For some department stores, clinging on in the mall has resulted in a lucrative victory.
Following last decade's burst of expansion in U.S. shopping malls, department stores and specialty retailers have scaled back square-footage growth significantly and closed many locations outright. Companies instead are focused on Internet sales or overseas prospects.
That has left an opportunity for those mall-based department stores that weathered the storm. Take Dillard's, whose shares soared 15% Friday after blowing away first-quarter profit forecasts. The shares have risen more than tenfold since the depths of the crisis.
One key to Dillard's success: its position in second-tier malls where specialty retailers have retreated and where it is the only department store in its price category. Cedrik Lachance of Green Street Advisors says the average Dillard's location is in a mall that generates roughly $350 per square foot in annual sales, less than those where rivals Macy's and Nordstrom operate.
What's more, Dillard's has eliminated many items sold by competitors and introduced popular new brands like Kiehl's cosmetics and Ugg Australia footwear. In many regions, Dillard's is the only retailer selling those products.
The company has had two consecutive quarters of higher sales at stores open at least a year, but there is potential for further improvement after many years of declines.
Ken Stumphauzer of Sterne Agee says the company's merchandise margin still is 3% to 4% below its average competitor's. Closing the gap would boost its earnings by more than 60%, he says.
Mall construction has ground to a halt, but Americans still make the vast majority of their purchases at local retailers. Dillard's charge still has legs.
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