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Major US Department Stores Struggle to Attract Consumers in 1H15

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Sep. 16 2015, Published 3:22 p.m. ET

US retail trade sales

In July 2015, the US retail and food services sales increased by 0.6% on a month-over-month basis, and by 2.4% compared to the same month of the previous year. The US Census Bureau released the latest retail trade report on August 13. The report revealed a 0.8% decline in July department store sales compared to the previous month. In July, department store sales showed declines of 2.7% on a year-over-year basis.

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Weakness in US department store sales

Between January 2015 and August 2015, the US retail and food services sales increased by 2.2%, on a seasonally adjusted basis, from the comparable period of the previous year. However, US department store sales declined by 2% in the first seven months of 2015.

As the above graph shows, there has been a general decline in US department store sales in recent years. In July 2010, US department store sales, excluding leased departments, stood at $15.3 billion, compared to $13.8 billion in July 2015. Department store sales as a percentage of total retail sales declined to 3.1% in July 2015, from 4.3% in July 2010.

What this means is that the improvement of the US job market, lower oil prices, and the better housing market have not been able to drive much improvement in sales of company’s like Macy’s (M), Kohl’s (KSS), Dillard’s (DDS), and Sears Holdings (SHLD). These four department stores together account for 0.2% of the portfolio holdings of the iShares Russell 1000 ETF (IWB). Macy’s and Kohl’s together constitute 1.3% of the portfolio holdings of the Consumer Discretionary Select Sector SPDR Fund (XLY).

Karen Hoguet, Macy’s CFO (chief financial officer), stated in the company’s 2Q15 conference call that consumers are preferring to spend money at restaurants, on recreational services, on health care, and on electronics instead of on apparel and home furnishings.

In contrast to other department stores, Nordstrom (JWN) reported strong revenue growth in the first half of the year. We’ll discuss Nordstrom in the next part of this series.

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