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Why Department Stores Continue to Focus on Online Growth

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Sep. 13 2017, Published 4:42 a.m. ET

Strong online sales

Department stores are experiencing strong online growth with more consumers opting for online shopping. In fiscal 2Q17, which ended on July 29, 2017, Macy’s (M) digital sales grew by double-digits for the 32nd straight quarter. JCPenney (JCP) also experienced double-digit e-commerce sales growth in fiscal 2Q17. Mid-tier department store Kohl’s (KSS) reported a 19% rise in its fiscal 2Q17 online sales.

Online sales continue to be a key growth driver for upscale department store Nordstrom (JWN). In fiscal 2Q17, sales at Nordstrom.com grew ~20% to $819 million. In the company’s off-price business, sales at Nordstromrack.com and HauteLook rose 26.8% to $199 million in fiscal 2Q17.

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According to benchmarking firm L2, Macy’s is the most digital savvy department store with a Digital IQ index of 142. Nordstrom ranked second in L2’s Digital IQ Index for 2017 with a score of 140. JCPenney and Kohl’s were both in the third spot in L2’s Digital IQ index for department stores for 2017.

Growth initiatives

Department stores continue to invest heavily in their online channels to attract more consumers. Aside from expanding their online merchandise assortment, department stores continue to enhance the functionality of their online channels for a better shopping experience.

Facilities like buy-online, pick-up in store and same-day delivery have been vital in generating more online sales for department stores. On August 31, Macy’s announced the expansion of its same-day delivery facility for products purchased online to 15 additional markets. Now, the company offers the same-day delivery facility in 33 markets.

Department stores are also enhancing their fulfillment capabilities for online orders. In fiscal 2Q17, JCPenney completed the expansion of its ship-from-store facility from 250 stores to 100% of its store network. The expansion will likely ensure better product availability for the customer and optimal use of store inventory for the company.

In the next part, we’ll look at department stores’ margins.

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