will Stanch the Bleeding

After Reporting Fourth-Quarter Sales Declines, Sears, Macy's Will Try New Strategies to Entice Customers

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Kohl's will open seven smaller stores this year.
Kohl's will open seven smaller stores this year. Credit: Business Wire

The balmy, sunny weather of November and December didn't translate into sales gains for retailers, many of which blamed weather when reporting fourth quarter earnings declines this week.

Faced with falling sales, some brands said they will continue to close underperforming stores. Hoffman Estates, Ill.-based Sears, which saw same-store sales decline 7.2% for its namesake brand and 6.9% for its Kmart brand, plans to shutter at least 50 outposts of its fleet of around 1,650.

Stores such as Macy's and Kohl's said they are turning to more personalization and rewards for loyal customers as they also focus on digital investments. Gap Inc., which reported a companywide same-store sales decrease of 7% in the fourth quarter, emphasized its future focus on mobile. Chief Executive Art Peck called the strategy a "cultural change" within the company, which reported marketing expenses of $169 million for the quarter, $9 million below the year-earlier period.

As its online business grows, Menomonee, Wisc.-based Kohl's plans to pilot a smaller-store format by opening seven 35,000-square-foot shops this year -- a marked shrinkage from the retailer's typical 80,000-square-foot shops. It's also planning to decrease its marketing spend by about $10 million in 2016, after spending around $1.12 billion on the category last year, by making loyalty programs like its Yes2You Reward system more effective, said Chief Executive Kevin Mansell on a recent conference call.

"Marketing is definitely a component part of the areas that we're looking to reduce expenses in over the course of the future years and frankly, the key unlock there we really believe is personalization," said Mr. Mansell on the call.

Kohl's rival, Macy's, also stressed the importance of personalization. The 850-unit department store chain generated fourth-quarter sales of $8.9 billion, a 5.3% decline over the year-earlier period. The company also wants to make its mobile shopping easier to use by adding natural language search, new filters and a more optimized experience that will allow shoppers to easily flit back and forth from store to site -- and buy in the process.

Not all retailers struggled. JC Penney, which has had its share of declines in recent years, continued turnaround efforts with a 4.1% increase in same-store sales. The company just debuted a new spring marketing campaign where it touts its penny-saving merchandise through TV and digital advertising.

Meanwhile, Target, which had devoted 61% of its marketing budget to digital for the holiday season, logged a 34% rise in online sales for the quarter -- the company's brick-and-mortar locations fulfilled 30% of digital orders through pickups and direct-to-consumer shipping. The brand, which reported revenue of $21.6 billion, also recorded a same-store sales increase of 1.9%, its sixth consecutive quarter of growth. The brand had also remerchandised its stores, a strategy that paid off with consumers, according to Chief Executive Brian Cornell.

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