• by Sarah Mahoney  @mahoney_sarah, January 11, 2016

Weak sales and failed initiatives are dragging retailers Macy’s and Kohl’s into the spotlight, and not in a good way. Activist shareholder Starboard Value stepped up its pressure on Macy’s, with a letter calling for more real-estate joint ventures. And struggling Kohl’s is also a hot topic, following a Wall Street Journal report that it is considering taking itself private.

The latest move on Macy’s comes just days after the Cincinnati-based retailer lowered its forecast for the year again, reported a 4.7% decline in same-store sales for the combined November/December holiday period, and announced extensive store closures. Standard & Poor's put the company on credit watch as a result. And while Macy’s attributed 80% of its year-over-year sales declines to the weather, with balmier temps squelching demand for coats, sweaters, and boots, observers think Macy’s problems are much bigger. 

 “We believe apparel industry trends will remain soft in 2016, given the heightened industry competition, declining mall traffic, and the shifting trend in consumer spending away from department stores to online and off-price retailers,” write S&P in its report. Its negative CreditWatch placement means it sees at least a 50% chance it may lower the chain’s ratings in the next three months. “Meaningful industry headwinds could more than offset the company's various operating initiatives.”

Those initiatives include the $400 million in cuts Macy’s recently detailed, including laying off some 3,000 sales associates, offering buyouts to senior personnel, and closing some 40 stores.

Morningstar is also doubtful. “We fear that regaining market share in a highly competitive space is difficult to achieve,” it writes in its analysis.

And Kohl’s, lurching through a turnaround effort its CEO has termed the “Greatness Agenda,” is said to be considering a deal to take itself private. 

JC Penney is one retailer that seems to be bucking the pressure, reporting that its same-store sales rose 3.9% in the same period.

But Morningstar points out that the entire category faces intense pressure from e-commerce powerhouses, especially Amazon. “In our view, department stores are very exposed to the e-commerce threat, since other retailers and wholesalers can sell identical merchandise. In fact, using data from the Department of Commerce, we estimate that total department store market share has fallen to 3.6% from 4.8% as a percent of total retail sales during the last five years.” And it sees the trend continuing: “Consumers now seem willing to pay more for healthier food and better or new technologies, and appear to be prepared to sacrifice their apparel budget to do so.”