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Home>KBRA Publishes CMBS Research: “As Off-Price Department Store Sales Decline, Different Strategies Emerge”

KBRA Publishes CMBS Research: “As Off-Price Department Store Sales Decline, Different Strategies Emerge”

KBRA Publishes CMBS Research: “As Off-Price Department Store Sales Decline, Different Strategies Emerge”

10/02/2017

KBRA Publishes CMBS Research: “As Off-Price Department Store Sales Decline, Different Strategies Emerge”

Kroll Bond Rating Agency (KBRA) releases a research report entitled “As Off-Price Department Store Sales Decline, Different Strategies Emerge.”

In the six-months ending July 2017, chains with off-price department store offerings that report sales posted declines in same store performance. Declining sales in what has been a high-growth segment prompted us to take a closer look at the sector. Our review included possible strategy changes in the distances retailers will position future off-price locations and full-line offerings, as well as factors that could be contributing to falling sales.

While several of the Macy’s Backstage stores are up to eight miles away from their nearest full-line location, all of the announced openings for Backstage are slated to be positioned within full-line Macy’s stores. On the other hand, Nordstrom is a retailer that may be going in the other direction. Based on KBRA’s analysis, the distance between Nordstrom Rack and the retailer’s full-line offerings will increase in the future. Of the existing stores, approximately 42% of the off-price locations were situated within five miles of the nearest full-line store – the comparable figure for scheduled openings is just 17%. Perhaps this has to do with the availability of real estate. However, it could also signal that the retailer is trying to mitigate the potential for cannibalization and brand dilution.

A contributing factor to the sales declines could be the growth within the segment. Off-price stores appear to be “over-retailed”, prompting more competitive pricing and discounting within the sector. Of course, it is likely that the rapid growth and convenience of e-commerce shopping is also taking its toll on off-price store sales, as it has with other bricks-and-mortar formats.

With department stores struggling, fewer off-price stores opening, and different location strategies emerging, sales siphoning could be taking place. How this all plays out is still too early to tell, but it seems to be clear that the off-price business model is being re-assessed.

In conjunction with the research, KBRA also looked at CMBS exposure to the off-price department store segment. In total, we identified 54 CMBS retail property loans which included 71 off-price department stores with a total principal balance of $8.5 billion in 87 transactions.

To view the report, please click here .

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