Major U.S. department stores are improving their inventory management to the benefit of their customers and their own sales and profitability, a new Moody’s report said.
Better inventory visibility among department stores has allowed consumers to save time, while instilling greater customer loyalty, Moody’s said. Department stores are also leveraging e-commerce to generate sales in cases where on-location inventory is unavailable by creating the ability to make an in-store online purchase.
Moody’s noted that Macy’s, Kohl’s and Nordstrom were able to maintain or improve merchandise margins as inventories remained well managed. Kohl’s Corp. had its fourth straight quarter of comparable sales growth at 3.1%, with digital posting a mid-teens increase as inventories per store declined 8 percent, according to the report. Macy’s Inc. posted a 0.5% increase in comparable sales, although the company estimated that sales actually grew 2.9%, excluding a shift related to its Friends and Family promotion. Macy’s has been posting positive comparable store sales since last year’s fourth quarter, which marked its first positive quarter since fiscal 2014.
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Nordstrom Inc.’s comparable store sales increased 4 percent, with the full-price and off-price segments rising 4.1% and 4 percent, respectively. Moody’s noted that Nordstrom’s digital performance grew 23 percent during the quarter and made up 34 percent of overall sales.
“Following a very challenging prior two years, department stores continue to focus on taking the friction out of the consumer’s shopping experience while getting a better handle on inventory, which has been a big stumbling block in the past,” Moody’s said. “They are slowly starting to reap early rewards from investing in strategies aimed at making them more nimble and responsive to customer demands.”
The report cited Kohl’s as making strides in its strategy of inventory based on demand by location. Kohl’s has added 200 stores to this program in 2018, bringing this total to 500, Moody’s noted.
“Kohl’s also continues to flow product more effectively through its speed initiative associated with its private brands,” the report said. “These efforts help improve the freshness of its inventory, make better fashion decisions and reduce its working capital requirements. Kohl’s is currently rolling out ‘buy online ship to store’, which will enhance consumer choices and should support a continued increase in online penetration.”
Nordstrom has also had effective inventory management in full-price and off-price segments, Moody’s report said. It noted for example, the retailer’s ability to “quickly chase inventory at off-price” as allowing it “to recover quickly from fashion misses earlier in the year.” Nordstrom is also making “considerable investments in its supply chain, in particular through its local market initiative in Los Angeles,” according to the report, with a goal of pooling inventory and moving away from traditional supply channels toward operating markets, using Los Angeles as a testing ground.
Its initiative is expected to reduce delivery times for 90 percent to 95 percent of its products online from four to five days to same or next day, “which will not only improve customer experience but also reduce costs,” the report said.
As for Macy’s, Moody’s said the retailer’s focus on improved inventory management has contributed to a 4.6% increase in average unit retail, improved product freshness, and has enabled more full price selling.
J.C. Penney Co. “has been a significant laggard on inventory management,” the report contended. Despite efforts to clear out women’s apparel as it resets product, and with aggressive markdowns, comparable inventories were still up 1 percent year-over-year in the quarter.
“In recent years, the company has struggled to pinpoint its customer base, a challenge that others in the sector have also had to address as the customer has become much savvier and exacting,” Moody’s said.
