As Macy’s announces it will shut a THIRD of its stores – just what went wrong at the once-loved department store?

American department stores were once the giants of the retail industry. 

The anchors of malls across the country, they dictated how people shopped, what they wore, and the items they chose to kit out their homes with. 

And among the most famous, and ubiquitous, was Macy’s. It’s flagship Manhattan store was even the inspiration – and the set – for the uplifting holiday movie Miracle on 34th Street.

Known for that store – once the biggest in the world – and the Thanksgiving Day Parade that passes by it through New York City, Macy’s was the leader of an industry now firmly in decline. 

This week, the company announced it would close 150 underperforming stores by 2026 – almost a third of its total – with 50 shutting by the end of this year alone.

So just what went wrong at the 166-year-old retailer?

The stratospheric rise of online rivals, the demise of America’s suburban malls and downtown districts, and the threat of activist investors are some of the factors which experts claim have contributed to the decline of the company. 

Others blame a disappearing middle class, an unsuccessful digital transformation, or a failure to appeal to a younger generation of consumers. 

For GlobalData Retail analyst Neil Saunders, it comes down to the nature of the stores themselves. 

‘The biggest things that have gone wrong at Macy’s are the quality of the stores and the product assortment, Neil Saunders, an analyst at GlobalData Retail, told DailyMail.com.

‘Both of those things are pretty core and have been a problem for a very long time because Macy’s just hasn’t invested in its proposition.’

Macy’s has not yet announced a full list of which locations are due to close. 

But it already announced in January that it was closing five namesake stores and laying off more than 2,300 people. These stores are located in Arlington, Virginia, San Leandro, California, Lihue, Hawaii, Simi Valley, California, and Tallahassee, Florida.

Saunders believes that department stores have ‘committed suicide.’

‘They haven’t been murdered by Amazon or anyone else,’ he said. ‘They’re the authors of their own demise, by and large. 

‘They haven’t performed, but a lot of it is just because they’re hopelessly run – it’s as simple as that.

‘You don’t invest in the store, you don’t invest in the product, you cut the staff down to the bone and you expect people to pay a premium for the products that you are selling. It doesn’t add up.’

Over the years, all the metrics have gone in the wrong direction, Saunders said. Customers have deserted the company, sales have tumbled and store productivity has gone down.

Some workers have even taken to TikTok to show empty stores, while customers have posted videos online of disheveled locations with unarranged clothing piled up on displays and on the floor.

Alongside the slew of closures, Macy’s this week announced sales at the company fell to $8.12 billion in the fourth quarter of 2023, down nearly 2 percent from a year ago.

Its digital sales decreased by 4 percent, while same-store sales were down 5.4 percent.

It also suffered a quarterly loss of $71 million, or 26 cents per share, it announced.

The demise of the department store 

Formed in 1858 through an amalgamation of regional department stores, Macy’s was once a sprawling chain with locations across the country. 

In 1902, the company opened its flagship store in Herald Square, Manhattan, which was the largest department store in the world at the time, spanning an entire city block.

It had a restaurant, a beauty salon, and even a pet department.

In 1907, the store introduced its first Christmas window display, which became a major tourist attraction. And in 1924, it introduced its Thanksgiving Day Parade – which has become the brand’s most enduring legacy. 

The New York City store became such an emblem of American life that it inspired the classic 1947 Christmas movie Miracle on 34th Street, where the real-life Santa Claus ends up working in a department store in midtown Manhattan.

The heart-warming story chimed so much with families that it has been re-made multiple times – most famously in 1994 starring Richard Attenborough.

As recently as 2018, there were 649 Macy’s stores across the US, according to analytics firm Coresight Research. 

But the department store sector has long been overtaken by big box stores such as Walmart and Target, which offer much of the same products at a lower price. 

During the stay-at-home orders of the pandemic, e-commerce sites went from strength to strength, while big box stores were able to stay open selling groceries.

In the years since, hollowed-out malls and empty shopping districts in once-bustling city centers have become an increasingly common sight across the US – leaving department stores without a clear position in the market.

Coresight forecasts total sales by US department stores will fall to $81 billion by 2026, down from $103 billion in 2018. 

Research by GlobalData shows department stores have fallen from 14.1 percent of overall US retail sales in 1993, to 5.7 percent in 2013, and just 2.6 percent in 2023. 

Neiman Marcus and JCPenney have both filed for Chapter 11 bankruptcy protection, and Sears now has only a dozen stores across the country – after boasting over 4,000 stores as recently as 2012.

A changing retail landscape

Some claim rising crime has also contributed to the so-called ‘retail apocalypse’ sweeping the country. 

Employees at Macy’s flagship San Francisco store in Union Square this week blamed its planned closure on shoplifting – despite mayor London Breed claiming crime was not a factor. 

Others have suggested that a dwindling middle-class is to blame, with shoppers tending to opt either for low-cost brands such as Walmart and Target, or luxury retailers. 

‘We’re seeing a polarization in the retail landscape,’ said Sunny Zheng, a research analyst at Coresight. 

‘Discounters and luxury retailers are gaining more market share, while the middle ground is being squeezed.’

Amazon, Target and Walmart have bigger product assortments and lower prices, she added. 

But there are also a lot of middle-market brands which do pretty well, said Saunders. 

‘The middle class is squeezed, but as a general trend I don’t think that market has disappeared – people have just gone to different retailers,’ he said.

‘Department stores are in the middle, but they’re also bland. They’re not the places people are going to shop.’

A new vision

But is there hope for Macy’s yet? 

The closures are part of a major turnaround strategy which is being implemented by freshly appointed CEO Tony Spring. 

The plan also includes a larger focus on Macy’s higher-end, and better performing, brands – Bloomingdale’s and Bluemercury. 

The company announced this week that it would open 15 Bloomingdale’s stores and 30 of its luxury Bluemercury cosmetics stores in the next several years.

By expanding its higher-end offerings, Macy’s is attempting to tap into wealthier shoppers, who have proven more willing to spend despite soaring inflation. 

‘The luxury market is a little bit more resilient than the overall retail market, and the beauty market is really on fire – it’s one of the fastest growing categories,’ said Saunders.

The challenge in the luxury market is that a lot of the high-end brands are looking to go direct-to-consumer by opening their own stores in malls and doing more online with e-commerce, he added.

‘It raises the question of how successful Bloomingdale’s can be in that space.’

In October last year the retailer also said it would open up to 30 smaller versions of its namesake stores in strip malls across the country in the next two years.

In a departure from the large-scale landscapes of previous years, the focus will be on ‘small format’ stores outside of city centers.

‘We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value,’ Spring in a statement following the quarterly results.

But in order to survive, Macy’s also has to appeal to a younger audience through its private labels and brand partnerships, said Zheng. 

‘It needs to work more with new brands,’ she said. 

‘If it wants to capture market share or grow revenues it really needs to think about how to adjust its strategy on a broader basis and on its products and services. It’s not only about store closures.

‘It needs to go more luxury, to attract younger consumers and to improve loyalty instead of pure store traffic,’ she added.

But Spring is going to have to fight back against the backdrop of increasing pressure from activist investors.

Last month, the company rejected an unsolicited $5.8 billion bid from Arkhouse Management and partner Brigade Capital Management to take the department store operator private.

And Arkhouse is currently taking another shot at the company, launching a proxy fight by nominating nine directors to Macy’s board.

By closing down stores that are not working and investing in the locations that it wants to keep, Saunders hopes it will put the business on a much better footing.

‘But of course, turning around something that has been left to rot for many years isn’t easy, it isn’t cheap, and it isn’t quick,’ he said. 

‘The plan sounds sensible, but now it comes down to how effectively Macy’s can execute it.’