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How Will Closing 150 Macy’s Locations Affect Retail?
In the ever-evolving landscape of retail, the recent announcement of Macy’s plan to shutter approximately 150 stores has sent ripples of anticipation among its competitors. While the closures are yet to materialize, this move is expected to not only redefine the competitive dynamics within the retail sector but also reshape shopping patterns for consumers across the nation.
The decision to downsize stems from Macy’s struggle with lackluster sales and the need to revamp its business model. With approximately 500 stores in its portfolio, closing over a quarter of them could free up as much as $2 billion in market share. While Macy’s plans to focus on strengthening its remaining stores, competitors are gearing up to seize the opportunity.
However, the implications of Macy’s closures extend beyond just a redistribution of market share. The move reflects broader trends in the retail landscape, where traditional department stores are facing stiff competition from online retailers and evolving consumer preferences. Retailers must adapt to these changing dynamics by embracing innovation and reimagining their business models to stay relevant in an increasingly digital world.
With Macy’s stepping back, Target’s CEO Brian Cornell and Kohl’s CEO Tom Kingsbury have both expressed optimism about leveraging Macy’s downsizing to boost their own sales. Cornell told CNBC in March that Target has “gotten a leg up from other closures before. For example, he said, some of its stores are in former Toys R Us locations.” Target also said last month that it “plans to build more than 300 new stores over the next decade. It already has more than 1,950 stores across the U.S.”
Moreover, Kohl’s, with its strategic store locations in strip centers, sees Macy’s closures as a chance for growth. However, both Macy’s and Kohl’s face challenges in attracting younger consumers amidst shifting consumer preferences.
T.J.Maxx is also poised to benefit from the closures due to its similar merchandise offerings and store locations. This ripple effect extends to other retailers like Ross and Nordstrom, which are likely to gain from Macy’s shoppers transitioning to their stores. According to credit card data analysis by Earnest Analytics, “Those companies already count many of Macy’s shoppers as their customers.”
Off-price chains like T.J.Maxx, with their convenient locations and competitive pricing, have emerged as formidable rivals to department stores. Their ability to attract affluent customers and their extensive store network position them favorably in the retail landscape.
The closures not only impact Macy’s but also have implications for shopping malls, as these stores often serve as anchor tenants. This underscores the need for malls to diversify their tenant mix and explore alternative uses for vacant retail space to remain viable in the long term.
In response to changing market dynamics, Macy’s and Nordstrom have been exploring private ownership. Macy’s has tentatively agreed to disclose financial records for a potential $6 billion takeover bid, while reports indicate Nordstrom’s founding family is mulling over taking the company private again. These moves come during a critical period for the retail sector, grappling with changing consumer preferences and the ever-growing influence of online shopping.
Industry veteran Mickey Drexler, known for his insights into consumer behavior, paints a somber picture of the challenges facing department stores today. After visiting a Macy’s store recently, he described an atmosphere tinged with uncertainty, highlighting the unpredictable nature of the retail business. “It’s a little scary, a little stunning,” he said. “This business is never one that’s a sure bet.”
Drexler emphasized the necessity for retailers to establish a distinct brand identity in an era of heightened consumer expectations. “If you look at the companies that are very successful, they stand for something,” he remarked. He also criticized the prevalent practice of constant discounting, noting its negative impact on both businesses and consumers.
Delving into inventory management, Drexler stressed the importance of maintaining optimal stock levels to meet consumer demand effectively. Despite the challenges traditional retailers currently experience, he remains cautiously optimistic about the industry’s future, recognizing the resilience required to navigate these turbulent times.
To stay afloat, these retailers must revamp their value propositions, offering unique, fairly priced, and exclusive items that can’t be easily found online. Despite challenges, their physical presence remains a strategic advantage, with mall traffic nearing pre-pandemic levels, according to location intelligence firm Placer.ai’s report “The Comeback of the Mall in 2024.” This presents an opportunity for department stores to reassert their relevance as hubs for cross-category shopping.
However, consumers are often bypassing department stores due to perceived staleness in their brand offerings. To counter this, retailers are reimagining their product strategies, blending well-known national brands with emerging labels and in-house lines. Macy’s and Nordstrom, for instance, are refreshing their offerings by introducing new private labels and online marketplaces.
Kohl’s has capitalized on a partnership with Sephora to attract new customers and plans to introduce new brands this year like Quiksilver and Roxy. Nordstrom, on the other hand, excels in merchandising new products in innovative ways, such as its recent collaboration with Liberty London.
As Macy’s and Nordstrom face potential transitions, the retail industry as a whole awaits the outcome, knowing that the landscape will continue to evolve driven by innovation and consumer preferences.
Discussion Questions
How can traditional department stores like Macy’s and Nordstrom adapt to compete with online retailers and off-price chains while meeting modern consumer demands?
With Macy’s closing stores, how should shopping malls evolve to remain relevant without anchor tenants?
Balancing innovation and profitability, how can department stores like Macy’s and Nordstrom maintain a distinct brand identity and offer unique, fairly priced items amidst stiff competition?
Poll
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Neil Saunders
Managing Director, GlobalData
Dick Seesel
Principal, Retailing In Focus LLC
Let’s be very clear on this. The problem here is not with stores per se. It’s not even with department store per se. The problem is with Macy’s, which has not bothered to evolve its proposition, to invest in its stores, or to move with the times. The result has been stagnation which has now necessitated a further raft of closures. Can Macy’s survive? Maybe – if, and only if, it really invests and reconfigures itself to the needs of modern consumers. But it’s not just Macy’s: Kohl’s thinking it can automatically secure some of the spoils from the closures is deluded. In performance terms, Kohl’s has lost way more market share than Macy’s over the past 5 years; and now Macy’s is moving onto Kohl’s turf as it wants to open more off-mall shops. I just do not share the optimism. Bottom line: most US department stores have a lot of rethinking and reinventing to do if they want to remain in business.
As for malls: big, traditional anchor stores are less relevant. They need to build an ecosystem of interesting brands and shops – some small, some larger – plus other elements of entertainment and leisure. To be fair, the good ones have already done this.
Well said, Neil. Department stores like Macy’s face survival challenges due to stagnation and lack of adaptation to modern consumer needs, requiring significant reinvention. Malls must evolve beyond anchor stores to diverse, engaging ecosystems incorporating entertainment and varied retail offerings
A perhaps-not-so-minor point: Nordstrom does not, nor has it ever, consider(ed) itself a “department store”. (And I would double down on the not minor part, because it’s a very large part of how they market themselves).
OK, back to the game: without a firm list it’s a bit of an informed guess, but my (hopefully informed ) guess is that most of the closures will be at malls that are already in the retail ICU ward. So the answer, for them, is simple: there is no future; whether they’re repurposed or simply ‘dozed is more a question for RealEstateWire. For marginal malls we’ll just have to see; there are still a few department stores left – particularly in the Southeast – so some swapping of nameplates may occur. The rest will muddle on as best they can: in-line stores have always had most – or close to it – of a mall’s sales, but didn’t carry the burden of promotion…that may have to change to more of a cooperative arrangement.
Well said, Neil.
My hope is that with less stores Macy’s will refocus on the ones that remain open. Too many of the branch locations I have visited are in less than optimal condition; translate that to a mess. Customers deserve better, store associates deserve better, and Macy’s legacy deserves better. Make it happen.
I suspect that many if not most of the Macy’s stores selected for closure are in B/C malls or sub-par locations. Nonetheless, it will have a notable market impact. Macy’s and department stores in general need to find a path forward. The traditional anchor department store in malls is a losing proposition. These stores have plenty of traffic today, but they can’t convert the traffic because their offering is simply not interesting or compelling. These shoppers are merely passing through on their way to the specialty mall stores. If these retailers are going to take advantage of the traffic these anchor locations offer, they need to give shoppers a reason to stop and buy.
Agree with Mark, Many Macy’s stores facing closure are likely situated in lower-tier malls, highlighting the need for department stores to revamp offerings and create compelling shopping experiences to capitalize on foot traffic and remain relevant in today’s retail landscape.
The key to modern retail is relevance. Unfortunately, all department stores face relevance headwinds today. Consider there are no less than 100 online retailers for every one department inside of a Macy’s store. This is hard. Consumers simply have more choice due to the proliferation of digital commerce. As such, the appeal of the one-stop-shop of department stores has diminished due to a plethora of consumer choice.
Still, brick and mortar is an invaluable asset that cannot be replicated online. Department stores still have this experience to offer. However, it is time to reimagine the role of the physical store into an omnichannel driver vs single store sales.
Departments stores face an up heal battle but those that excell in brand relevance, consumer aspiration and destination experiences have a fighting chance.
Macy’s decision to close 150 stores is a significant moment that highlights the pressures traditional retail is facing. This move indicates a broader trend of physical stores struggling to compete with the growth of the digital marketplace and evolving consumer habits. While it poses a challenge for the department store industry, it also presents an opportunity for competitors and shopping malls to revamp and diversify. This development is a signal for the retail sector, indicating a shift towards more flexible and dynamic business models that prioritize online presence and experiential retail.
I strongly disagree—this is a Macy’s problem and a problem in the department store sector, not a physical store problem. Macy’s hasn’t been relevant for two decades. They keep rearranging things, but they haven’t actually made investments to understand who their customers are and what they want. The mall concept, unless there are entertainment options is also on life support. On the other hand, Total Wine, Ulta Beauty, Trader Joe’s and more are doing well.
It’s not just a MACY’s problem. Two quick pointers:
1) Please research the market share of physical v/s digital for the last 2 decades. Physical has been continuously decreasing.
2) I agree that MACY’s is a weakling and got out first but as I work with some of the other names you just mentioned; all of them all contemplating limiting their physical footprint.
I agree with you, market share in digital commerce has exploded, helped in no small part, due to the pandemic. The good news is overall growth continues to be strong in both sectors. We’re still opening more stores than we’re closing. Outside of the old shopping malls and some downtowns, available retail space is at a premium. According to commercial brokers, CoStar non-mall retail open occupancy rates are around 5%, which is a historic low. I believe that what we are setting is disruption and change, not a decline of physical retail. We are seeing a decline in bad retail, and there are a number of companies that fall into that situation. My two cents.
Sooooo many layers here, from macro/market to micro/retailer. As more and more $$$ were siphoned from the malls into ecomm, many retailers started having a math problem. Sales per square foot. And inventory per square foot did not keep pace. Overbuying remains a problem to this day. So as mall retailers kept overbuying they were in effect feeding the very beast that was eating their soul…the off-pricers. Now department stores were losing market share to both ecomm and off-pricers. And they never learned how to curate and offer differentiated, distinctive product that would compel store visits.
This is way more than the closing of 150 Macy’s stores. It’s a seismic shift for 150 malls. A seismic shift they had to know was coming, but here it is. How many of those malls survive? And if any of those mall close, lots of tenant retailers close through no fault of their own. Where does all that sales volume migrate to? The repurposing of mall real estate is a story unto its own.
The bottom line (no pun intended) is that we’ve learned that the continuous promoting and discounting of bland product truly is race-to-the-bottom thinking. Ask Gap. Ask Macy’s. Ask JCP. Nobody has the perceived value proposition enjoyed by TJX.
Customers have made it abundantly clear that they value physical retail. But they also demand a higher level of merchandising and curation than they have been offered for the last 20 years. Customers want to Explore and Experiment in the context of todays environment, not last century’s. So when retailers learn to Execute the that level of Expectation, customers will enjoy the level of Experience they Expect. Make it Exciting…!!!
Perfect summary Jeff. Fresh and innovative retail is doing well, but stale concepts are dying on the vine. No apocalypse, no end of physical retail, just an end to boring retailers who keep doing the same thing over and over again while expecting different results.
Macy’s store closures are a sign of its unwillingness to invest in those locations. Is it because of the “decline of the mall,” or has Macy’s neglect itself caused that decline? It’s a “chicken or the egg” question without a simple answer.
150 stores represents an opportunity for somebody — it may mean that another competitor like Dillard’s or Belk can expand its footprint, or it may mean that the dollars go to a different channel entirely, like TJX. Consumer spending data suggests that people are spending money…just not at Macy’s.
Futility = doing the same thing over and over (for a decade in this case) and expecting different results.
Neil is right. Good retail will thrive, but mediocre retail just won’t cut it. If customers enter a store and notice that the music is too loud and clothes are on the floor, they’ll leave. Every retail company is on notice to examine processes and elevate standards.
The balance of power between a Retailer and it’s suppliers/brands have slowly but surely flipped, at about the pace of a frog in the proverbial pot of heating water. If you don’t control a brand, then as a Retailer you are just a landlord selling someone else’s product, product that is conveniently available to a shopper at the click of a mouse. Good luck with the value proposition as a long term business model.
First-Nordstrom, while technically a Department store is somewhat different from, say a Macy’s or the old Marshall Fields in Chicago in that they only carry clothes. So that is not an apples to apples comparison. Second, malls are for the most part dead. Sure, there will be exceptions, but traditional malls as a mainstay of retail are headed for the scrap heap, or waiting to be reopened for the Zombie apocalypse. Third, Macy’s closing 150 stores is just a temporary delay of the inevitable, which will be a retail landscape with no Macy’s in its future.
I believe the big issue is what do I want to be and how do I reinvent myself to stay in business. With the stores that are left, how I do I bolster interest and sales ??? There has to be some spark, some excitement. Smaller, off mall formats can be positive but to what end? The brand means something- how do you communicate that ???
Customers have already changed their shopping patterns, so I don’t see a lot of additional impact on market share from these latest closings.
Macy’s and Nordstrom must revamp offerings with unique, fairly priced items and blend national with emerging brands. Enhancing in-store experiences, optimizing inventory, and smaller formats are crucial. Embracing online marketplaces, partnerships, and emphasizing exclusivity rebuilds their value proposition, focusing on quality, service, and seamless omnichannel integration to meet modern consumer demands and compete effectively.
Shopping malls should diversify their tenant mix by integrating entertainment, dining, and experiential offerings. They can repurpose vacant retail space for gyms or community events. Embracing technology for seamless shopping experiences and focusing on creating vibrant community hubs will help malls stay relevant despite anchor tenant closures.
Macy’s and Nordstrom can collaborate with local designers for exclusive products, use data analytics to personalize offerings, localize product offerings and create in-store experiences
So the store closures point to underperforming stores and likely the fact that back 10-15 years ago that may have been a great ‘anchor’ spot in a mall, but as the suburban sprawl continues the epicenter of consumers may be shifting in some major cities. Moreover, it’s what’s inside the store that is keeping people away, not the store itself. Inventory in disarray, long lines at the register, and a very ‘friction-full’ experience. Macy’s has work to do, but has great leadership to take them to the next level. Nordstrom is a different story, and a different experience. Much cleaner, an appealing to a different buyer, in my mind…
To remain competitive against online retailers and off-price chains, traditional department stores like Macy’s and Nordstrom must leverage their unique strengths. This includes offering exclusive in-store experiences, personalized customer service, and curated product selections tailored to their target demographics. Additionally, investing in omnichannel strategies that seamlessly integrate online and offline shopping channels will enhance convenience and accessibility for customers.
As for maintaining a distinct brand identity and compete effectively, Macy’s and Nordstrom should focus on product differentiation, emphasizing quality, craftsmanship, and exclusivity. By collaborating with emerging designers, introducing limited-edition collections, and prioritizing customer engagement, they can create compelling value propositions that resonate with modern consumers.
In response to Macy’s store closures, shopping malls should pivot towards mixed-use developments, incorporating entertainment venues, dining options, and experiential attractions. By transforming vacant retail spaces into vibrant community hubs, malls can continue to attract foot traffic and maintain their relevance in the evolving retail landscape.