SWOT ANALYSIS OF JC PENNEY

US INDUSTRY (NAICS) REPORT 45211

Department Stores in the US

Shopping spree: Supercenters and e-commerce are expected to continue stealing business from the industry Jacqueline Hiner | May 2020

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Contents

About This Industry...........................................5

Industry Definition.......................................................... 5 Major Players................................................................. 5 Main Activities................................................................5 Supply Chain...................................................................6 Similar Industries........................................................... 6 Related International Industries.................................... 6

Industry at a Glance.......................................... 7

Executive Summary....................................................... 9

Industry Performance..................................... 10

Key External Drivers..................................................... 10 Current Performance................................................... 11

Industry Outlook............................................. 15

Outlook......................................................................... 15 Performance Outlook Data......................................... 17 Industry Life Cycle....................................................... 17

Products and Markets..................................... 19

Supply Chain................................................................ 19 Products and Services.................................................19 Demand Determinants................................................ 21 Major Markets.............................................................. 22 International Trade.......................................................23 Business Locations..................................................... 24

Competitive Landscape...................................26

Market Share Concentration....................................... 26 Key Success Factors................................................... 26 Cost Structure Benchmarks........................................ 27 Basis of Competition................................................... 30 Barriers to Entry........................................................... 32 Industry Globalization..................................................33

Major Companies............................................ 34

Major Players............................................................... 34 Other Players................................................................40

Operating Conditions...................................... 42

Capital Intensity........................................................... 42 Technology And Systems........................................... 43 Revenue Volatility........................................................ 45 Regulation & Policy...................................................... 46 Industry Assistance..................................................... 47

Key Statistics.................................................. 49

Industry Data................................................................ 49 Annual Change.............................................................49 Key Ratios.................................................................... 49 Industry Financial Ratios............................................. 50

Additional Resources...................................... 51

Additional Resources.................................................. 51 Industry Jargon............................................................ 51 Glossary Terms............................................................ 51

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About IBISWorld IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching and preparing for meetings, and more time focused on making strategic business decisions that benefit you,your company and your clients. We offer research on industries in the US, Canada, Australia, New Zealand, Germany, the UK, Ireland, China and Mexico, as well as industries that are truly global in nature.

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Covid-19 Coronavirus Impact Update

IBISWorld's analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic:

• Despite exhibiting a long trend of decline, the COVID-19 (coronavirus) pandemic is expected to accelerate the Department Stores industry's downfall, declining 27.4% in 2020 alone. For more detail, please see the Current Performance chapter.

• As the industry was forced to shut amid the pandemic, many operators have had to cancel or delay orders for the fall season, leaving uncertainty over overall industry purchases. For more detail, please see the Cost Structure Benchmarks chapter.

• As consumers spend less on apparel and other discretionary items and more on groceries, operators with a more diversified product offering are expected to benefit. For more detail, please see the Products and Services chapter.

Note: The content in this report is currently being updated to reflect the trends outlined above.

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About This Industry Industry Definition Department stores retail a broad range of general merchandise, such as apparel,

jewelry, cosmetics, home furnishings, general household products, toys, appliances and sporting goods. Discount department stores, which are also included in this industry, retail similar lines of goods at low prices. However, big-box retailers and supercenters that offer fresh groceries in their stores, in addition to warehouse clubs that operate under membership programs, are not included in this industry.

Major Players Target Corporation

Macy's Inc.

Nordstrom Inc.

Sears Holdings Corporation

J.C. Penney Company Inc.

Main Activities The primary activities of this industry: Retailing apparel and accessories

Retailing appliances and home furnishings

Retailing toys and sporting goods

Retailing other general merchandise

The major products and services in this industry:

Women's clothing and footwear

Men's clothing and footwear

Home goods and appliances

Drugs and cosmetics

Children's clothing and footwear

Toys and hobbies

Nongrocery food items

Other

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Supply Chain

SIMILAR INDUSTRIES

Supermarkets & Grocery Stores in the US

Warehouse Clubs & Supercenters in the US

Dollar & Variety Stores in the US

E-Commerce & Online Auctions in the US

Mail Order in the US

RELATED INTERNATIONAL INDUSTRIES

None

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Industry at a Glance Key Statistics

$100.0bn Revenue

Annual Growth Annual Growth Annual Growth

2015-2020 2020-2025 2015-2025

-11.0% -7.5%

$3.2bn Profit

Annual Growth Annual Growth 2015-2020 2015-2025

3.2%

3.2% Profit Margin

Annual Growth Annual Growth 2015-2020 2015-2025

-3.1%

6,297 Businesses

Annual Growth Annual Growth Annual Growth

2015-2020 2020-2025 2015-2025

-4.4% -5.8%

671k Employment

Annual Growth Annual Growth Annual Growth

2015-2020 2020-2025 2015-2025

-8% -7.1%

14.5bn Wages

Annual Growth Annual Growth Annual Growth

2015-2020 2020-2025 2015-2025

-8.8% -7.2%

Key External Drivers % = 2015-2020 Annual Growth

1.6% Per capita disposable income

7.7% Percentage of services conducted online

0.3% Time spent on leisure and sports

0.7% Import penetration into the manufacturing sector

Industry Structure

POSITIVE IMPACT

Capital Intensity Low

Regulation Light

Globalization Low

MIXED IMPACT

Revenue Volatility Medium

Technology Change Medium

Barriers to Entry Medium

NEGATIVE IMPACT

Life Cycle Decline

Industry Assistance None

Concentration High

Competition High

Key Trends

Shoppers and former department stores have shifted into the competing supercenters industry

Industry revenue has dropped due to the increasing prevalence of online shopping

Price-based competition and costly overhead and marketing have hurt industry profit

Department stores depend heavily on consumer spending and disposable income levels to spur demand

The industry will continue to lose customers to the convenience of online shopping

Operators will shift their traditional stores to smaller formats with a greater share of luxury goods

To better compete, industry operators have lowered selling prices, offered increased promotional deals and strengthened their marketing campaigns

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Products & Services Segmentation

Women's clothing and footwear

25.6%

Men's clothing and footwear

13.2%

Home goods and appliances

22.2%

Drugs and cosmetics

19.1%

Children's clothing and footwear

7.8%

Toys and hobbies

2.5%

Department Stores Source: IBISWorld

Major Players % = share of industry revenue SWOT

STRENGTHS

Low Imports Low Customer Class Concentration Low Product/Service Concentration Low Capital Requirements

WEAKNESSES

None & Steady Level of Assistance High Competition Decline Life Cycle Stage Low Profit vs. Sector Average Low Revenue per Employee

OPPORTUNITIES

High Outlier Growth High Revenue Growth (2020-2025) Percentage of services conducted online

THREATS

Very Low Revenue Growth (2005-2020) Low Revenue Growth (2015-2020) Low Performance Drivers Per capita disposable income

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Executive Summary

The Department Stores industry has continued its long-term decline over the five years to 2020, with revenue expected to fall at an annualized rate of 11.0% to $100.0 billion.

The industry's continued decline has been accentuated by a 27.4% fall in 2020 alone as operators shut facilities amid the COVID-19 (coronavirus) pandemic. Additionally, while rising competition from e-commerce has accelerated declines, revenue contraction is primarily attributable to the increasing number of major players that have expanded their product ranges to include groceries, which transitions their revenue to the Warehouse Clubs and Supercenters industry (IBISWorld report 45291), a trend that is expected to continue.

Over the five years to 2020, many industry operators have converted some of their facilities into supercenters, which effectively siphons revenue away from the Department Stores industry. This transition also reduces the number of establishments operating in the industry as stores generating a majority of revenue are not considered to be relevant to this industry. Consequently, over the five years to 2020, the number of department store locations is estimated to decrease at an annualized rate of 4.4%, totaling 6,297 establishments. Additionally, online companies are increasingly undercutting traditional department store prices because they save on operational costs. The brick-and-mortar stores that operate in the industry incur higher operational costs than online-based businesses because they pay for high-traffic retail space and require sales associates. To better compete, industry operators have lowered selling prices, offered increased promotional deals and strengthened their marketing campaigns. While these efforts have helped retain some customers, industry profit remains pressured. IBISWorld estimates that the average industry profit margin will fall to 3.2% of revenue in 2020, a notable decline compared with 6.3% in 2015.

Over the five years to 2025, increased competition from e-commerce businesses and the continued transition of department stores to supercenters will continue to pressure industry revenue. However, improved consumer spending and disposable income will encourage spending at department stores, which will offset some of the period's declines. Overall, revenue is expected to contract at an annualized rate of 7.5% over the five years to 2025, totaling $67.7 billion.

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Industry Performance

Key External Drivers

Percentage of services conducted online E-commerce stores benefit from lower overhead costs than brick-and-mortar stores. As a result, online retailers can offer lower prices, wider inventories and the ease of direct shipping. An increase in the percentage of services conducted online will likely decrease demand for traditional brick-and-mortar stores. The percentage of services conducted online is expected to rise in 2020, posing a potential threat to the industry.

Import penetration into the manufacturing sector Import penetration measures the portion of domestic demand that is captured by imports. Imports from countries such as China and Mexico, which supply many department store products, are likely to be less expensive than their US-made counterparts. As import penetration increases, more low-cost imports are made available, which lowers the price tag on many items retailed by industry establishments. Therefore, increased import penetration leads to lower revenue for department stores. In 2020, import penetration into the manufacturing sector is expected to fall.

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Per capita disposable income Department store sales depend heavily on the financial health of consumers, which includes per capita disposable income. When disposable income is low, consumers cut back on spending by delaying purchases or buying inexpensive goods, which decreases industry revenue. Per capita disposable income is expected to decrease in 2020.

Time spent on leisure and sports Consumers often visit department stores as a leisure activity. When consumers have more leisure time, they are more likely to allocate sufficient time at industry establishments. The more time a shopper spends inside of an industry establishment, the more likely they are to spend money. In 2020, time spent on leisure and sports is expected to increase slightly, representing a potential opportunity for the industry.

Current Performance

The Department Stores industry comprises retailers that sell a wide range of merchandise, including apparel, footwear, home goods, appliances, toys and sporting equipment.

While big-box retailers, such as Walmart Inc. (Walmart) and Target Corporation (Target), have historically dominated the industry, many have expanded their product offerings in recent years to include groceries. This one-stop-shop format

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has boosted revenue for these companies; however, general merchandise stores that offer groceries are included in the Warehouse Clubs and Supercenters industry (IBISWorld report 45291), which effectively removes them from the Department Stores industry. As major players, such as Walmart, have transitioned establishments out of the industry over the five years to 2020, industry revenue has declined at an annualized rate of 11.0% to $100.0 billion.

Furthermore, as the COVID-19 (coronavirus) struck the US economy, the Department Stores industry was hit particularly hard. As federal, state and local governments enforced social distancing guidelines, many nonessential businesses were forced to close, including operators in the Department Stores industry. Consequently, revenue generated by the industry's major players during the period of store closures was all online, thus not relevant to the industry. As a result of temporary closures of industry establishments, industry revenue is expected to decline 27.4% in 2020 alone.

Supercenter conversion

To aggressively increase their product lines and capture additional consumer dollars, discount giants, such as Walmart and Target, have transformed their traditional department stores into supercenters by adding fresh grocery sections.

By supplying all of a household's necessities under one roof, including apparel, small appliances and groceries, discount retailers offer convenience to consumers. For instance, Walmart recently converted one-third of its stores from general merchandise department stores to supercenters, which are not included in this industry; this resulted in more than half of Walmart's revenue being generated from groceries, thus eliminating the entire company from the industry. Furthermore, although demand has been consistently high for discount department stores, much of their growth has been redirected toward the Warehouse Clubs and Supercenters industry. This redirecting of consumer dollars has effectively decreased industry revenue over the past five years. As consumers have shifted toward the competing industry and major department stores have shifted into that industry, the number of industry establishments has also declined, dropping at an annualized rate of 4.4% to 6,297 stores over the five years to 2020. Among the industry facilities that have closed, the number of industry employees has decreased at an annualized rate of 8.0% over the five years to 2020 to 671,256 workers. Amid the closures during the coronavirus pandemic, many industry employees have been furloughed, resulting in a 19.6% decline in industry employment in 2020 alone. However, employment is expected to increase in the second half of the year as stores reopen and the holiday season brings higher demand for industry establishments.

Online competition

The Department Stores industry has also lost revenue in recent years due to the increasing prevalence of online shopping.

As more consumer time is spent online, shoppers are more likely to turn to the E- Commerce and Online Auctions industry (45411a), rather than purchase their desired products at brick-and-mortar industry establishments. Over the past five years, the percentage of services conducted online has increased at an annualized

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rate of 10.0%, which has significantly decreased demand for industry operators. Additionally, as consumers' only method of shopping at department stores during the pandemic, to recapture some of the consumer dollars that have been diverted to e-commerce operators, most industry players have established their own websites and now sell their products online. Nordstrom Inc. (Nordstrom), for example, is an industry leader in online sales, with 33.0% of the company's 2019 revenue sourced from its website (latest data available). Comparatively, only 7.8% of Target's revenue stemmed from online sales in 2019, according to the company's latest annual report. However, during the pandemic, the company reported an increase in online sales of 100.0% in March and 275.0% in April.

Profit and marketing

Industries that compete with department stores are often considered to be more convenient alternatives to industry establishments.

Superstores, for example, are more convenient because they enable shoppers to purchase all of their household needs in one location, while online retailers are more convenient because they enable consumers to shop from the comfort of their own homes. To compete with these alternatives, industry operators have been forced to lower their prices and invest more money into marketing campaigns and promotional activity.

Unfortunately for department store operators, most online-based businesses incur lower overhead costs, since they do not need to set up brick-and-mortar storefronts and can operate with fewer employees. These cost savings are often passed down to consumers in the form of lower prices; this makes online-based businesses very price-competitive, and department stores are often forced to cut into their profit to offer comparable prices. It is due to this price-based competition that industry profit accounts for only an estimated 3.4% of revenue in 2020. Beyond just suffering from declining margins, profit pressures have forced several industry enterprises to operate at a loss in recent years. Sears Holdings Corporation (Sears), for example, has operated at a loss during the entire five-year period and eventually declared bankruptcy in 2018. Similarly, J.C. Penney Company Inc. (JCPenney) has operated at a loss during the current period.

To retain customers among heightened competition from supercenters and online businesses, industry operators have increasingly invested in marketing campaigns. Many of these campaigns are targeted particularly toward younger demographics, since those are the consumers most likely to be lost to e-commerce. For example, in March 2016, Nordstrom used social media application Snapchat to target college-age consumers in a campaign that enabled students to win prizes when they engaged with the company on the social media platform. Promotional activity such as this has increased marketing as a share of revenue during the five-year period, further pressuring profit.

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Historical Performance Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic

Demand Per Capita

Disposable Income

($m) ($m) (Units) (Units) ($m) ($m) ($m) ($m) 2011 214,002 37,786 8,625 71 1,203,147 N/A N/A 27,942 N/A 38,780 2012 203,048 30,076 8,196 66 1,085,098 N/A N/A 22,970 N/A 39,784 2013 191,534 28,866 8,102 64 1,036,757 N/A N/A 21,971 N/A 39,004 2014 185,705 27,633 7,898 63 1,033,269 N/A N/A 22,248 N/A 40,310 2015 179,377 35,858 7,885 63 1,016,623 N/A N/A 22,963 N/A 41,670 2016 165,136 28,258 7,930 61 970,007 N/A N/A 21,464 N/A 42,108 2017 153,686 28,707 7,651 59 917,237 N/A N/A 20,232 N/A 43,056 2018 148,248 27,454 7,466 58 887,271 N/A N/A 19,560 N/A 44,521 2019 137,741 25,461 7,163 55 834,871 N/A N/A 18,358 N/A 45,581 2020 99,985 18,734 6,297 49 671,256 N/A N/A 14,474 N/A 45,084

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Industry Outlook Outlook The Department Stores industry is expected to continue contracting

over the five years to 2025, though at a marginally slower rate as a result of an anticipated recovering economy and strengthening per capita disposable income.

During the period, industry revenue is expected to fall at an annualized rate of 7.5% to $67.7 billion. Growing competition from online retailers is expected to place further price pressures on industry operators, while even more companies shift out of the industry and into the Warehouse Clubs and Supercenters industry (IBISWorld report 45291). To effectively compete, operators will target niche luxury consumers or expand their outlet store presence.

Conditions and competition

As a retail industry, department stores depend heavily on consumer spending and disposable income levels to spur demand.

Improved demand conditions are expected as the economy returns to growth and strengthens after the COVID-19 (coronavirus) pandemic. Over the five years to 2025, per capita disposable income is forecast to increase at an annualized rate of 2.1%. This steady climb is expected to aid traditional department store sales as consumers with more money available increase purchases. Nevertheless, outlet and discount department stores are anticipated to continue capturing a greater share of the market as consumers look for deals.

Historically, consumers have had only two options for purchasing new products: traditional brick-and-mortar shops and mail-order catalog retailers. However, the internet now provides consumers with a more convenient method of shopping. Since these online retailers do not require physical stores or stock maintenance, they can achieve significant cost savings and offer services such as free shipping to entice consumers away from traditional stores. Consequently, the number of consumers placing online orders is forecast to increase over the five years to 2025, bolstered by improvements in websites that make it easier for individuals to search for items, compare prices and make purchases. Furthermore, as consumers had to rely on online shopping during stay-at-home orders during the pandemic, e- commerce sales have grown. IBISWorld anticipates that the percentage of services conducted online will increase at an annualized rate of 10.0% during the five-year period. Faster internet connection speeds will also support e-commerce, along with growing confidence in the security of online retailing sites. As a result, the

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Department Stores industry will continue to lose customers to the convenience of online shopping.

Industry structure

The Department Stores industry will continue to lose establishments as major players shift to the Warehouse Clubs and Supercenters industry.

Big-box retailers, including Walmart Inc. and Target Corporation, are expected to further expand their discount store offerings to include groceries, which will push these food-retailing establishments out of the Department Stores industry. As these facilities make the switch to the Warehouse Clubs and Supercenters industry, the number of industry establishments is projected to decrease at an annualized rate of 5.8% to 4,678 locations. Employment is expected to follow suit, decreasing at an annualized rate of 7.1% to 464,717 employees. Further contributing to the decline in establishments and employment, many underperforming industry stores are expected to close due to the highly competitive environment. Major player Macy's Inc., for example, announced in 2017 that it would close 68 of its establishments as part of a plan to shutter 15.0% of its total locations; this closure represents a loss of 10,000 employees from the industry. In 2018, the company announced it would close 11 additional stores. This trend is expected to continue across the entire industry during the outlook period, especially as operators contend with the long- term effects of the 2020 pandemic.

Profit is also expected to steadily decline over the five years to 2020 as department stores continue to slash their prices to compete for customers. Furthermore, IBISWorld expects that discount department stores, such as Nordstrom Rack and Saks Off Fifth, will attract more consumers with their high-end brands at low prices. Items sold at these retail outlets are heavily discounted and, therefore, contribute to decreased industry profit. In 2025, IBISWorld expects average industry profit will represent 2.6% of total revenue, down from 3.4% in 2020.

In an attempt to regain consumer demand and profit, IBISWorld expects that some industry operators, such as Nordstrom Inc., will shift their traditional stores to smaller formats with a greater share of luxury goods. Wealthy consumers who do not shop at discount outlets are the target market for these industry establishments, and operators will incur higher margins from the sales made at these locations. IBISWorld also expects that more money will be allocated toward marketing over the five years to 2025. Although new ad campaigns will likely result in lower margins in the short term, they may help industry operators regain a customer base that may otherwise prefer competing industries such as the E- Commerce and Online Auctions industry (45411a) and the Warehouse Clubs and Supercenters industry.

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Performance Outlook Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic

Demand Per Capita

Disposable Income

($m) ($m) (Units) (Units) ($m) ($m) ($m) ($m) 2020 99,985 18,734 6,297 49 671,256 N/A N/A 14,474 N/A 45,084 2021 92,494 17,442 5,977 47 626,458 N/A N/A 13,484 N/A 45,457 2022 85,928 16,130 5,670 44 584,917 N/A N/A 12,577 N/A 46,494 2023 79,601 14,875 5,349 42 543,744 N/A N/A 11,684 N/A 47,643 2024 73,464 13,644 5,010 39 503,221 N/A N/A 10,807 N/A 48,845 2025 67,698 12,476 4,678 37 464,717 N/A N/A 9,976 N/A 50,141

Industry Life Cycle The life cycle stage of this industry is Decline

LIFE CYCLE REASONS

Industry value added is expected to fall

Major players are exiting the industry

The market is saturated

Over the 10 years to 2025, industry value added (IVA), which measures the Department Stores industry's contribution to the overall economy, is expected to decline at an annualized rate of 10.0%. Meanwhile, US GDP is anticipated to rise at an annualized rate of 1.8% during the same period. Typically, an industry is considered to be in the declining phase of its life cycle when industry growth falls

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below GDP growth. Since IVA is falling dramatically while GDP is growing, the industry is cemented in the decline stage of its life cycle.

The strong decrease in the number of industry establishments also places the Department Stores industry clearly in its decline phase. As department stores, such as Walmart Inc. and Target Corporation, are steadily upgrading many of their stores to include full lines of groceries, these food-selling establishments are forced out of the Department Stores industry and into the Warehouse Clubs and Supercenters industry (IBISWorld industry report 45291). Additionally, increasing external competition from e-commerce websites is causing underperforming operators to consolidate or close. Many e-commerce stores are able to offer similar products at discounted prices, while also providing the convenience of at-home shopping. Additionally, the COVID-19 (coronavirus) pandemic is expected to accelerate the industry's decline as the pandemic has caused operators to be unable to sell at the start of 2020 and cancel orders for the fall season. These external pressures are forcing the number of industry establishments and enterprises to decline over the 10 years to 2025.

In addition to external competition, the industry's product market is also highly saturated. Most players, regardless of their segment, offer broad lines of apparel, appliances and household goods. As a result, there is high competition within the industry itself, which puts pressure on margins and individual company growth. Furthermore, the industry has benefited little from technological advances. Most developments have improved internal processes, but have been limited in regard to revenue growth.

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Products and Markets Supply Chain KEY BUYING INDUSTRIES

1st Tier Consumers in the US

KEY SELLING INDUSTRIES

1st Tier Drug, Cosmetic & Toiletry Wholesaling in the US

Men's & Boys' Apparel Wholesaling in the US

Women's & Children's Apparel Wholesaling in the US

Footwear Wholesaling in the US

Jewelry & Watch Wholesaling in the US

2nd Tier Cosmetic & Beauty Products Manufacturing in the US

Men's & Boys' Apparel Manufacturing in the US

Shoe & Footwear Manufacturing in the US

Women’s, Girls’ and Infants’ Apparel Manufacturing in the US

Leather Good & Luggage Manufacturing in the US

Products and Services

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While the Department Stores industry is segmented into two distinct types of operators (up-market department stores and their discount variety counterparts), both types of stores retail a wide assortment of general merchandise.

IBISWorld categorizes industry products into five groups: apparel, drugs and cosmetics, furniture and household appliances, toys and hobby goods and other products.

Apparel and footwear

The industry predominantly sells men's, women's and children's clothing, shoes and accessories, with an estimated 46.6% of total sales generated from this product group.

Over the five years to 2020, apparel and footwear sales have somewhat increased as a share of industry revenue because many consumers opt to purchase these items in store, rather than online. Many shoppers prefer to try their clothing and footwear on before purchasing them; therefore, industry establishments benefit from offering shoppers the option of trying on products, while online retailers cannot offer this service. Women's wear is the most popular product group in the industry and composes an estimated 25.6% of the industry's total sales. Menswear is expected to make up 13.2% of industry revenue. The children's clothing and footwear segment is projected to account for 7.8% of revenue.

Home goods and appliances

Home goods and appliances are expected to account for 22.2% of revenue, including all furniture, fittings and small and large appliances.

Demand for new furniture and appliances is closely related to the number of new homes and households in United States. While housing starts have increased, the falling market share of industry operators that sell furniture, such as Walmart Inc., has limited growth.

Drugs and cosmetics

Department stores are expected to generate 19.1% of revenue through the sale of prescription and nonprescription drugs; vitamins and minerals; cosmetics, including face cream, makeup, perfumes and colognes; soaps and detergents; and other hygiene products.

Demand for these products is closely tied to population trends because they are considered necessities. However, specialized stores for cosmetics, such as Sephora, and online shopping have increased competition in this industry segment. Over the five years to 2020, revenue from drugs and cosmetics has remained fairly stagnant as a share of industry revenue.

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Toys and hobbies

The toys and hobbies product segment includes children's toys, boardgames, video games and computer games; hobby goods include sporting and craft products.

Sales of these items are expected to account for 2.5% of total industry revenue in 2020. Demand for this segment has decreased in recent years, as many consumers have opted to purchase toys and hobby products online.

Other products

Other products include nongrocery food items, such as confectioneries and sodas, and household supplies, such as gift- wrapping and cleaning products.

While demand varies by item type, the overall other products segment has somewhat declined as a share of total industry revenue over the past five years. This is because many department stores that have historically sold goods in the other products category have converted into warehouse clubs or grocery stores over the past five years. These transitions have decreased industry revenue and siphoned away demand for other products at department stores. Although COVID-19 (coronavirus) forced the shutdown of many industry operators, companies that have diversified their product offerings and sell essential products have been able to remain open. Target Corporation, for example, reported a 20.0% increase in sales of food and beverages and other essentials in March alone.

Demand Determinants

Demand for the Department Stores industry is determined by the level of disposable income available, especially for items such as clothing, footwear, cosmetics and home goods.

Despite increases in disposable income over the five years to 2020, most of the gains in consumer spending power have been allocated toward online purchases, which are not included in the Department Stores industry. As the percentage of services conducted online increases, more consumers will turn to the internet for their shopping needs, which will siphon demand from industry establishments. As disposable income continues to grow over the five years to 2025, shoppers will have more money to spend at industry establishments. However, an increase in the percentage of services conducted online, propelled by the accessibility during stay- at-home-orders amid the COVID-19 (coronavirus) pandemic, will steer shoppers toward the E-Commerce and Online Auctions industry (IBISWorld report 45411a).

Another factor that influences industry demand is the availability of leisure time. As consumers have more free time, they are more likely to browse department stores and spend more money at industry establishments. While some shoppers know exactly what they want when entering a department store, other shoppers view perusing industry establishments as a leisure activity and allot significant time to finding their ideal items. As the amount of consumer leisure time increases,

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shoppers are more likely to visit department stores, which increases the likelihood that they will spend money at industry establishments.

Demand is also driven by fashion and marketing campaigns that highlight trends (e.g. an emerging clothing trend or a new fragrance). Weather conditions drive demand for boots and coats during colder months and swimsuits during spring and summer. Prices at department stores reflect the middle market (often referred to as middle-income earners), but consumers who find those prices out of their range may buy substitute products at different retail channels, such as big-box stores that target low-income consumers.

Holiday seasons also determine demand. Along with the general retail sector, the industry experiences its highest sales during the fourth quarter of a calendar year, leading to better performance during holidays and gift-giving periods. To take advantage of this trend, many stores, such as Macy's Inc., participate in Black Friday sales that showcase heavy discounts to drive large consumer traffic into their stores.

Major Markets

Unlike specialty retailers, the Department Stores industry offers a wide range of products, including clothing, household items, perfumes and toys through two distinct operators: up-market department stores and their discount variety counterparts. The industry is consumer-oriented and, due to the spectrum of products, its markets are generally segmented into different age groups.

Consumers under 25 years old

Consumers under 25 years of age are expected to account for 10.2% of total industry revenue in 2020. Although these consumers generally have more available leisure time to spend at department stores, this age demographic typically has lower disposable income, which limits the amount of money they can spend at industry establishments. Furthermore, since department stores do not often target this age group, fewer young adults tend to purchase merchandise from them; instead, analysis suggests that this consumer group is more likely to shop in smaller niche stores that offer the latest fashion products. Additionally, demand from this consumer group is often realized in other consumer groups because parents tend to purchase items for their children at department stores. IBISWorld expects that demand from this age group has slightly contracted as a share of

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revenue over the past five years, though will remain consistent throughout the coming years.

Consumers aged 26 to 45

Consumers aged 26 to 45 are the largest market for the Department Stores industry and represent an estimated 41.2% of total industry demand. Consumers in this age range are typically employed with a steady stream of income, which makes them the target market for this retail industry. Furthermore, shoppers between the ages of 25 to 45 are likely to have young children who live at home; consumers with children are often attracted to the one-stop-shop format of department stores, as they are able to complete more of their errands in one place. Discount department stores also generally offer competitive prices, which is ideal for consumers with children since these shoppers typically care more about product quality than designer labels. IBISWorld expects that demand from this consumer market has slightly expanded as a share of revenue over the past five years.

Consumers aged 46 to 65

Considered to be the second-largest market for this industry, consumers aged 46 to 65 are key buyers of department store merchandise. Consumers in this segment predominantly buy for their children and grandchildren, as they have generally accumulated sufficient goods for themselves. Shoppers in this segment tend to purchase higher-tier merchandise for themselves and their families because they are more likely to have higher disposable incomes. This segment is expected to account for 37.7% of total industry revenue in 2020. Over the past five years, this segment's share of industry demand has slightly expanded as a share of revenue.

Consumers over 65 years old

Shoppers over the age of 65 are considered to be the smallest market for this industry. Most of these consumers have entered retirement and have a reduced disposable income stream. Additionally, consumers that move to retirement villages or nursing homes have a reduced demand for goods sold by this industry. In 2020, this segment is expected to account for 10.9% of total industry revenue. While this age group's share of revenue has remained steady over the past five years, IBISWorld expects that the segment's share of industry revenue will somewhat increase in the coming years. This is because this age group is generally the least tech-savvy, which means that industry operators are least likely to lose shoppers to the E-Commerce and Online Auctions industry (IBISWorld report 45411a). Furthermore, higher levels of per capita disposable income over the next five years will deepen the pockets of shoppers in this age group and enable them to spend more at department stores.

International Trade

Exports in this industry are Low and Steady

Imports in this industry are Low and Steady

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Although much of the merchandise sold at department stores was manufactured overseas and imported into the United States, the trade of these items is accounted for at the manufacturing level. Despite the lack of trade included in the Department Stores industry, it is important to note that the price of imported goods influences the value of products sold, which subsequently affects industry revenue and profit.

Business Locations

Business Concentration in the United States

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Establishments (%)

Department Stores in the US Source: IBISWorld

Generally, the geographic distribution of department stores follows population trends, with the Southeast, Great Lakes, Mid-Atlantic and West regions holding large shares of both the US population and Department Stores industry establishments. Consumers are the primary department store market; therefore, areas with larger populations are ideal for industry operators, as the pool of potential customers is bigger in those areas.

Southeast and Great Lakes

The Southeast and Great Lakes are both highly populous regions and represent the first- and second-highest concentrations of industry establishments, with 26.1% and

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18.2%, respectively. Florida, Illinois and Ohio house most of the regions' department stores, which corresponds with each of these states' large share of the US population. Florida holds the third-largest overall concentration of industry establishments, with 6.0% of total department stores and 6.5% of the US population. While Florida holds a slightly higher share of the population than total department stores, the opposite is true for Illinois and Ohio; Illinois represents 4.9% of total industry establishments and 3.9% of the US population, while Ohio holds 4.3% of department stores and only 3.6% of the population. Ohio and Illinois' higher concentration of industry establishments than US population is indicative of particularly strong consumer demand for department stores in these states.

The Mid-Atlantic and West

The Mid-Atlantic and West regions represent the third- and fourth-largest concentrations of industry establishments, with 13.8% and 12.4%, respectively. These regions are home to the states with the first- and fourth-largest concentrations for department stores, with California holding 8.3% of industry establishments and Pennsylvania housing 4.6%. These states both have large, highly populated metropolises, including Los Angeles, San Francisco, Philadelphia and Pittsburgh; consumers in metropolitan areas are likely to have higher levels of per capita disposable income, which leads to more discretionary spending at high- end department stores. California is by and large the reason that the West accounts for such a high share of total industry establishments; none of the remaining states in the region account for more than 2.0% of industry establishments.

Rocky Mountains and New England

The Rocky Mountains and New England regions have the lowest share of industry establishments, with 4.6% and 4.1%, respectively. IBISWorld estimates the Rocky Mountains and the New England regions account for 3.7% and 4.6% of the US population, respectively, which also makes them the two least populous regions in the United States. The larger shares of total department stores than US populations in these regions is indicative of relatively high demand for department stores in the Rocky Mountains and New England.

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Competitive Landscape Market Share Concentration

Concentration in this industry is High

The Department Stores industry has a high level of market share concentration, with the top four companies accounting for an estimated 81.4% of total industry revenue in 2020. The industry has several major players, and all hold between 5.0% and 20.0% of industry market share, with the exception of Target Corporation (Target), which accounts for 50.1% of industry revenue. The majority of stores in this industry operate as part of a national chain, with numerous locations across the United States. In addition, stores tend to be larger, with an average of 117 employees working in each establishment.

Market share concentration in the Department Stores industry has increased over the past five as a result of significant merger and acquisition activity as well as the expansion of product offerings and discount outlet store offerings. As some high- end retailers expand into discount department stores, concentration declines are mitigated. Examples of this trend are the expansion of Bloomingdale's Inc.'s Outlet stores and Nordstrom Rack stores. However, the industry's historically largest players, such as Walmart Inc. and Target, are transitioning to the Warehouse Clubs and Supercenters industry (IBISWorld report 45291) to alleviate losses from the shift to e-commerce platforms. However, as many operators are adding full lines of groceries to their department stores in an attempt to increase revenue, industry- relevant revenue declines. This trend is expected to continue increasing industry concentration over the five years to 2025.

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Key Success Factors

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

Ability to control stock on hand: Industry goods are seasonal, with the majority of annual sales occurring between October and December. Thus, stores must have tight stock control

measures to ensure sufficient product lines are available to maximize sales.

Experienced work force: Department stores require sales staff that are friendly, helpful and provide excellent customer service.

Ability to expand and curtail operations rapidly in line with market demand: Department stores need to be able to expand operations during peak periods to meet

increased demand (i.e. winter holiday season) but also curtail operations during weaker

conditions (i.e. economic slowdown).

Attractive product presentation: Department stores require an effective layout and design, good shelf management, friendly and helpful service and a clean environment.

Having a wide and expanding product range: Department stores that carry a varied array of products and brands are likely to attract customers, as they can market themselves

as a convenient one-stop shop.

Cost Structure Benchmarks

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Profit

Profit, measured as earnings before interest and taxes, is expected to account for 3.2% of industry revenue in 2020. Due to the fall in industry demand over the past five years, industry operators have aggressively competed on prices to retain customers or steal business away from their competitors. This has resulted in price slashing and matching, which has eaten into industry profit. Moreover, major players that typically generate the highest returns are pivoting to the Warehouse Clubs and Supercenters industry (IBISWorld report 45291). These trends have pressured industry profit, and the average industry margin has declined moderately during the five-year period.

Wages

Wages are estimated to account for 14.5% of industry revenue in 2020, which represents an increase from 2015 when wages stood at 12.8% of revenue. The industry is labor-intensive, with employees undertaking a variety of duties for daily operations. This includes arranging and stocking product display shelves, cash handling and transaction processing and assisting customers with queries (i.e. the right product to use for a particular job). Wages as a share of revenue have somewhat increased over the past five years as industry operators have hired more high-skilled employees to compete with alterative retailers, such as online-based enterprises and discount stores, that do not offer specialized customer service staff.

However, in March 2020, major player, Macy's Inc. announced it is furloughing a majority of its 125,000 employees as a result of the COVID-19 (coronavirus) pandemic, although the company did not specify the exact number. The company closed all of its 775 locations in the United States to comply with social distancing restrictions, thus limiting is need for storefront employees. Other major operators in this industry also furloughed employees as locations shut down. However, these companies are anticipated to rehire employees as restrictions ease. Nevertheless, despite this decline in employment and, consequently, wages, wages as a share of revenue is expected to increase as revenue falls as a faster rate.

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Purchases

Similar to other retail industries, purchases are expected to make up the largest expense for department stores and are estimated to account for 48.2% of industry revenue in 2020. Purchase costs have decreased in terms of their share of revenue over the five years to 2020. Operators have mitigated purchase costs by expanding their outlet store offerings and substituting expensive products with low-cost alternatives. Overall, industry purchases generally include apparel, furniture, appliances, hardware, jewelry, toys and all other items sold at industry establishments.

In 2020, as operators were forced to shut down department stores amid the coronavirus pandemic, the extreme losses have restricted operators from purchasing products. While fall season orders, which are typically placed early in the year, have been cancelled or put on hold. Uncertainty is high for the Department Stores industry so purchases are expected to decline as operators limit orders as they remain uncertain of fourth quarter sales.

Depreciation

Operators in this industry are required to depreciate assets and other nonannual expenses during a period of time. The cost of depreciation and amortization will invariably fluctuate between operators depending on their size and the number of assets involved. Depreciable assets include fixtures, fittings and cash registers/point-of-sale (POS) systems. Retail industries benefit from relatively low levels of depreciation; in 2020, depreciation for the Department Stores industry is expected to increase marginally to 1.1% of industry revenue.

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Marketing

Operators in this industry advertise via several mediums. The breadth of marketing options available to players is, however, largely controlled by their size and cost constraints. Larger department stores often advertise through mail and online publications, coupled with TV advertising. Such marketing costs are expected to account for 0.5% of revenue in 2020, which represents a decrease since 2015 as operators limit expenses.

Rent

Rent is expected to account for an estimated 4.4% of industry revenue in 2020. Department stores are generally located in high-traffic, price- premium areas; therefore, rent typically accounts for a considerable share of industry revenue. Over the past five years, rent costs have decreased as many operators have lessened their physical store count.

Utilities

Utilities are expected to account for 1.6% of total industry revenue in 2020, a slight decrease over the past five years as operators have downsized and reduced number of establishments.

Other Costs

Other industry costs include transportation expenses, administrative costs and professional services that pertain to accounting and legal- related expenses. Overall, these costs are expected to account for 26.5% of total industry revenue in 2020.

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Basis of Competition

Competition in this industry is High and Increasing

Internal competition

The Department Stores industry is segmented into two distinct operating types: up-market department stores and their discount variety counterparts.

Despite this segmentation, both kinds of stores experience the same internal competition; competition in this industry tends to be based on price, product range and quality, promotional offers, customer service levels and store location.

Price is the most influential basis of competition within this industry. Consumers are generally price-conscious and will comparison-shop to find what they consider to be a bargain. The range and quality of products offered by operators will also influence where consumers shop. If industry players operate in the up-market segment of the industry, then they should ensure that their product range and quality are comparative with other players in this segment.

Operators also compete on the basis of promotional deals. Several industry players have highlighted the seasonal nature of their business and noted that the latter months of the year leading up to Christmas are usually busier than other months. Hence, promotional deals are usually conducted during the slower business months to maintain consumer awareness and boost company sales. Furthermore, industry operators will often compete with one another for consumer dollars during the holiday season and offer the most attractive deals during shopping events such as Black Friday. Operators in this industry also compete on the basis of store location; companies planning to expand their store numbers will seek locations that are in prominent shopping centers, which provides easy access for consumers.

External competition

Enterprises operating in this industry also compete with players in other industries.

These competing operators supply products that are also sold by department stores, such as apparel, footwear, furniture and appliances; therefore, some consumers may opt to visit these establishments rather than department stores when shopping or running errands. These competing industries include supercenters and warehouse clubs, hardware stores, specialized clothing and shoes stores, furniture stores, electronics and appliance stores, pharmacies and drug stores, home furnishing stores and cosmetics and beauty outlets. Industry research suggests that operators in this industry have experienced increased pressure from specialty retailers and home good chains in recent years.

Further competition comes from online retailers, as these operators often incur lower overhead costs and are able to pass the cost savings onto customers in the form of lower prices. Department store operators have responded by introducing new product ranges, along with revamping promotional and advertising initiatives. As younger consumers are the ones who are most likely to turn to the internet for their shopping needs, several industry operators have run marketing campaigns

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that target younger demographics using social media. For example, in March 2016, Nordstrom Inc. used social media app Snapchat to target college age-consumers in a campaign that enabled students to win prizes when they engaged the company on Snapchat. External competition from online retailers has been accentuated by the closure of nonessential businesses, including department stores, during the COVID-19 (coronavirus) pandemic, thus forcing consumers to purchase products online. Although many of such online purchases are made at industry operators' online platforms, that revenue is not relevant to the Department Stores industry.

Barriers to Entry Barriers to entry in this industry are Medium and Steady

Substantial funding

A large amount of capital is required for any company seeking to enter the Department Stores industry. This industry includes behemoths such as and Target Corporation that can negotiate favorable supply contracts with buyers. Since so many companies with large economies of scale already operate in the industry, potential entrants must have access to substantial funding before setting up shop. Furthermore, department stores are typically located in high traffic areas where rent costs are high, which requires that industry entrants be able to find and afford highly visible and accessible storefronts. Purchase and wage costs are also high for this industry, as operators are responsible for stocking a large amount of shelf space with a vast array of merchandise and hiring helpful and knowledgeable employees to assist customers.

Distribution networks and licenses

The distribution networks between existing department stores and suppliers may be viewed as a barrier to entry for potential industry operators. Existing operators benefit from the relationships they have established with suppliers over time, which can make it difficult for new entrants that are seeking to set up a supply chain. New department stores should also ensure that they obtain the relevant business trading licenses before operating. In most cases, however, this is not a formidable barrier to entry.

Reputation

Reputation is important within the Department Stores industry; therefore, it can be difficult for new entrants to attract customers if they are not already known and established within the market. Nordstrom Inc., for example, has achieved high levels of consumer popularity through its world-renowned customer service policy. Without the reputation of having knowledgeable employees or superior customer service, new entrants may struggle to attract a customer base, especially when competing with well-established enterprises.

Barriers to entry checklist Competition High

Concentration High

Life Cycle Stage Decline

Technology Change Medium

Regulation & Policy Light

Industry Assistance None

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Industry Globalization

Globalization in this industry Low and Steady

The Department Stores industry has a low level of globalization, since foreign ownership of industry enterprises is not common. Analysis indicates that there are no foreign-owned major companies operating in the domestic market; however, IBISWorld estimates that Canada-based Hudson's Bay Company, which owns Lord and Taylor and Saks Fifth Avenue, holds 2.3% industry market share in 2020. Additionally, Nordstrom Inc. operates in Canada, and many products sold by department stores are imported.

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Major Companies

Major Players TARGET CORPORATION

Market Share: 50.1%

Headquartered in Minneapolis, Target Corporation (Target) is a large-format general merchandise retailer, operating 1,868 stores across the United States. Since it was incorporated in 1902, the company has evolved into one of the largest retailers in the country, employing 368,000 people. Target offers daily essentials and consumables at low prices, and the company has carved out a niche market by focusing on fashionable and trendy products. In fiscal 2020 (year-end February), Target's total company revenue reached $78.1 billion.

Target's retail business has traditionally comprised two distinct store formats: general merchandise stores that carry apparel, jewelry, shoes, home appliances, housewares and electronics, while excluding groceries; and SuperTargets that carry a wider selection of such goods, in addition to a full line of perishable groceries.

In recent years, Target has been rapidly introducing groceries as part of the product offerings at its general merchandise stores. Products include fruit, vegetables, fresh meat, bakery items, dairy and frozen foods. This transition has helped the retailer

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capture more consumer dollars by providing a complete one-stop shopping experience. However, it has also siphoned revenue away from the Department Stores industry during the period because merchandise stores with grocery lines are excluded from this industry.

Financial performance

Over the five years to fiscal 2021, Target's industry-specific revenue is expected to decline at an annualized rate of 2.2% to $50.1 billion. Industry-relevant sales have declined in recent years as a result of the expansion of company stores to include groceries. During the period, Target has remodeled hundreds of general merchandise stores to include perishable and nonperishable foods, which has shifted these stores' revenue from the Department Stores industry to the Warehouse Clubs and Supercenters industry (IBISWorld report 45291). In fiscal 2021, IBISWorld expects that industry-specific profit, measured as earnings before interest and taxes, will decline to represent 5.6% of industry-specific revenue at $3.0 billion. At the start of the COVID-19 (coronavirus) pandemic, the company reported a strong increase in grocery sales at is nonindustry relevant locations while exhibiting a sharp decline in apparel sales as the company's industry-relevant establishments were forced to close.

Target Corporation (US industry-specific segment) - financial performance* Year** Revenue Growth Operating Income Growth

($m) (% change) ($m) (% change) 2015-16 56156.7 N/C 3677.2 N/C 2016-17 54144.9 -3.6 3747.8 1.9 2017-18 55263.6 2.1 3210.3 -14.3 2018-19 56120.3 1.6 3060.9 -4.7 2019-20 57475.9 2.4 3427.4 12.0 2020-21 50140.3 -12.8 2956.2 -13.7

Source: Annual report and IBISWorld Note: *Estimates; **Year-end February

MACY'S INC.

Market Share: 16.3%

Founded in 1858 and headquartered in Cincinnati, Macy's Inc. (Macy's) is a national retailer that sells a wide range of mid-price merchandise. The company operates 775 locations in 43 states, Washington, DC, Guam and Puerto Rico, and employs 123,000 workers, according to its latest annual report. Macy's retails a range of men's, women's and children's apparel and accessories, in addition to a wide assortment of cosmetics, fragrances and home furnishings in its Macy's and Bloomingdales stores. In addition to its Macy's-brand department stores, the company operates Bloomingdale's, which is an upper-tier department store. The company also runs Bloomingdale's Outlet stores and Macy's Backstage stores, which sell products at lower prices than their mainline counterparts. In fiscal 2020

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(year-end February, latest data available), Macy's reported $24.6 billion in total company revenue.

In March 2015, Macy's acquired Bluemercury, a luxury beauty product store chain, for $212.0 million; however, revenue from this newly acquired retail segment does not contribute to Department Stores industry-relevant revenue. In 2017, Macy's announced that it would close 68 of its department stores, citing that it had too many storefronts during this digitally oriented era. The closures decreased the number of Macy's employees an estimated 10,000 people and decreased Macy's store count an estimated 15.0%. It announced 12 additional closures in 2018. The closures are an effort to reduce expenses, improve the company's ability to organize and focus resources on other key priorities.

Financial performance

Over the five years to fiscal 2021, IBISWorld estimates that the company's industry- specific revenue will decline at an annualized rate of 5.8% to $16.3 billion. While IBISWorld estimates that store closures will somewhat alleviate the company's profit, revenue will likely continue its overall decline in the outlook as e-commerce sales grow. Amid the pandemic, the company furloughed most of its employees, although the company is anticipated to rehire as nonessential businesses reopen. As the company contends with the coronavirus, profit is expected to decline to account for only 0.1% of revenue in fiscal 2021.

Macy's Inc. (US industry-specific segment) - financial performance* Year** Revenue Growth Operating Income Growth

($m) (% change) ($m) (% change) 2015-16 21992.1 N/C 1647.0 N/C 2016-17 20848.7 -5.2 1103.3 -33.0 2017-18 19862.1 -4.7 1484.5 34.6 2018-19 19717.7 -0.7 1372.4 -7.6 2019-20 19018.2 -3.5 751.1 -45.3 2020-21 16325.7 -14.2 8.4 -98.9

Source: Annual report and IBISWorld Note: *Estimates; **Year-end February

NORDSTROM INC.

Market Share: 8.1%

Founded in 1901 as a shoe store in Seattle, Nordstrom Inc. (Nordstrom) has effectively carved out a significant share of the wealthy consumer and aspirational shopper markets (i.e. middle-income consumers who occasionally purchase luxury products) by providing near-luxury goods (i.e. branded goods that are more affordable than true- luxury goods). Nordstrom operates 136 full- line department stores, multiple e-commerce sites and 244 discount Nordstrom Rack stores. It employs an estimated 68,000 employees, although increasing to 75,000 during the holidays. The company's online shopping platforms have fared well,

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resulting in an overall increase in revenue; in fiscal 2020 (year-end February), Nordstrom reported $15.1 billion in total company revenue.

In response to heightened competition from e-commerce companies, Nordstrom has increasingly invested in online fashion start-ups. The company owns HauteLook, an online private sale site, and purchased Trunk Club, a personalized clothing service started for men. Trunk Club has also expanded its services to extend its online reach outside the scope of its traditional website. The company has also experimented with nonconventional store formats to keep pace with changing consumer demand and bolster profit. For example, Nordstrom has opened several small-format stores that contain no inventory for purchase, but rather enable consumers to try on merchandise before ordering the product online for home delivery.

Financial performance

Over the five years to fiscal 2021, Nordstrom's industry-relevant revenue has declined at an annualized rate of 5.8% to $8.1 billion. Although the company has exhibited overall growth during the period, annual declines in industry-specific revenue is attributable to its growth in online retail platforms, which are not relevant to this industry. However, the company's expansion of Nordstrom Rack, which targets price-conscious consumers, has mediated substantial declines, particularly in 2020 as consumer spending declined due to the coronavirus. Nevertheless, the costs have caused profit to decrease over the past five years. In fiscal 2021, IBISWorld expects that Nordstrom's industry-specific profit will represent 0.1% of industry-specific revenue.

Nordstrom Inc. (US industry-specific segment) - financial performance* Year** Revenue Growth Operating Income Growth

($m) (% change) ($m) (% change) 2015-16 10928.4 N/C 853.6 N/C 2016-17 10659.0 -2.5 591.8 -30.7 2017-18 10639.4 -0.2 650.9 10.0 2018-19 10358.8 -2.6 560.1 -13.9 2019-20 9689.2 -6.5 502.0 -10.4 2020-21 8121.4 -16.2 69.9 -86.1

Source: Annual report and IBISWorld Note: *Estimates; **Year-end February

SEARS HOLDINGS CORPORATION

Market Share: 6.8%

Headquartered in Hoffman Estates, IL, Sears Holdings Corporation (Sears) was created in March 2005 as a result of a merger between Sears Roebuck and Co. and Kmart Holding Corporation (Kmart). The company operates from full-line Sears and Kmart discount stores, which are both relevant to the Department Stores industry. In fiscal 2018 (year-end February, latest data available), Sears' total company revenue was $16.7 billion.

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The company operates an estimated 452 stores, which are primarily located in malls. These stores offer an array of products and services, including home appliances, consumer electronics, tools, sporting goods, outdoor-living goods, lawn and garden equipment, automotive services and products (e.g. tires and batteries), home-fashion products, apparel, footwear, jewelry and accessories. Sears retains the traditional department store format, with decentralized cash registers and specialized sales associates. Kmart operates as a general merchandiser that carries an array of goods, such as consumer electronics, outdoor-living products, toys, lawn and garden equipment, food and consumables and apparel. Since the merger of Kmart and Sears, the company has closed hundreds of full-size stores, reducing transactions and leading to lower sales for the company. In October 2018, Sears announced that it was filing for Chapter 11 bankruptcy after exhibiting declining revenue and profitability for more than a decade. It also announced it will close 142 unprofitable stores moving forward. The company owes its debt-holders more than $5.0 billion in principal and interest payments.

Financial performance

Over the five years to fiscal 2021, IBISWorld estimates that Sears' industry-relevant revenue will decline at an annualized rate of 21.2% to $6.8 billion. Despite the company's strong brand recognition and size, Sears' domestic sales have consistently declined because its low-end competitors (e.g. Target Corporation) and mid-tier competitors (e.g. J.C. Penney Company Inc. and Macy's Inc.) have increasingly captured the department store's market share through wider selection and steeper discounts. This has squeezed the company's sales and margins; in fiscal 2020, IBISWorld expects that Sears will operate at a loss equal to 6.7% of industry-specific revenue. This negative profit has forced the company to make cuts.

Sears Holdings Corporation (US industry-specific segment) - financial performance*

Year** Revenue Growth Operating Income Growth ($m) (% change) ($m) (% change)

2015-16 22356.6 N/C -889.1 N/C 2016-17 19489.4 -12.8 -1741.4 95.9 2017-18 14542.7 -25.4 -374.4 -78.5 2018-19 10497.4 -27.8 -1235.1 229.9 2019-20 8533.5 -18.7 -547.6 -55.7 2020-21 6775.8 -20.6 -456.3 -16.7

Source: Annual report and IBISWorld Note: *Estimates; **Year-end February

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J.C. PENNEY COMPANY INC.

Market Share: 6.6%

Commencing operations in 1902 as a soft- goods retailer, J.C. Penney Company Inc. (JCPenney) is currently a mid-price department store operator stocking a range of family apparel, jewelry, shoes, accessories and home furnishings, many of which are private-label. JCPenney's private-label brands generate gross profit that is higher than national brands; therefore, the company is seeking to increase production of private-label products to achieve higher margins. In fiscal 2021 (year-end February, latest data available), 46.0% of JCPenney's sales were private-brand merchandise. Total company revenue was $10.7 billion for the year. The company is headquartered in Plano, TX, owns 846 retail locations in the United States and Puerto Rico, and employs 90,000 full-time and part-time employees.

JCPenney has struggled in recent years due to management changes and marketing overhauls. Just prior to the five-year period, JCPenney welcomed a new CEO who eliminated the company's time-honored coupon and clearance sales program in favor of a Fair and Square everyday-low-prices strategy, which turned off loyal customers and resulted in a substantial decrease in revenue. Since then, the company has had two new CEOs, reestablished the coupon and clearance program, reinstated sales commissions and continued to reduce employee numbers. While this led to overall company revenue gains in 2015, JCPenney nonetheless operated at a loss. During the period, the company has exhibited volatile profit, with margins ranging from as low as -3.0% in 2015 to 2.6% in 2016.

Financial performance

Over the five years to fiscal 2021, JCPenney's industry-specific revenue is expected to fall at an annualized rate of 9.0% to $6.6 billion, particularly as the company is expected to exhibit severe declines due to coronavirus. JCPenney focuses on marketing its products to middle- and low-income households, making the company extremely susceptible to competition from Walmart Inc. and Target Corporation stores. In addition to slow revenue growth, a drop in operating income hurt the company early during the period. Fixed costs drove this decrease in profit, although the operator has successfully trimmed variable costs, including wages and marketing expenses, to stem losses.

J.C. Penney Company Inc. (US industry-specific segment) - financial performance*

Year** Revenue Growth Operating Income Growth ($m) (% change) ($m) (% change)

2015-16 10489.6 N/C -310.7 N/C 2016-17 10448.0 -0.4 3.31 -101.1 2017-18 10315.6 -1.3 265.9 7933.2 2018-19 9468.2 -8.2 159.9 -39.9 2019-20 8573.0 -9.5 -4.41 -102.8 2020-21 6558.8 -23.5 -4.9 11.1

Source: Annual report and IBISWorld Note: *Estimates; **Year-end February

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Other Players HUDSON’S BAY COMPANY

Founded in England in 1670, Hudson's Bay Company (HBC) is the parent company for multiple popular US department stores, such as Lord & Taylor and Saks Fifth Avenue. Although the Toronto-based business operates many retail chains that solely exist in Canada and Europe, such as Home Outfitters and SportArena, nearly half the company's total revenue is generated in the United States. The rapidly growing operator has been expanding via acquisitions over the five years to 2020; the company acquired Gilt Groupe Holdings Inc. (Gilt) for $250.0 million in 2016. While Gilt, which is a flash-sale website, is not included as part of the Department Stores industry, the purchase is indicative of the company's push to expand, in particular its online presence. HBC employs more than 65,000 people in its 480 stores worldwide and generated $9.6 billion in total revenue in fiscal 2019 (year-end February, latest data available).

In the United States, HBC operates in the Department Stores industry through Saks Fifth Avenue and Saks Off Fifth. While Saks Fifth Avenue are primarily high-end retailers or apparel, footwear and accessories, Saks Off Fifth sells discounted designer merchandise. Notably, in October 2017, HBC announced the sale of its Lord & Taylor flagship store in New York City to WeWork; the retailer will remain in one-quarter of the building, where it will continue to sell a limited line of merchandise. However, in 2019, the company announce the sale of Lord & Taylor to Le Tote, a clothing rental start-up, for $75.0 million. IBISWorld expects that industry- specific revenue will reach $2.3 billion in fiscal 2021.

NEIMAN MARCUS GROUP

Beginning operations in 1907 as a fashionable women's store, Neiman Marcus Group (Neiman Marcus) is headquartered in Dallas and employs 13,500 people. The company operates under various brands: Neiman Marcus, Bergdorf Goodman, Last Call and MyTheresa. While Neiman Marcus and Bergdorf Goodman stores cater to affluent customers and offer high-end apparel, footwear and accessories, Last Call stores offer discounted designer products. MyTheresa is primarily an online-based company that is accessible via MyTheresa.com or a mobile app. In September 2013, the company agreed to sell its operations to Ares Management LLC and the Canada Pension Plan Investment Board for an estimated $6.0 billion. In 2017, industry operator Hudson's Bay Company held discussions about acquiring Neiman Marcus and offered to take Neiman Marcus private in 2019, both of which did not occur. Amid COVID-19 (coronavirus), the company was forced to temporarily close its retail locations and furlough most of its 14,000 employees, which are expected to contribute to a sharp decline in sales. Consequently, the company has reported the possibility of filing for bankruptcy in 2020, although it is yet to be officially declared. In 2020, IBISWorld expects that the company's industry-specific revenue will total $3.3 billion.

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WALMART INC.

Founded in 1962 and headquartered in Bentonville, AR, Walmart Inc. (Walmart) is the world's largest retailer and grocery chain by sales. The company is also the third-largest employer worldwide (following the US and Chinese militaries) with 2.2 million workers in 11,300 stores. The company leverages its massive size to exert high purchasing power over its suppliers and, therefore, obtain significant cost savings and pass them down to consumers with heavily discounted prices. In fiscal 2020 (year-end February), Walmart reported $524.0 billion in total company revenue.

Walmart operates three separate divisions: Walmart US, Sam's Club and Walmart International. Under the Walmart US division, the company runs supercenters that offer general merchandise and a line of groceries, general discount stores that offer the same products but no perishable comestibles, and neighborhood markets that primarily retail groceries. The company owns 376 discount stores in the United States, many of which are open 24 hours a day. General discount stores retail an assortment of merchandise, such as apparel, electronics, toys, health and wellness products, home furnishings and housewares. The number of discount stores has declined considerably over the past five years due to an increased focus on grocery sales.

In fiscal 2020, the company reported 55.9% of its US revenue was generated through grocery sales. Since most of its revenue is not generated within the Department Stores industry, it is no longer an operator within this industry and has now entered the Warehouse Clubs and Supercenters industry more fully. However, it is still significant in this industry as a competitor and remains as an operator of some smaller stores that do not sell a line of groceries.

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Operating Conditions

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Capital Intensity The level of capital intensity is Low

The level of capital intensity in the Department Stores industry is low; for every dollar allocated to wages, an estimated $0.07 is spent on capital assets. The size and number of stores in operation influence the level of capital expenditure. Expenditure on store utilities (e.g. lights and clothing racks) is estimated to have remained fairly stable in recent years, as these costs occur when a new enterprise enters the industry, an established enterprise opens a new establishment or when existing stores are refurbished. Alternatively, expenditure on technological equipment (e.g. computerized cash registers) has experienced considerable growth over the past decade.

The duties employees undertake include customer service and advice, processing consumer purchases, arranging store layout and replenishing store shelves. The type of store (high-end department stores compared with discount retail stores), the number of people employed, the relative wage rate (including the cost of living in the establishment's city or state) and the company's trading hours influence the level of labor expenditure. Unlike capital costs, which can vary between years, labor costs are an integral and annual expenditure incurred by industry players. IBISWorld estimates that this industry will continue to experience a low level of capital intensity over the next five years, as human labor continues its prevalence in the industry.

Technology And Systems

Potential Disruptive Innovation: Factors Driving Threat of Change

Level Factor Disruption Description

Moderate Innovation Concentration

Potential

A measure for the mix of patent classes assigned to the industry. A greater concentration of patents in one area increases the likelihood of technological disruption of incumbent operators.

Moderate Ease of Entry Potential

A qualitative measure of barriers to entry. Fewer barriers to entry increases the likelihood that new entrants can disrupt incumbents by putting new technologies to use.

Moderate Market Concentration

Potential

A ranked measure of the largest core market for the industry. Concentrated core markets present a low-end market or new market entry point for disruptive technologies to capture market share.

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Level Factor Disruption Description

Low Rate of Innovation

Unlikely

A ranked measure for the number of patents assigned to an industry. A faster rate of new patent additions to the industry increases the likelihood of a disruptive innovation occurring.

Very Low Rate of Entry Very Unlikely

Annualized growth in the number of enterprises in the industry, ranked against all other industries. A greater intensity of companies entering an industry increases the pool of potential disruptors.

Low levels of innovation limit the threat to incumbent operators from new technologies disrupting their operations. However, a low rate of growth in technology can also create exposure for incumbents as the trajectory of innovation in other markets could lead to unforeseen competitive disadvantages.

Industry operators are exposed to a low rate of new entrants and a moderate level of entry barriers. This combination of factors creates an environment where entry trends are not a key threat of disruption.

The Department Stores industry has experienced a high level of technology and systems disruption over the five years to 2020.

Competition from e-commerce platforms has intensified over the past five years. Customers have ease along with accessibility in purchasing industry products from the comfort of their homes. While many industry operators have adopted mobile applications and websites, this source of revenue is not industry-relevant. Nevertheless, this trend is expected to continue over the next five years thereby making it tough for brick-and-mortar operators to continue to generate revenue as foot traffic in industry establishments continues its downward trajectory. Additionally, as industry operators were forced to close temporarily during the COVID-19 (coronavirus) pandemic in 2020, such online sales have accelerated, further disrupting the industry.

The level of technology change is Medium

RFID and inventory maintenance

Most of the technological improvements in the Department Stores industry have enabled better management of operations and inventory.

These improvements include computer scanning cash registers, automated inventory equipment and checkout wands, a scan-as-you-go checkout device that Walmart Inc. is currently testing in some of its stores. Improved checkout technology has led to computerized point-of-sale (POS) equipment, which controls and records merchandising, distribution, sales and stock markdowns.

Bar code scanning increases labor productivity, ensures greater control over the distribution of goods and reduces errors along the supply chain. Radio frequency

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identification (RFID), which is a new technological invention, provides real time information on inventory, helps to reduce shrinkage problems and improves efficiency.

Macy's Inc. (Macy's), for example, added over 14,000 price scanners to its stores so that customers can automatically check prices before they buy. Macy's has also invested in line-busting software and technology that alerts staff during busy periods. Target Corporation has conducted a trial of RFID-tagged pellets to improve efficiencies in the supply chain and a further roll out is expected. J.C. Penney Company Inc. has overhauled its POS system to improve internet connectivity.

Security

With losses incurred as a result of theft, security and loss prevention, advancements used by retailers include closed-circuit TV cameras, source tagging, signature-capture technology (this is used at the POS terminal for credit card transactions) and fingerprint scanning systems that verify customer identities.

In this case, RFID can also be used to reduce theft. Such technology tracks products from the time they leave the assembly line to the time they leave the store by releasing continuous signals from a chip. These chips have been inserted in the product at the manufacturing stage and are monitored by a radio frequency receiver.

Internet

In recent years, the advent of the internet and online shopping has filtered through to this industry.

Operators realize that they need to offer online shopping facilities if they are to remain a competitive force in the industry. Most industry players have online purchasing facilities today, enabling consumers to purchase products over the internet with the click of a few buttons.

Mobile

The rapid development of mobile applications has started to affect the way industry participants process sale transactions.

Rather than use traditional cash registers, many department stores, such as Nordstrom Inc., have armed their sales associates with mobile phones that have card processing applications and accessories. As a result, industry participants are able to process transactions more quickly and reduce capital costs relating to improving or upgrading cash register equipment. Complementing this service, stores have also started offering customers the option of receiving a receipt via email rather than a paper copy. The additional service has helped further decrease operating costs, while also improving the customer experience.

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Revenue Volatility The level of volatility is Medium

Note: Revenue growth and decline reflective of 5-year annualized trend. Y-axis is in logarithmic scale. Y-axis crosses at long-run GDP. X-axis crosses at high volatility threshold.

The Department Stores industry's revenue is primarily based on the sale of discretionary items; therefore, retailers in this industry compete for a share of consumer's discretionary income.

This income is highly dependent on key macroeconomic variables, including changes in employment levels, interest rates and consumer confidence. Industry performance is also influenced by population growth and the age distribution of the population. Other factors such as competition from supercenters and online retailers affect industry revenue, as brick-and-mortar department stores often have to lower prices to remain competitive. Despite a relatively low level of revenue volatility over the five years to 2020, IBISWorld expects that volatility will increase to a moderate level as the industry experiences a severe decline in 2020. Nevertheless, volitively is expected to subside in the coming years as the economy recovers and the industry maintains wholehearted market acceptance, though continues to steadily lose revenue to online-sales and supercenters.

Regulation & Policy

The level of regulation is Light and is Steady

Regulations relevant to the Department Stores industry are generally covered by individual states.

Congress and/or a state enact trade regulation with the aim of maintaining a free and competitive economy. The Sherman Act, the Wilson Act, the Clayton Act and the Robinson-Patman Act form the basis for antitrust actions before the courts.

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These acts prohibit formation of monopolies, ban price discrimination and offer protection to independent business owners.

States have enacted their own antitrust laws to ensure that the general public is provided with best prices, quality and choice. Companies must comply with the Fair Labor Standards Act and various state laws governing various matters such as minimum wage, overtime and other working conditions. Storeowners must also comply with the provisions of the Americans with Disabilities Act of 1990, as amended, which generally requires that stores be accessible to customers with disabilities.

The laws that affect credit programs offered by retailers include the Federal Consumer Credit Protection Act (Truth in Lending), which specifies written disclosure of information relating to financing. The Federal Fair Credit Reporting Act specifies that certain disclosures to potential customers concerning credit information can be used to deny credit.

Also, the Federal Equal Credit Opportunity Act prohibits discriminating against any credit applicants based on certain grounds and the Fair Debt Collection Practices Act that regulates how payments are collected on credit accounts.

In addition, industry participants are subject to environmental regulations imposed by federal, state and local authorities in relation to the generation, handling, storage, transportation and disposal of waste and biohazardous materials, and the sale and distribution of products.

At the start of 2020, as the COVID-19 (coronavirus) pandemic intensified, state and local governments forced nonessential businesses to temporarily close in an effort to slow the spread of the virus. Brick-and-mortar department stores have been considered nonessential and were forced to operate exclusively online, which is not relevant to this industry, thus halting industry revenue.

Industry Assistance

The level of industry assistance is None and is Steady

The Department Stores industry is affected by several import tariff duties incurred at the production level; retail operators purchase goods from importers and wholesalers after tariffs have been applied.

A change in the tariff rate of a particular good may increase industry purchase costs. Items commonly sold in department stores are subject to varying tariff levels, depending on the merchandise. For instance, tariffs on apparel range from 5.0% to 16.0%, while tariffs on footwear can be as high as 38.0%. While retailers benefit from industry associations, such as the National Retail Federation, the industry does not receive any form of direct government assistance.

Amid the COVID-19 (coronavirus) pandemic at the outset of 2020, the US government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. AS a part of this Act, the Paycheck Protection Program (PPP) is a program to

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provide forgivable loans to small businesses employing less than 500 workers. However, with an industry average of 13,699 employees per enterprise, most operators in the Department Stores industry do not qualify for any PPP benefits. The CARES Act does authorize the Department of the Treasury to provide $500.0 billion in loans to larger businesses within specific industries that have experienced severe financial hardship as a result of the pandemic. However, the Department Stores industry does not qualify.

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Key Statistics Industry Data

Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic Demand

Per Capita Disposable

Income ($m) ($m) (Units) (Units) ($m) ($m) ($m) ($m)

2011 214,002 37,786 8,625 71 1,203,147 N/A N/A 27,942 N/A 38,780 2012 203,048 30,076 8,196 66 1,085,098 N/A N/A 22,970 N/A 39,784 2013 191,534 28,866 8,102 64 1,036,757 N/A N/A 21,971 N/A 39,004 2014 185,705 27,633 7,898 63 1,033,269 N/A N/A 22,248 N/A 40,310 2015 179,377 35,858 7,885 63 1,016,623 N/A N/A 22,963 N/A 41,670 2016 165,136 28,258 7,930 61 970,007 N/A N/A 21,464 N/A 42,108 2017 153,686 28,707 7,651 59 917,237 N/A N/A 20,232 N/A 43,056 2018 148,248 27,454 7,466 58 887,271 N/A N/A 19,560 N/A 44,521 2019 137,741 25,461 7,163 55 834,871 N/A N/A 18,358 N/A 45,581 2020 99,985 18,734 6,297 49 671,256 N/A N/A 14,474 N/A 45,084 2021 92,494 17,442 5,977 47 626,458 N/A N/A 13,484 N/A 45,457 2022 85,928 16,130 5,670 44 584,917 N/A N/A 12,577 N/A 46,494 2023 79,601 14,875 5,349 42 543,744 N/A N/A 11,684 N/A 47,643 2024 73,464 13,644 5,010 39 503,221 N/A N/A 10,807 N/A 48,845 2025 67,698 12,476 4,678 37 464,717 N/A N/A 9,976 N/A 50,141

Annual Change Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic

Demand Per Capita

Disposable Income

(%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2011 -2.79 -6.31 -0 1 3 N/A N/A -0.22 N/A 1.61 2012 -5.12 -20.4 -5 -7 -10 N/A N/A -17.8 N/A 2.58 2013 -5.68 -4.03 -1 -3 -4 N/A N/A -4.35 N/A -1.97 2014 -3.05 -4.28 -3 -2 -0 N/A N/A 1.26 N/A 3.34 2015 -3.41 29.8 -0 0 -2 N/A N/A 3.21 N/A 3.37 2016 -7.94 -21.2 1 -3 -5 N/A N/A -6.54 N/A 1.05 2017 -6.94 1.58 -4 -3 -5 N/A N/A -5.74 N/A 2.25 2018 -3.54 -4.37 -2 -2 -3 N/A N/A -3.33 N/A 3.40 2019 -7.09 -7.26 -4 -5 -6 N/A N/A -6.15 N/A 2.38 2020 -27.4 -26.4 -12 -11 -20 N/A N/A -21.2 N/A -1.09 2021 -7.50 -6.90 -5 -4 -7 N/A N/A -6.84 N/A 0.82 2022 -7.10 -7.52 -5 -6 -7 N/A N/A -6.73 N/A 2.28 2023 -7.37 -7.79 -6 -5 -7 N/A N/A -7.11 N/A 2.47 2024 -7.72 -8.28 -6 -7 -7 N/A N/A -7.51 N/A 2.52 2025 -7.85 -8.57 -7 -5 -8 N/A N/A -7.70 N/A 2.65

Key Ratios Year IVA/Revenue Imports/Demand Exports/Revenue Revenue per

Employee Wages/Revenue Employees per

estab. Average Wage

(%) (%) (%) ($'000) (%) 2011 17.7 N/A N/A 178 13.1 139 23,224 2012 14.8 N/A N/A 187 11.3 132 21,168 2013 15.1 N/A N/A 185 11.5 128 21,192 2014 14.9 N/A N/A 180 12.0 131 21,531 2015 20.0 N/A N/A 176 12.8 129 22,588 2016 17.1 N/A N/A 170 13.0 122 22,127 2017 18.7 N/A N/A 168 13.2 120 22,057 2018 18.5 N/A N/A 167 13.2 119 22,045 2019 18.5 N/A N/A 165 13.3 117 21,990 2020 18.7 N/A N/A 149 14.5 107 21,562 2021 18.9 N/A N/A 148 14.6 105 21,524 2022 18.8 N/A N/A 147 14.6 103 21,503 2023 18.7 N/A N/A 146 14.7 102 21,488 2024 18.6 N/A N/A 146 14.7 100 21,476 2025 18.4 N/A N/A 146 14.7 99.3 21,467

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Industry Financial Ratios April 2015 - March 2016 by company revenue Liquidity Ratios April 2012 -

March 2013 April 2013 - March 2014

April 2014 - March 2015

April 2015 - March 2016

Small (< $10m)

Medium ($10m-50m)

Large (> $50m)

Current Ratio 1.9 2.1 1.8 1.6 1.4 Quick Ratio 0.5 0.4 0.2 0.3 0.2 Sales / Receivables (Trade Receivables Turnover) 300.2 224.9 161.5 571.8 409.1 Days' Receivables 1.2 1.6 2.3 0.6 0.9 Cost of Sales / Inventory (Inventory Turnover) 4.3 3.9 4.0 3.6 3.9 Days' Inventory 84.9 93.6 91.3 101.4 93.6 Cost of Sales / Payables (Payables Turnover) 11.7 13.2 12.8 12.3 8.4 Days' Payables 31.2 27.7 28.5 29.7 43.5 Sales / Working Capital 12.0 13.0 14.7 14.6 20.9

Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 6.7 6.0 6.7 3.4 Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt

4.1 2.3

Leverage Ratios Fixed Assets / Net Worth 0.5 0.5 0.7 0.4 0.6 Debt / Net Worth 1.2 1.6 2.7 1.7 2.5 Tangible Net Worth 43.2 40.7 32.9 37.9 34.2

Operating Ratios Profit before Taxes / Net Worth, % 20.8 23.8 26.4 19.4 Profit before Taxes / Total Assets, % 8.1 5.9 6.9 5.7 4.2 Sales / Net Fixed Assets 15.2 18.5 19.5 17.0 18.7 Sales / Total Assets (Asset Turnover) 3.1 3.0 2.8 2.9 2.9

Cash Flow & Debt Service Ratios (% of sales) Cash from Trading 40.0 36.4 36.6 Cash after Operations 2.7 3.3 2.9 Net Cash after Operations 4.1 3.4 4.3 Cash after Debt Amortization 1.5 0.6 1.6 Debt Service P&I Coverage 4.2 3.0 6.7 Interest Coverage (Operating Cash) 10.1 8.1 8.3

Assets, % Cash & Equivalents 15.7 17.2 12.0 16.3 8.8 Trade Receivables (net) 2.5 3.0 4.0 1.5 1.7 Inventory 46.0 45.5 47.5 48.5 47.2 All Other Current Assets 2.0 4.4 2.4 2.0 4.1 Total Current Assets 66.2 70.1 66.0 68.3 61.8 Fixed Assets (net) 26.0 21.3 23.7 21.4 23.7 Intangibles (net) 1.7 2.3 4.4 3.3 4.2 All Other Non-Current Assets 6.1 6.3 5.9 7.1 10.2 Total Assets 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 1,490.1 1,740.2 1,512.4 996.0 16.4 209.4 770.2

Liabilities, % Notes Payable-Short Term 8.5 4.8 5.9 2.6 6.2 Current Maturities L/T/D 1.2 1.9 0.6 1.0 1.4 Trade Payables 16.2 16.6 19.7 18.5 19.2 Income Taxes Payable 0.2 0.3 0.4 0.2 0.2 All Other Current Liabilities 7.9 9.8 12.5 14.2 14.1 Total Current Liabilities 34.1 33.5 39.1 36.6 41.1 Long Term Debt 13.5 15.7 15.7 17.0 14.0 Deferred Taxes 0.8 0.8 0.9 1.0 1.7 All Other Non-Current Liabilities 6.8 7.0 7.0 4.3 4.9 Net Worth 44.9 43.0 37.3 41.2 38.4 Total Liabilities & Net Worth ($m) 1,490.1 1,740.2 1,512.4 996.0 16.4 209.4 770.2

Maximum No. of Statements Used 39.0 45.0 31.0 25.0 6.0 9.0 10.0

Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institution's borrowers and prospects.

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Additional Resources Additional Resources

National Retail Federation http://www.nrf.com

International Council of Shopping Centers http://www.icsc.org

American Apparel & Footwear Association http://www.wewear.org

US Census Bureau http://www.census.gov

Industry Jargon BIG-BOX RETAILER A relatively new store format characterized by its large size. These stores sell similar

merchandise as department stores, but also include grocery items. Also referred to as

supercenters.

BLACK FRIDAY The day following Thanksgiving Day in the United States. It traditionally marks the beginning

of the Christmas shopping season and thus many retailers host sales with heavy discounts.

BRICK-AND-MORTAR A store that has a physical presence and location, as opposed to an online retailer.

POINT-OF-SALE (POS) A system used at checkout in retail stores using computers and cash registers to capture

transaction data at the time and place of sale.

RADIO FREQUENCY IDENTIFICATION (RFID) A technology that tracks products from the time they leave the assembly line to the time

they leave the store by releasing continuous signals from a chip.

Glossary Terms BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low

barriers mean it is easy for new companies to enter an industry.

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CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with

that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital

intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is

$0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of

labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation

using the current year (i.e. year published) as the base year. This removes the impact of

changes in the purchasing power of the dollar, leaving only the "real" growth or decline in

industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US

Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their

country of origin. It is derived by adding imports to industry revenue, and then subtracting

exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working

proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise

consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single

physical location where business is conducted or where services or industrial operations are

performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in

the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is

considered high if the top players account for more than 70% of industry revenue. Medium

is 40% to 70% of industry revenue. Low is less than 40%.

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INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies

on production; all other operating income from outside the firm (such as commission

income, repair and service income, and rent, leasing and hiring income); and capital work

done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed

tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods

and services used in production. IVA is also described as the industry's contribution to GDP,

or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to

domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high

is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%,

and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an

industry's life cycle by considering its growth rate (measured by IVA) compared with GDP;

the growth rate of the number of establishments; the amount of change the industry's

products are undergoing; the rate of technological change; and the level of customer

acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are

mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s

profitability. It is calculated as revenue minus expenses, excluding interest and tax.

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REGIONS West | CA, NV, OR, WA, HI, AK

Great Lakes | OH, IN, IL, WI, MI

Mid-Atlantic | NY, NJ, PA, DE, MD

New England | ME, NH, VT, MA, CT, RI

Plains | MN, IA, MO, KS, NE, SD, ND

Rocky Mountains | CO, UT, WY, ID, MT

Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC, NC

Southwest | OK, TX, NM, AZ

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of

the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to

±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is

also included in this figure.

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