Younger shoppers are being pursued by Macy's, Kohl's, and Nordstrom as their customer base ages.

• Younger customers have been difficult to attract for department stores, resulting in a decline in sales.
• This week and the next, Macy's, Kohl's, and Nordstrom will release their quarterly earnings reports.
• TD Cowen's retail analyst, Oliver Chen, stated that it is increasingly important to attract younger customers because retailers have already lost a significant amount of ground.

Department stores are aging — and so are their customers.

Over the past century, the stores have been successful in attracting multiple generations with their promise of offering a wide range of products. However, for many Millennial and Gen Z consumers, this is no longer enough, as they are increasingly discovering unique items on social media and specialty retailers, big-box stores, and online players are stealing away sales.

Department stores such as Nordstrom, Macy's, and Kohl's are facing an existential crisis as they struggle to convince investors to invest in their futures while sales decline and their core customers age. Nordstrom has recently attempted to take the company private, while Macy's has been targeted by activist investors who plan to turn it into a private company. Kohl's has also been the subject of activist investor interest in recent years.

Oliver Chen, a retail analyst at TD Cowen, stated that it is increasingly important to attract younger customers, as retailers have already lost a significant amount of ground.

To be successful as a department store, it is essential to cater to both younger and older customers, he emphasized.

Numerator, a market research firm, reveals that 40% of customers at Kohl's are Baby Boomers, while more than a third (36%) of customers at Macy's are also Boomers.

According to Numerator's definition, Baby Boomers are 60 years old or older, Gen X is between 43 and 59, Millennials are between 29 and 42, and Gen Z is between 18 and 28, as the firm only collects data from consumers aged 18 or older.

Unlike the other two retailers, Nordstrom has a larger base of Millennial and Gen X shoppers compared to Baby Boomers, with Boomers accounting for only 25% of its customer base. Its customer data includes both its namesake stores and its off-price retail chain, Nordstrom Rack, which is popular among younger, fashion-forward customers looking for deals.

Despite announcing plans to attract new customers, including younger ones, all three department stores have forecast weak sales growth for the fiscal year.

Since Macy's and Kohl's have new CEOs and are trying to improve their private brands, retailers are paying more attention to the problem of exclusive lines that can help them stand out and are often priced lower than national brands.

Department stores face challenges beyond just aging customers, such as declining foot traffic and sales due to inflation, which causes consumers to spend less on discretionary items like clothing and bedding and more on everyday essentials.

Kohl's

In order to appeal to a younger demographic, Kohl's is expanding its selection of trendy clothing for teenagers, increasing the number of Sephora shops, and enhancing its baby section.

In an interview with CNBC in late March, Kohl's CEO Tom Kingsbury stated that department stores, including Kohl's, have overly relied on coupons to attract customers. However, this approach does not appeal to Millennial and Gen Z shoppers, who are looking for compelling merchandise and clear pricing, which they can find at off-price stores like T.J. Maxx.

Kohl's, led by Kingsbury, aims to increase sales by targeting life stages that trigger purchases, such as moving into a new apartment or welcoming a new baby. The retailer plans to open Babies R Us shops in approximately 200 of its stores this fall. In addition, Kohl's has expanded its home goods selection to include lighting and wall art.

Kohl's is expanding Sephora shops in all its stores to attract younger customers and encourage them to explore other sections of the store.

We want to ensure that we can provide the desired products when customers visit Sephora, according to Kingsbury.

Kohl's anticipates that it will not experience immediate results from its recent actions. In March, the company stated that it predicts net sales to fall between a 1% decrease and a 1% increase for the entire year, and comparable sales to range from flat to 2% higher.

Macy's

The new CEO at Macy's aims to revitalize the company's flagship brand and close underperforming stores.

Macy's plans to close more than a quarter of its approximately 500 namesake stores by early 2027 while simultaneously trying to attract younger shoppers by expanding into suburban strip malls and beauty aisles.

Over the next two years, the company intends to open approximately 30 smaller off-mall Macy's stores, which are about one-fifth the size of its traditional mall stores and are typically situated near grocers, big-box stores, and off-price retailers, which experience more consistent foot traffic.

Bloomingdale's is expanding its presence by opening more stores and locations for its beauty chain Bluemercury, while also targeting younger customers.

Tony Spring, who became Macy's CEO in February, previously led Bloomingdale's, a retailer known for its luxury brands and popular private labels like clothing brand Aqua. Bloomingdale's is also known for its unique customer experiences, such as limited-time events or collections that tap into pop culture moments like the "Barbie" movie.

Macy's is becoming more of an attraction with the debut of new, exclusive clothing brands and a makeover of existing brands. The company is also offering a play area in Toys R Us shops within the stores and cocktails inside of Bloomie's, its smaller, off-mall version of Bloomingdale's.

Although the company tried to boost sales, its forecast remains subdued: Macy's anticipates full-year net sales to fall between $22.2 billion and $22.9 billion, a decrease from $23.09 billion in the previous year. The company expects comparable sales, which exclude the effects of store openings and closures, to range from a decline of approximately 1.5% to a gain of 1.5% compared to the year-ago period on an owned-plus-licensed basis and including third-party marketplace sales.

One of the challenges for Macy's is that Gen Z and Millennial shoppers are less loyal, according to TD Cowen's Chen. They tend to shop across multiple price points, purchasing a luxury handbag one day and an outfit from Target, Costco, or Zara the next.

"You can actually look better for cheaper now," he said.

Nordstrom

Younger shoppers have been more successful for Nordstrom compared to its department store competitors.

Nordstrom has been quicker to sign deals with popular brands and direct-to-consumer names, such as Skims, Kim Kardashian's shapewear company; and Beis, the handbag and luggage brand started by actress Shay Mitchell. It launched Australian fashion brand Princess Polly in January and timed the debut of millennial-focused fashion brand Nasty Gal with an activation in Los Angeles coinciding with Coachella.

One advantage for Nordstrom is that many of its stores are Nordstrom Rack locations, which may have a more appealing price point for younger shoppers.

On the company's March earnings call, CEO Erik Nordstrom stated that the retailer aims to improve its performance, particularly in the area of attracting younger customers. He noted that the company is beginning to see a turnaround in this area and has a multi-year plan in place to achieve this goal.

Nordstrom is adopting a new approach to increase its fashion-forward merchandise by launching a third-party marketplace. This strategy follows the model of other retailers such as Amazon and eBay, which have successfully used this approach to expand their online offerings.

Nordstrom and Macy's have both announced plans to increase their online sales through the use of marketplaces.

Nordstrom anticipates a 2% decline to a 1% increase in full-year revenue, including retail sales and credit cards, compared to the previous fiscal year, which had an additional week.

According to Christine Barton, a senior partner at the Boston Consulting Group, marketplaces can assist department stores in managing inventory while catering to the preferences of different age groups.

Retailers may opt to purchase familiar merchandise to avoid financial risks due to cost pressures.

""Going back to tried and true brands or products can reinforce the idea that younger consumers prefer familiarity over newness," she said."

To remain relevant for decades, department stores must break away from their old habits, according to her.