Weak holiday sales at Kohl's, J.C. Penney spell further trouble for traditional retailers

Kohl’s Corp and J.C. Penney Co Inc posted weak holiday season sales on Thursday, affirming that traditional brick-and-mortar retailers struggled to compete with record-breaking online shopping between Thanksgiving and New Year’s Day.

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Kohl’s said it now expects full-year earnings to come in at the bottom end of an already lowered forecast, blaming weak demand for women’s apparel during the crucial shopping season.

The Menomonee Falls, Wisconsin-based department store operator’s shares fell 8% as it posted a 0.2% drop in comparable sales in November and December.

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In a bid to drive foot traffic, Kohl’s formed a partnership with Amazon.com Inc, allowing customers nationwide to buy and return products such as Echo dot speakers at its stores.

Smaller rival J.C. Penney posted a 7.5 percent drop for the nine-week period ended Jan. 4, sending shares down 2.5 percent.

Penney’s Chief Executive Officer Jill Soltau is attempting to buck the trend of troubled bricks-and-mortar retailers failing amid the rise of Amazon and dominance from larger rivals such as Walmart Inc and Target Corp. In addition, Plano, Texas-based Penney faces competition from discount retailers like TJX Cos Inc’s Marshalls and T.J. Maxx chains.

“E-commerce is definitely compromising the competitiveness of the physical assets of retailers,” CFRA Research analyst Camilla Yanushevsky said. “Amazon, Target and Walmart are really big names in this space and have squeezed out a lot of the little guys.”

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Soltau has shifted Penney’s strategic priorities to refocus on the retailer’s once-thriving, higher-margin apparel business and chose to stop selling major appliances and limit furniture offerings. The moves have contributed to near-term financial pain.

Analyst Yanushevsky said such “heightened financial vulnerabilities” at Penney make the retailer’s tweaked strategy fraught with risk. “We think it will continue to be a significant drag to any turnaround.”

Data from Mastercard in December showed U.S. e-commerce sales in the period from Nov. 1 through Christmas Eve rose 18.8 percent, while overall holiday retail sales, excluding autos, rose just 3.4 percent.

Macy’s Inc, however, surprised investors on Wednesday with a smaller-than-feared drop in holiday season sales after trimming its own full-year forecast just two months ago.

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In November, Kohl’s also cut its annual profit forecast by at least 40 cents per share to $4.75 to $4.95, blaming weakness in its women’s apparel business back then, too.

Victoria’s Secret owner L Brands on Thursday lowered its profit forecast for the fourth quarter after reporting a 3 percent drop in comparable store sales for the holiday period, but its shares rose slightly.