Macy’s To Close 125 Stores – Part 1: How We Got Here

Part 1: How We Got Here

Just a head’s up this news was announced a few weeks ago and was all pre-coronavirus but I was just too lazy to finish writing it and figured no one actually cared but regardless you can all chill out because Macys was goin down well before this global hysteria started. Anyways, a few weeks back, Macy’s announced plans to shutter 125 of their department stores over the next 3 years as part of a broader restructuring plan. Specifically this:

Optimizes store portfolio by continuing the Growth treatment of stores in best malls, closing approximately 125 stores in lower tier malls within three years, and exploring new off-mall formats

And according to our friends and colleagues** at the Wall Street Journal:

“The company is also cutting roughly 2,000 corporate jobs, or 10% of corporate and support staff, and closing several offices. It will abandon a dual headquarters in Cincinnati—a structure Macy’s has kept since 1994 when it was still one of the country’s biggest retailers—and put all headquarters roles in New York.”

Yes, Macy’s is closing 125 stores in its lower-tier malls. Basically Macy’s is clotting a gunshot wound with a kleenex. The ship is, and has been, taking on water and franchise locations and their employees are abandoning ship. Macy’s did the same thing in 2016 when they closed 100 stores and after a new CEO stepped in in 2017 it looks like not much has changed.

What happened? As people continue to shift their buying habits online through e-commerce retailers like Amazon, foot traffic at malls -where large retailers like Macy’s and Sears are located, decline and subsequently people have chosen to visit stores like Macy’s less. Last quarter alone Amazon posted another quarter of strong sales gains as it expands deeper into apparel and other categories. 

The writing on the wall is not good but Macy’s is only beginning to think outside the box. Well, kinda. They’re closing the unprofitable stores which only took them years to figure out- and are updating the profitable ones. They’re also building smaller stores and planning on selling the massive parking lot space they’ve got on the books for developers to put up banks, restaurants, and office space. Not a bad move id say -if this were 10 years ago. Macy’s is a massive, bureaucratic, corporate empire and they’ve been slow to making any changes at their stores. 

They thought their name alone, rich history, loyal customers, and the need to try on and check out clothes before you purchased would be their saving grace and boy did they bet wrong. Amazon is exploding now and maybe you can get away with using that as an excuse but eBay has been around for what seems like forever and if you couldn’t predict that shopping was heading in that direction you probably aren’t fit for the corporate forecasting necessary for c-suite level employment. 

The crux of the issue is Macy’s, and other large retailers, inability to shift their business to the web and develop cloud computing to connect their stores, shipment centers, merchandisers, and the entire network that makes up these companies together so that buying and selling goods online is faster and most importantly -cheaper.

Don’t believe me? Take a look at Walmart. Maybe not in the same business as Macy’s but basically the same problem. When you’re competing against a digital marketplace -what are your disadvantages? For one, physical locations, shipping, and overall higher costs. Walmart has surged in recent years because they dove in feet first to fight the fight against Amazon. Amazon may be the new king on the block but Walmart has always been a billion-dollar, blue-chip goliath with the resources to make things happen. They invested in cloud software, they developed curbside pick up, and used their armada of trucks to deliver goods between stores so you could have them by the next day. Technology, logistics, and an online marketplace. That was how Walmart has survived and so far they are still in the game.

Retailers like Macy’s and Sears need to take some notes, stop relying on this folksy 50’s era business model and invest heavily in technology before this ship hits bottom.