Activist investors are stepping up their efforts to get chain department stores to spin off their real estate holdings, as the sector as a whole continues to struggle.
Department stores ranked among the industry’s sales laggards for yet another quarter, according to latest research from real estate services firm CBRE on overall retail performance and rents. Sales in the sector registered an almost 6 percent decline for the rolling four quarters, according to findings from the company’s second quarter U.S. Retail Figures.
The decline was worse than the sector’s sales performance in the first quarter of the year, although the difference was less than one percentage point. Compared with overall retail sales, which went up by a modest 4.2 percent year-over-year, department stores looked like a weak link among chain store operators. Other sectors that were slow on sales included electronics and appliance stores and sporting goods, hobby, book and music stores.
One obvious culprit for department stores’ struggles is competition from e-commerce. Another, more technical, cause is that some large operators have expanded their food and grocery departments, shifting their revenue out of the department store category and into warehouse clubs and supercenters, according to research firm IBIS World. The international company, which analyzed results from JCPenney, Macy’s, Nordstrom, Sears and Target, found that annual sales growth declined by 4 percent from 2012 to 2017. The company expects that trend to continue into 2022.
In response, investors are intensifying their ongoing campaigns to monetize department stores’ property holdings. Snow Park Capital, a New York City-based hedge fund, for instance, targeted Little Rock, Ark.-based Dillard’s in such an effort, according to Bloomberg.
The company operates 268 stores and 25 clearance centers in 28 states. After the close of its first quarter, the company reported that net sales dropped to $1.4 billion, a 4 percent decline from the same period in 2016, according to the company’s quarterly report. Same-store sales were also down 4 percent. Snow Park reportedly values Dillard’s real estate at $200 per share, and wants the company to extract some of that value.
Some department stores carve their own paths
Not all department stores are languishing under the weight of carrying physical properties in a changing retail environment. Belk, for instance, is launching a campaign to open three new stores, as well as improve and remodel existing ones by the end of 2018. The company is investing almost $40 million in its bricks-and-mortar improvement and expansion effort, according to an official statement.
Belk recently closed a store in Huntsville, Ala., a decision it made because it already has five stores in Huntsville and the surrounding area, according to the company spokesman. Overall, however, Belk’s presence often makes it the only department store within a community’s trade area, helping to entrench customer loyalty.
“In this 16-state footprint people have embraced the modern, Southern style aesthetic,” says the spokesman. “We feel good about the business. It is allowing us to make this $40 million investment.”