May 16 (The following statement was released by the rating agency)
U.S. department stores have produced widely divergent results over the last year in the face
of minimal industry growth, according to a Fitch Ratings report.
Fitch projects flat to slightly down sales for the department store industry in
2013 and 2014 compared to $186 billion-$188 billion in 2011-12. Within Fitch's
rated portfolio, an expected top-line decline of high single-digit sales for
J.C. Penney and Sears Domestic will largely offset the 2% sales-weighted growth
projected for other large department stores. Fitch expects Macy's, Dillard's and
the luxury department stores will continue to gain share with comps growth in
the low-to-mid-single-digit range.
The more successful chains have differentiated product offerings, strong
customer service, and a successful omnichannel strategy that incorporates strong
store presentation and merchandise offering with growing online sales. Fitch
expects a market consolidator would need to generate top-line growth of 2% or
above to grow market share and ward off competition from other channels such as
specialty, discount, and online, to sustain healthy profits and cash flow.
Fitch remains concerned that with sales for the whole sector expected to be flat
to down, more store closings or potential restructurings will need to occur over
the next 24-36 months. This could have growing implications for traffic patterns
and competitive dynamics within the mall, as department stores are key anchor
tenants. Fitch notes that overall square footage has remained flat since 2008.
Promotional pressure remains intense, particularly within the mid-tier
department stores given a lack of growth in household real income and
inflationary pressures over the last couple of years on staples such as food and
gas. J.C. Penney and Sears are the notable laggards, and Kohl's has recently
produced sub-par sales growth.
The report details key industry dynamics and includes full rating profiles on
each of the nine Fitch-rated department store retailers. Each company report
includes Fitch's assessment of the business and financial profile, key selected
financial data, a detailed debt organizational chart, and covenant analyses.
The full report 'Department Stores: In a State of Flux' is available at