Is Shopping Thrilling Anymore, Anywhere?

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Maybe you saw the "Mr. Selfridge" premiere on PBS about the man and the store. Selfridge's is still a going concern and if the Yelp! reviews are any indication it is still as amazing as in 1909 with Quiet Rooms, live actor displays, art collections, fine restaurants, and much more. If you were inspired by the story of the man who vowed to "make shopping thrilling" you may wonder if the American founder's legacy is reflected in any publicly traded department stores.

Unfortunately, no. The closest anyone comes is Macy's (NYSE: M) with its Bloomingdale's stores and its flagship store in NYC and JW Nordstrom (NYSE: JWN) with its standards of customer service. BonTon, JC Penney, Kohl's and Sears don't even deserve to be in the same paragraph as Selfridge's.

Is the department store dead?

Harry Selfridge pioneered so many practices that have become standard, like putting items on the counter for display, lighted store windows, the bargain basement, and doing away with supercilious floorwalkers who discouraged browsing.

At the time he opened Selfridges the Department Store as a cultural phenomenon was in its heyday. Since then innumerable department stores have closed or been folded into larger entities like Macy's or BonTon.

Inspired by his paramour (in the TV series) Mr. Selfridge decides to put cosmetics counters at the front of the stores. Macy's CEO Terry Lundgren also makes a point of installing high margin cosmetics and fragrance at the front of his stores and it's become a standard procedure at most department stores.

The problem with these stores nowadays is competition as a place of entertainment from all media and the ongoing threat of e-commerce (which both Macy's and Nordstrom have embraced to their benefit.) Where one grand department store could solve a majority of a family's shopping needs, their location in malls presents competition from every other store in the mall.

In 1878 the New York Times wrote in its headline on Macy's opening day, "The Great Sixth Avenue Bazaar; Opening Day at Macy & Co.-A Place Where Almost Anything May Be Bought." Now, not that much.

The "experience" of spending an afternoon as one still can at Selfridge's or its London rival Harrod's doesn't exist to that degree in the US. Segments of retail are fragmented by the Internet and a plethora of bricks and mortar specialty stores. What "events" are organized by the mall REITS these days. Where's the socializing, shopping, and dining experience?

What's a latter day Mr. Selfridge to do?

Department stores need to make themselves relevant in a way never imagined before. Counting on the six weeks of the holiday season, Black Friday and beyond, to make their nut just isn't enough. Trivia: you have Harry Selfridge to thank for the catchphrase, "Only XXX shopping days until Christmas."

Amazon (NASDAQ: AMZN) is benefiting from our couch potato mentality and the lack of excitement bricks and mortar stores provide. It's not just showrooming about which pundits are always bloviating. Why drive and deal with parking when there's no other reason to shop for one or two items that could show up on your door within one to two days from Amazon? And don't forget the retail giants Target and Wal-Mart.

While Macy's has the Annual Flower Show that decorates the flagship store and the Macy's Thanksgiving Day parade it is no longer the center of American retail culture or social life. At a 12.85 P/E and a 1.90% yield actual name brands with high end appeal these stores carry are better values like Coach with a 2.40% yield.

Macy's has opened a Marilyn Monroe shop within shop for its Mstylelabs. This is more like the Selfridges of old but is only available online or at one of 150 of Macy's 800 stores.

As for Nordstrom its outlet stores are helping their top and bottom lines the most while the full price stores compete against Saks Fifth Avenue and privately held Neiman Marcus. Nordstrom as a stock is a comparable value to Macy's with a slightly higher yield at 2.10% and a 15.29 P/E. Nordstrom has an operating margin of 10.86% compared to Macy's 9.63%. In its defense, Nordstrom has the best reputation for customer service of just about any retailer.

Both Macy's and Nordstrom's have been tweaking their localization concepts and customers can order out of stock items at their local store from other stores in the chains to be delivered to their door or the store.

On the tech innovation front Macy's worked with eBay's PayPal on some cross promotional activity during the holiday season and Nordstrom has been doling out tablets to associates to expedite checkout and inventory. Both companies have strongly beefed up their web and social media presence and are on a par with most other bricks and mortar retailers'.

Past performance doesn't guarantee future results

While Macy's has enjoyed 27.17% annual EPS growth over the last five years analysts see half that going forward. Nordstrom's forward 5 year EPS growth is expected at 11.39% lower than the last 5 year rate of 15.89%.

Compare these to Amazon which has a 39.29% five year EPS growth rate as it grows its Prime membership numbers, its hardware offerings (Kindle and Kindle Fire), the all-encompassing e-commerce site which enjoyed its best holiday season ever (which they say every year, it seems), and its cloud and content offerings.

Apparently, shopping is more thrilling with a bargain on Amazon and a package to open the next day and content is delivered to your mobile device in seconds.

Over the last year Nordstrom is down and Macy's is up 5.31% while Amazon is up 31.59%. Amazon has an operating margin of 1.11% but has less debt as a ratio than these department stores.

Looking into the cut crystal ball

Department stores have gradually declined since the founding of Selfridges which maintains its allure as a destination. These American stores meanwhile have lost their way and it's not just Macy's or Nordstrom. Longer term they don't justify your money as an investment in their future. As Amazon grows into reasonable forward P/Es with higher growth, that's the place where shopping is still thrilling.


AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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