Here’s What Retailers Have to Prove in 2018
Retailers seem to be pulling out of their years-long malaise, helped by a strong economy and their own efforts to finally adapt to the world.
Companies like and are finally starting to reap the dividends of billions in investments in e-commerce, such as retrofitting stores so they support online orders. has gone from defensive mode to offense, with big investments in tech to go with the raises its given to hundreds of thousands of store employees and major improvements to how its grocery offerings are presented. Even apparel chains like Inc , American Eagle Outfitters and Abercrombie & Fitch are doing better.
But with the major shakeout in retail of 2017 out of the way, survivors will have to show customers and Wall Street that they can do more than just survive and bounce from one retail crisis to another. They’ve had several years now to adapt and react to Amazon’s threat and figure out what they stand for. Any retailer that has a poor 2018 has no one to blame but its own executives.
Department stores like have been talking changes and new initiatives for years, so next year is the time to put up or well, you know. Walmart is flying high now, even seen as an underdog to Amazon, but has to show that it can truly be a counterweight to its rival in online shoppers’ consideration set. The likes of Gap and Abercrombie have had several years to speed up their production process and shake up operations to be more flexible in reacting to fashion trends. And luxury players like Tapestry’s Coach brand, Michael Kors, and Tiffany & Co have made major moves to refine their offerings. So now is the time to see the payoff.
Here are some of the retail stories we will be watching in 2018.
See original article on Fortune.com
1) Who Will Walmart.com Buy or Host Next?
Walmart, coming off a year of acquisitions like those of Bonobos, Modcloth and Moosejaw, will likely continue to buy hip digital-first brands as it looks to counter Amazon's moves in the fashion world and attract more well-heller shoppers to Jet.com if not its own site. The discounter will also begin hosting an online store for HBC's struggling Lord & Taylor chain, a move that likely presages lining up other brands as Walmart tries to become an online mall as many of its Asian rivals have.
2) Which Major Retailers Will Go Private to Fix Themselves Away From Wall Street's Glare?
Nordstrom [fortune-stock symbol="jwn"] has hit the pause button on its go-private initiative, reportedly hurt by tepid interest by investors to take it off the stock market at the price the founding family wants. But the Nordstroms will likely be back in 2018 and who can blame them--the high end retailer's stock has been brought down by worries about the department store sector's woes, despite its own better results. Similarly, don't be surprised if retailers like Dillard's, HBC and Barnes & Noble at least explore going private.
The truth is that many on Wall Street only see value in retailers' real estate and the cash their sales generate, with the basic retail business contributing almost nothing to their shares. So unlike Amazon, which investors don't expect to make mounds of profit, many traditional retailers don't get the latitude from Wall Street to take big risks and make the major moves that would modernize them. Being private could give them more latitude to do so.
3) Will Off-Price Stumble in 2018?
When T.J. Maxx and Marshalls parent TJX [fortune-stock symbol="tax"] reported the chains' first quarterly comparable sales drop in memory in November, many observers wondered whether the off-price juggernaut was running its course after years of aggressive store expansion. Now one soft quarter does not a new trend make. But when you look at how Nordstrom's Rack chain and HBC's Saks Off Fifth stores are also struggling, as well as Neiman Marcus' decision to close almost half of its Last Call outlet stores, it's easy to wonder whether the off-price/outlet concept has reached its peak after an incredible number of store openings in the last few years.
The new year will be a chance for the sector to show that it can adapt to all the intense competition, some of it coming from concepts like Macy's Backstage, along with better planning by department stores and brands and growing aversion from some brands. Indeed, some names such as Ralph Lauren and Michael Kors have said clearly they want to dial back their presence in off-price retail, an avenue that does generate consistent sales but also hurts a brand's aura.
4) More bankruptcies and store closings are likely
Retail's improving fortunes won't lift all boats and many debt-laden chains are still seeing sharp sales declines. So while a purge akin to 2017's unlikely, the bloodletting will continue. As CNBC reported earlier this month, Moody's so-called watch list, where it is tracking retailers at risk of defaulting, has risen to 27 companies from 22 companies this summer, while Fitch Ratings expects defaults to rise next year.
5) Will Macy's finally go positive again?
Macy's new CEO Jeff Gennette has spent a busy first nine months on the job he spent three decades building up to. He has rejigged Macy's loyalty program, slashed through Macy's notorious bureaucracy in the hopes of making it more nimble, hired some new top e-commerce away from eBay and begun to improve the clutter in his stores and chip away at Macy's discount-driven aura. But investors will only be swayed once the department store ends its 11 quarter-streak of comparable sales declines. And even then much work would remain to be done, as Fortune detailed in a major article last month. Macy's has too many stores in dying malls and is less and less crucial to brands, many of which are ramping up their direct-to-consumer efforts.
6) What more odd pairings involving Amazon or Walmart are coming?
Retail's existential crisis made for some counterintuitive deals in 2017: Kohl's handling Amazon returns at some stores; Sears selling appliances on Amazon; Walmart hosting Lord & Taylor on its site; Walmart buying Bonobos. Expect more of that in 2018 as retailers look to change their thinking given the fundamental change shaking the industry up. And look for more acquisitions of e-commerce companies and logistics suppliers (like Target's recent purchase of Shipt for $550 million) by the large chains as they look to outdo each other on delivery, in-store presentation and order pick up.
7) Will apparel make a comeback?
There were some green shoots at the end of 2018, with signs showing apparel sales stabilizing at chains like The Gap and Abercrombie. The onus will be on them to show the improvements of late where no fluke, all the more given the inroads Amazon is making in its own private label clothing brands, and the out-of-the-box success of Target's [fortune-stock symbol="tgt"] house brands like Cat & Jack and its new Goodfellow & Co menswear line. And Macy's, Kohl's and J.C. Penney continue to work on their house brands, so expect apparel to remain one of retail's most difficult areas.
8) Will Under Armour and Nike get back on track?
Both sportswear brands have languished of late in North America, and one of the big stories next year will be whether they can get back on track by pushing back at Adidas and contend with softness in footwear sales in the industry and the glut of athletic wear that has hit the market.
