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Winning Retailers Amid Sales Slump

Author: Daniel Jackson

The Great Recession officially ended in June 2009, over 6 years ago. Since that time the economy has struggled to get back on track with the unemployment rate very slowly declining, new home sales slowly ticking back up and retail sales reports often looking rather bleak. The reality is that many of these problems started long before the recession, and the outcome doesn't look good for a large number of retailers.

Declining Department Store Retail Sales Reports

Every year department stores are seeing fewer and fewer customers come through the door. In short, US retailers are struggling. In a time where the economy is supposed to be booming, it appears that Americans are not spending money. And it's true, Americans aren't spending money at many of the same stores as they did a decade or two ago.

Around the country Sears (SHLD) is closing down stores and laying off employees (it could be due to its outdated business model); J.C. Penney Corporation, Inc. (JCP), Macy's (M), Abercrombie & Fitch (ANF) and many more are closing their doors for good. Entire malls are closing down. Once an integral part of the American way to shop for goods, these buildings that house dozens of stores are lying vacant.

The truth is that these stores have been slowly dying for over a decade now. Sometime in the year 2000 department store sales peaked. Over the next 15 years they have seen a slow and steady decline and now lie at about 75% of where they were just 15 years ago. (For more, see: Should You Buy Or Sell These Troubled Retailers?)

So how can the economy be on track if retail sales are slumping so badly?

Rallying Retail Sales

The answer lies not in whether people are spending their money (they are); the question is rather, where are people spending their money? Instead of loading up the station wagon and driving downtown for an afternoon at the local mall, people are logging onto their computers and finding better deals.

With the exception of a dip during 2008 through 2009, retail and food sales as a whole have actually grown steadily for the past 25 years. People continue to spend their money; they just are not spending it where they did in the second half of the 20th century.

Brick-and-Mortar Store Sales Declining Except …There are a number of exceptions to this rule. As a whole, department stores are shutting down shop. It is simply too expensive to have several hundred thousand square feet and have enough staff to run the whole place. But here are a few stores that manage to stand out:Costco

Costco Wholesale Corporation (COST) always seems to be bucking the trend. Since opening in the early 1980s, the company have seen nothing but smooth sailing. Even though people spend more at once when shopping at Costco, they make fewer trips than to other stores. This model of pay more but less frequently has helped them consistently earn more every year. (For more, see: Costco Just Extended Its Advantage Even Further.)

Wal-Mart

Wal-Mart Stores, Inc. (WMT) tiny margins help keep its costs lower than anyone else. This has helped to draw business away from the more expensive (and usually smaller) stores into this huge retailer. Accompany that with a huge online presence selling far more than they could ever fit into a store, and it's easy to see why they earned more in recession years than those prior.

Target

Target Corp. (TGT), often seen as Wal-Mart's biggest competitor, is struggling right along with the rest of them. Target's profits aren't declining, but they aren't growing either. As the company changes it approach and refocus its efforts, this big-box store may pull ahead. But Target's 2014 profits were nearly identical to the profits it saw six years earlier.

Amazon

Stepping away from the brick-and-mortar stores, one can see where people are spending their money. In 2005 Amazon (AMZN) had profits of $2.04 billion. By 2013 that had increased nearly 10-fold to $20.27 billion.

Sears

No, this one isn't bucking the trend. Back in 2007 the company had nearly double the profits they had in 2014.

The Bottom Line

Most retailers are making less and less every year. But every year Americans are spending more and more. The reason is that there has been a cultural shift on where Americans spend their money. If you can get the exact same product delivered to your door for less, then why would you bother driving to a store to pay more?

Those retailers that are able to go against the flow and stay profitable have a number of things in common. First, they have a strong online presence, something that nearly every store has today. Second, they have a significant price saving or value attached to them; they are set far apart from their competition because they save their shoppers money. Third, they have to have great customer service and a draw that keeps people coming back. For Costco it's the membership, for Wal-Mart it's the price point, for Amazon it's the delivery to your door.

The future of shopping in America is shying away from the mall scenario and heading online.

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