Why Is Online Expansion So Vital for Department Store Growth?

US online sales increased to 7.0% in 1Q15 from 4.2% in 1Q10. More consumers are preferring to shop online, which makes online expansion vital for department stores.

Sirisha Bhogaraju - Author

Jun. 5 2015, Published 4:13 p.m. ET

uploads///Us Online Sales

Online sales outpace retail sales

The growth in US online sales in 2014 outpaced growth in total retail sales. According to Internet Retailer, sales of  US e-retailers featured in its 2015 Top 500 Guide grew by 16.2% to $256.3 billion. US retail sales, including stores, catalogs, TV infomercials, and other forms of direct marketing, grew 2.4% to $2.9 trillion over the same period.

According to the US Department of Commerce, US online sales as a percentage of total retail sales increased to 7.0% in 1Q15 from 4.2% in the first quarter of 2010. More consumers are preferring to shop online due to the convenience, better deals and pricing, and the option of browsing easily through a wide assortment of merchandise. This makes online expansion vital for department stores.

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Impact on department stores

Online retailers like Amazon (AMZN) have affected sales of department stores like Macy’s (M), Nordstrom (JWN), and Kohl’s Corporation (KSS). Department stores also face competition from off-price retailers like TJX Companies (TJX) that offer similar merchandise at heavily discounted prices.

Online channels provide growth avenues for department stores who want to boost their sales. Macy’s and Nordstrom have been investing significantly in the growth of their online businesses. Nordstrom generated more than $2.0 billion in online sales in fiscal 2015.

Department stores like Macy’s and Kohl’s have an omnichannel approach to their businesses. An omnichannel approach involves seamless integration of the stores with their online channels. Macy’s and Kohl’s no longer provide separate details for their online sales.

Nordstrom has different websites for its full-price and off-price businesses. The Nordstrom.com website caters to high-end, full-line merchandise. The Nordstromrack.com website provides discounted merchandise. Nordstrom’s online business also includes HauteLook, a flash sale site the company acquired in 2011.

Macy’s, Nordstrom, and Kohl’s together account for ~2.9% of the portfolio holdings of the SPDR S&P Retail ETF (XRT). In the next part of this series, we’ll look at growth in department stores’ online sales.


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