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Just released sales numbers indicate U.S. retail sales grew at the fastest pace in more than a year in April. Yet department stores are reporting some of the worst sales figures since the Great Recession. What gives?

Economists contacted by The Wall Street Journal said they expected overall April sales to increase 0.8% from March. Instead they shot up 1.3% to a seasonally adjusted $453 billion.

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Department Store Dilemma

Meanwhile, investors are discouraged as department stores like Macy’s Inc. (NYSE:MC) reported its worst quarterly sales since the Great Recession.

In addition to Macy’s, Nordstrom Inc. (NYSE:JWNC) and Kohl’s Corp. (NYSE:KSSC) failed to raise investor hopes with their respective first-quarter results.

For Nordstrom, luxury sales fell 7.7% while online sales rose an anemic 3.1%. (Nothing like the 20%+ upswing investors are used to.) Overall sales were well below analyst expectations and led to a 15% drop-off in the price of Nordstrom shares.

For Kohl's, sales fell by 3.7% and diluted earnings dropped to $0.09 per share. The same quarter in 2015 saw earnings of $0.63 per share.

Nonstore Factor

The key, it turns out, can be found through a closer examination of just where the 1.3% boost in sales happened in April – autos, gasoline stations and nonstore retailers, i.e., online shopping sites.

Specifically, spending at nonstore retailers grew by 2.1% in April. That represents the best gain since June 2014. Furthermore, online shopping and catalog buying were up 10.2% from a year ago, the best annual gain of any segment tracked by the government.

Auto purchases were up 3.2% and purchases at gasoline stations grew by 2.2% in April.

Other areas had more modest gains. Spending in restaurants and bars rose just 0.3%; building and garden supply store spending actually fell 1% in April.

It’s ‘Amazon’ Analysts Shout

While department store CEOs struggle to explain why customers are not showing up at the mall, analysts continue to raise their hands and shout, “It’s Amazon.com! (NASDAQ:AMZNC). Analysts note that the online giant has moved aggressively into apparel and fashion.

Jim Cramer of CNBC remembers just 10 years ago that retailers considered Amazon “an annoying fly.” He notes how stores like Nordstrom touted their excellent customer service and a legendary return policy, only to suddenly realize Amazon’s algorithms and return policy were better.

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Has The Turn Around Train Left The Station?

Department stores, for their part, are not standing still. The question is, “Is it too little too late?”

Nordstrom has decided to pull back its massive online selection and concentrate on offering luxury items you can’t get on Amazon or anywhere else. According to Nordstrom CFO, Michael Koppel, “We are refining our online assortment through greater focus on key brands and categories while editing less profitable items.”

Macy's and Kohl's have turnaround plans of their own, designed to focus on stores, manage expenses and control inventory. Analysts and industry experts, however, say these fixes don’t address the entire problem.

Retail analysts are mixed in their opinions. Some point to the fact that the vast majority of consumer spending is still done in brick-and-mortar locations. Others say the malls of tomorrow will look nothing like the malls of today but that physical stores will not go away.



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