It's a question that retail analysts, CEOs, investors and even consumers are trying to answer: Why are some retailers thriving while others are struggling to survive? Is it age? Retailers like J.C. Penney (NYSE:JCP), Sears (Nasdaq:SHLD) and Radio Shack (NYSE:RSH) are struggling to stay in business, but can the same be said for Macy (NYSE:M)'s or Dillards (NYSE:DDS)? Industry experts generally disagree on the reasons for such a discrepency, but there are some common theories.
Create a Buzz!
You can always tell that a company is in trouble when it starts redefining itself; J.C. Penney is attempting do just that. J.C. Penney and new CEO Ron Johnson implemented a strategy where the company has eliminated coupons and gone to a straightforward pricing model that management calls "fair and square pricing;" but judging by the company's recent quarterly earnings announcement, it didn't know its customers as well as it thought.
"We did not realize how deep some of the customers were into coupons," says J.C. Penney COO Michael Kramer. J.C. Penney failed to realize something that other retailers understand: Everybody loves a good bargain, even if it's not a bargain at all. Coach does it with its factory store sales, and anybody who receives a newspaper or has a Macy's credit card knows that Macy's knows how to create a buzz that brings people into the stores.
SEE: The Industry Handbook: The Retailing Industry
Not all malls are created equal; there are upscale malls and small strip malls in the not-so-attractive area of town. Retailers look for ways to not only drive traffic to their stores, but also the right kind of traffic; if people aren't going to spend money, then they aren't the right customer base.
RadioShack has seen its shares plummet over the past year because of location problems. It feels like you can find a RadioShack in every community strip mall, but that's part of the problem. Lower rent equals lower traffic and lower traffic is one of the reasons why the days for "the shack" might be numbered. When was the last time you saw a Macy's or a Dillard's in a low-income area strip mall?
SEE: Big Box Stores Vs. Small Retailers
Struggling retailers such as Best Buy (NYSE:BBY) and RadioShack, among others primarily in the technology business, blame their decline in sales on people using their stores as a showroom and later buying the product online for a lower price. There's no doubt that this is part of the problem, but why aren't people doing the same thing at Saks (NYSE:SKS), Macy's and other healthy retailers?
In 2011, Macy's upgraded its website to allow the 36 million annual foreign visitors to its stores to make purchases online, in their country's currency. Macy's employed a technology that converted the price in to the user's foreign currency, calculated all fees and taxes and handled the customs paperwork.
People aren't as quick to purchase lower-priced items like clothes online, because of the risk that they won't fit, but stores like Macy's are finding innovative ways to be ahead of other online retailers, in order to compete. Did retailers like Sears and Best Buy take too long to respond to the online craze?
SEE: How To Shop At Wholesale Retailers
The Bottom Line
It may be unfair to compare stores like Macy's and Saks to retailers like Best Buy and RadioShack, but department stores like J.C. Penney and Sears are competitors that aren't finding the staying power of their competition. All of these ailing companies have restructured, rebranded and attempted to streamline their businesses, but none have reported any sign of recovery that would get investors' attention.
Macy's, in a lawsuit against J.C. Penney, recently called J.C. Penney a "less than upscale retailer." While that insult may serve to infuriate J.C. Penney, that appears to be the common industry perception of the company, and as many analysts have noted, the market for mid-priced retailers has remained challenged since the economic downturn.