As the relentless downturn in the economy drives shoppers to buy less and hold out for extreme deals, U.S. department store operators can wave goodbye to any marked improvement in their fortunes before 2010.

And when shoppers are ready to head back into stores, department store companies will have to highlight attractive products and tempting prices to snag sales, analysts and experts said.

From Macy's Inc , Kohl's Corp and J.C. Penney Co Inc to the more upscale Nordstrom Inc and Saks Inc , department stores suffered in 2008 through the worst holiday sales season in nearly 40 years. Consumers bought less; and when they did buy, they chose cheaper items.

The ravages of that season will become clearer starting on Friday, when Penney kicks off a week of department store financial reports for the fourth quarter and all of last year, and industry executives are already warning not to expect much this year either.

The department store sector posted an 11.1-percent drop in same-store sales in January, the last month of the retail fiscal year, according to Thomson Reuters figures. Total January revenue declined at all of the above five chains.

I think the year is lost, said Mark Cohen, a marketing professor at Columbia Business School, and the former chairman and chief executive of Sears Canada. The economy is just beginning to demonstrate the full measure of this recession.

To that end, Penney and Macy's, in particular, are now looking past 2009 for an improvement.

As we execute against our strategies, my guess is that in the middle of 2010 we should see improved performance, at least versus our competitors, Macy's Chief Executive Officer Terry Lundgren said in an interview this month.

Penney CEO Myron Mike Ullman said he does not expect much improvement in 2009, not even in the back half.

I don't think we are planning for a quick recovery, he said in an interview last week.

Nordstrom is due to report on February 23, Macy's on February 24, Saks on February 25, and Kohl's on February 26.


Upscale stores held up better than their mid-tier rivals in the earlier part of last year, but succumbed to consumer cutbacks once the financial crisis erupted in September.

Saks, for instance, has seen more consumers migrating to its sales racks, rather than pay full price. But even the allure of cheap may have worn off, since the motivation of holiday shopping is behind consumers.

Elizabeth Bell, a tourist from Vancouver who visited a Macy's store in San Francisco recently, said shopping Saks' 70 percent off sales in late November was fun, but the same type of discount did not excite her as much in January.

A lot of things went on sale earlier, she said. You've seen the things around.

Saks, which has cut 9 percent of its jobs, expects a significant gross margin decrease for the fourth quarter. Its CEO Steve Sadove has said 2009 will continue to be rough, while its shares have shed nearly 89 percent in the past year.

Macy's is taking steps that include cutting 7,000 jobs and consolidating business units as it tries to revive sales.

It's going to take time for consumers to believe that they are secure in their jobs, secure in their homes ... and that they can return to a spending pattern that perhaps is not what it was two years ago, but more than in the past year, Lundgren said.

Still, department stores may gain from the weakness at specialty apparel retailers, said Liz Dunn, an analyst with Thomas Weisel Partners. But she said any real improvement would come only in the fourth quarter or in 2010.

Dunn also called Nordstrom's tactic of being equally enthusiastic in selling a $30 shirt or a $3,000 gown a positive in the future for the company, which has said it will not meet its earnings per share target of 35 to 45 cents for the fourth quarter.


As shoppers get used to low prices and deals, companies must sell products that are engaging, such as apparel in appealing fashions, and affordable, if they want to stave off competition, Columbia's Cohen said.

I don't think Donald Trump, Usher and Martha Stewart cut it today, Cohen said, citing brands sold at Macy's.

Macy's shares are down about 66 percent in the past year, while shares of Kohl's have seen a 19 percent decline. Kohl's said earlier this month that it expects to top First Call earnings expectations of 99 cents a share for the fourth quarter.

Customers really appreciate (Kohl's) strategy of their brands next to private label, and recently, their increase in exclusives, Dunn said.

But some veterans doubt that the industry as a whole will see the light at the end of the tunnel as early as next year.

Only the very best managed and retailers will be able to see some signs of recovery as early as 2010, Cohen said. My view is the real recovery is well beyond that.

(Additional reporting by Alexandria Sage in San Francisco, editing by Gerald E. McCormick)