Macy’s recent announcement of closing 150 stores reflects the ongoing decline of the once-thriving department store industry.
Multiple factors have contributed to the gradual demise, including competition from large retailers, the shift towards online shopping, and battles for control among activist shareholders.
The retail landscape has bifurcated, with discount-focused brands like Walmart thriving alongside luxury brands catering to affluent consumers. However, department stores, traditionally serving the middle class, have struggled.
According to retail analyst Neil Saunders, the core issue for struggling department stores like Macy’s lies in their failure to adapt and update their offerings to compete effectively with emerging rivals.
Saunders emphasizes that many department stores neglected to innovate and respond to changing consumer preferences over the years, ultimately disconnecting from their customer base and losing relevance in the market.
Fading giants
Once behemoths of American retail, department stores like Macy’s, Sears, and JC Penney once dominated the landscape, offering a wide array of products under one roof and revolutionizing the shopping experience for consumers. In their heyday, these stores reshaped the way Americans purchased everything from clothing to appliances, electronics, and toys, becoming fixtures in local communities.
However, the rise of big box retailers like Walmart and Target, offering similar products and often at lower prices, signaled a shift in consumer preferences away from traditional department stores. Moreover, the advent of online shopping further eroded the relevance of department stores, with consumers increasingly opting for the convenience of digital purchases over in-store visits.
The decline of department stores has had ripple effects across the retail industry, particularly impacting malls where they often served as anchor tenants. As malls struggled to retain foot traffic amid changing consumer habits, department stores found themselves grappling with dwindling sales and store closures.
Macy’s recent announcement of plans to shutter approximately 150 stores, equating to about 30% of its remaining locations, is indicative of the ongoing challenges facing the sector. This move, while significant, is not unprecedented, as department stores have been steadily downsizing their physical footprint in response to evolving market dynamics.
Looking ahead, retail analysts like Neil Saunders predict a continued contraction in the department store sector, with fewer players remaining as the industry adapts to the shifting retail landscape.
![The Decline of America's Once Great Department Stores: Unraveling the Factors Behind Their Fading Legacy 12 BB1iZD7q](https://theubj.com/wp-content/uploads/2024/02/BB1iZD7q.jpg)
Saunders’ stats show that department stores have fallen from 14.1% of US retail sales in 1993 to just 9.8% ten years later, to 5.7% in 2013, and to only 2.6% last year. Total sales by US department stores are expected to fall from $103 billion in 2018 to only $81 billion by 2026, according to projections from Coresight Research, an analytics firm that tracks the sector.
Still feeling effects of the pandemic
The pandemic exacerbated existing challenges for department stores, particularly as enclosed malls faced closures due to stay-at-home orders. In contrast, big box retailers like Walmart and Target remained open, benefiting from their ability to offer essential goods such as groceries. This gave them a competitive edge and access to customers who might have traditionally shopped at department stores.
Moreover, the pandemic accelerated the adoption of curbside pickup options, a service that many shoppers embraced at Walmart and Target. However, this convenience was not readily available for mall-based department stores, further eroding their competitive position in the retail landscape.
The shift to remote work arrangements also had repercussions for department stores, as the reduced demand for dress clothes impacted a core offering for these retailers. With many office workers spending more time at home, the need for professional attire dwindled, affecting sales of clothing typically found in department stores. Additionally, some clothing brands capitalized on the shift by selling directly to consumers, bypassing traditional retail channels.
These structural challenges, compounded by the pandemic’s impact, have underscored the need for department stores to adapt and innovate in order to remain viable in an evolving retail environment.
Macy’s troubles
Macy’s latest restructuring aims to adapt to changing consumer preferences by reallocating resources to its more successful stores and upscale brands like Bloomingdale’s. CEO Tony Spring acknowledged the need to better meet customer needs, emphasizing a heightened focus on accountability within the company to stay aligned with evolving tastes and preferences.
However, Macy’s faces challenges beyond restructuring, including a takeover attempt by activist investors. While such attempts are not uncommon in retail, they often have mixed outcomes. Many retailers, including Lord & Taylor, RadioShack, Toys ‘R’ Us, and Payless Shoes, have succumbed to bankruptcy and closure after private equity takeovers burdened them with unsustainable debt.
![The Decline of America's Once Great Department Stores: Unraveling the Factors Behind Their Fading Legacy 13 BB1iZD7y](https://theubj.com/wp-content/uploads/2024/02/BB1iZD7y.jpg)
Under hedge fund operator Eddie Lambert’s ownership, Sears, once a dominant global retailer, has nearly vanished from the retail landscape.
One of Macy’s primary challenges is attributed to its holding company’s focus on acquiring other department store brands, rather than investing in its existing stores. This strategy, spearheaded by Federated Department Stores, saw acquisitions like May’s Department Stores and Filene’s, diverting resources from essential store improvements.
Michael Brown from consultant Kearney suggests that the department store sector needed consolidation for some brands to thrive. Over time, many department stores lost their appeal, becoming too generic.
However, there’s optimism surrounding Macy’s restructuring plans. By targeting specific clientele and adjusting store formats, Macy’s aims to rejuvenate its business model. Brown believes Macy’s strategy could lead to success if executed effectively.
Despite this optimism, Brown warns that not all remaining department store chains will survive. The industry will witness both winners and losers in the years ahead as it continues to evolve.
Discover more from The UBJ - United Business Journal
Subscribe to get the latest posts sent to your email.