Department stores, especially those that primarily serve as anchor retailers for malls, are still flailing amid plunging sales triggered by the collapse of in-store shopping as consumers increasingly favor online buying.

Troubled department stores are closing stagnant stores and beefing up both in-store offerings and their online presence to try to survive. But the recent wave of quarterly results show that while their new strategies are helpful, department stores have not yet found the ultimate solution for sales growth. Department stores like Dillard’s Inc. (DDS), Macy’s Inc. (M) and Nordstrom Inc. (JWN) report plunging sales from a year ago, while J.C. Penney Co. Inc. (JCP) revealed it is still operating at a loss. (See also: Retailers Slicing Jobs to Employment Bone.)

“The first quarter was tough for [retailers] and we will see more differentiation ... depending on the new elements they add to their offerings on product and service,” said Telsey Group analyst Dana Telsey, according to the Financial Times. “The department store is going through a reinvention.”

Upgrades to Lure Consumers Back

J.C. Penney on May 12 reported that its first-quarter net loss widened to 58 cents per share, which includes the cost of restructuring with store closures and the cost of providing early retirement programs. Revenue fell 3.5 percent to $2.7 billion from $2.8 billion in the same quarter last year. (See also: J.C. Penney to Close up to 140 stores.)

J.C. Penney is in the process of investing in significant upgrades to its in-store experience, including in its salons and Sephora beauty partnership. By shedding debt, the Plano, Texas-based retailer is slowly improving its credit rating.

“Through our de-leveraging efforts and improved financial condition, we earned yet another credit rating upgrade this quarter,” CEO Marvin R. Ellison said in a statement. Still, shares are down 36.3 percent year to date.

Dillard’s first-quarter results released May 11 were also gloomy, sending shares down more than 16 percent in Thursday’s session. Sales dropped to $1.45 billion, down 5.6 percent from the same quarter last year, as net income fell to $2.12 per share, down from $2.17 per share. Both revenue and earnings beat Street estimates.

“While our sales decline weighed heavily on our operating results, we remained active in returning cash to shareholders through $93 million of share repurchase and dividends,” Dillard’s CEO William T. Dillard, II, said in a statement. The Little Rock, Ark.-based department store chain purchased $91 million in stock in the first quarter under a $500 million share repurchase program.

Cost-Cutting 'Not Enough' to Offset Sales Declines

Joining its wounded counterparts, Macy’s Inc. reported first-quarter earnings May 11 of 24 cents per share, well off the 36 cents per share the Street was expecting, as revenue declined 7.5 percent to $5.34 billion, short of the Street view of $5.48 billion. Same-store sales slid 5.2 percent from the year prior, making it the ninth consecutive quarter that sales have dropped.

Shares slid more than 17 percent in Thursday's session, with the stock now off 32 percent year to date. Still, Macy’s CFO Karen Hoguet told the Wall Street Journal that the company is still fighting for market share.

“Don’t count us out, we’re not dead,” Hoguet said. “While we’ll be operating fewer stores, we have the opportunity to make our stores better.”

Macy’s is leaning more on its brick-and-mortar stores to sell women’s shoes as it converts more of its shoe departments to “open sell,” a model in which customers can get their shoes in their sizes without asking a salesperson. “People like self-service, some just say, ‘leave me alone,’” Hoguet said at a recent investors conference. Macy’s is also planning up to 10,000 job cuts and 100 store closures to reduce expenses in the year ahead.

Analysts say department stores’ moves like those to shore up more traffic and cut costs are steps in the right direction, but fall short of a solution to long-term growth. Jeffries analyst Randal Konik said in a note that his firm views department stores’ recent initiatives “positively” but “not enough to offset the challenging environment and changing consumer shopping habits.”

Finally, Nordstrom Inc. (JWN) saw comparable store sales decline by about 1 percent, but its overall net sales increase of 2.7 percent was driven by an 11 percent increase in online shopping, the retailer reported May 11. Shares slid 5.1 percent in Thursday’s session.

Famed investor and business magnate Warren Buffett, at the recent Berkshire Hathaway annual meeting, said the retail sector will evolve rapidly in the next 10 years. “The department store is online now,” he said. 

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