United States / Industry Insights
Department Stores Transition to Supercenters
by Rebecca Simon
Aug 02 2018

Department stores have struggled to stay afloat amid rising competition from e-commerce. To remain profitable, many companies are expanding their products to include groceries, thus transitioning into the warehouse clubs and supercenters industry.

The department stores industry is made up of retailers that sell items such as apparel, footwear, home goods, appliances, toys and sporting equipment.

IBISWorld estimates that revenue for the department stores industry will decline at an annualized rate of 3.3% totaling $155.3 billion over the five years to 2018.

These declines are reflective of major companies, such as Target Corporation and Walmart Inc., exiting the industry as they transition many of their stores into supercenters featuring grocery items.

“By supplying all of a household’s necessities under one roof, including apparel, small appliances and groceries, discount retailers offer convenience to consumers,” says IBISWorld analyst Anya Cohen.

Department stores trends

Major player Walmart recently added grocery selections to one-third of its general merchandise stores, transforming them into supercenters. This trend is anticipated to continue, with the total number of department stores on the decline.

The convenience and the wide product selection offered by online-based businesses have continually siphoned revenue away from brick-and-mortar department stores. Online companies save money by operating with fewer employees and avoiding the cost of buying or renting physical store space.

“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 margins to offer comparable prices,” says Cohen.

As a result, many brick-and-mortar department stores are shutting their doors permanently, as they are unable to compete with the growing trend of online shopping.

As department stores either transition to supercenters featuring grocery items or shut down completely amid online competition, IBISWorld estimates revenue for the department stores industry to continue its decline at an annualized rate of 1.8% over the five years to 2023, totaling $142.1 billion.

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