Department Stores Revenue Expected to Improve

The Department Stores industry has fought tough conditions in the five years to 2012, with revenue expected to decline at an average annual rate of 3.1% to $193.7 billion. Weak consumer confidence and low disposable income deterred households from making discretionary purchases during the recession, causing demand and sales to fall substantially for traditional department stores. Furthermore, in recent years, online retailers have emerged as a threat to industry players, stealing customers by offering convenience and low prices. "These poor conditions have caused profit to plummet," says IBISWorld industry analyst Eben Jose. "However, these same conditions have allowed discount department stores to thrive because their low prices catered to customers shopping on a budget." Recent improvements in economic conditions are expected to relieve some of the overall industry's struggles; revenue is estimated to grow a slight 1.2% in 2012.

Over the past five years, the conversion of discount department stores into big-box retailers (i.e. warehouse clubs and supercenters) has caused much of the industry's decline. "Discount giants, such as major players Walmart and Target, have begun retrofitting stores with fresh grocery sections in order to expand their markets and attract more customers," adds Jose. "This expansion, however, takes them into The Warehouse Clubs and Supercenters industry, effectively reducing their market share in the Department Stores industry." In addition to this change, many operators have been forced out of the industry or have consolidated and merged with larger players. This consolidation is expected to continue as competition mounts between operators for consumer dollars. Operators are anticipated to continue to review and diversify their product range and quality in a bid to meet consumer demand. Also, developments in mobile phone technology are drawing more consumers away from brick-and-mortar stores toward online retail platforms. As a result, over the five years to 2012, the number of companies is expected to decrease at an annualized rate of 31.8% to an estimated 65 operators. The recession is largely to blame for this sharp drop: According to the US Census Bureau, the number of firms dropped from 138 in 2008 to 57 in 2009.

Continued economic recovery is forecast to aid the industry's growth in the five years to 2017. Armed with deeper pockets, consumers will likely increase spending on high-end discretionary items, such as those sold by traditional department stores. Additionally, discount department stores are expected to thrive because customers will continue to shop well within their budgets out of caution. IBISWorld expects that despite heavy online competition, industry revenue will increase over the five-year period to 2017. For more information, visit IBISWorld's Department Stores in the US industry report page.

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