The Department Store Industry: Once a Retail Giant in Decline
Tuesday’s announcement by Macy’s that it plans to shutter approximately 150 stores, representing nearly a third of its total inventory, is a stark reminder of the decades-long decline of the American department store industry.
Factors Contributing to the Demise of Department Stores
The decline of department stores can be attributed to several factors:
Competition from Big Box Retailers
The rise of big box retailers like Walmart and Target, which offer a wider range of products at competitive prices, has led many consumers away from department stores.
Online Shopping
Another significant factor in the decline of department stores has been the shift to contact shopping. Consumers increasingly prefer the convenience and ease of purchasing items from the comfort of their own homes.
Activist Shareholders
Shareholder activism, with investors seeking control of company boards, has also contributed to the instability of department store chains.
The Retail Sector’s Divide: Inexpensive versus High-End
As inflation takes its toll, the retail sector has been divided into two distinct categories: brands focused on inexpensive items and those catering to the luxury market. Department stores, targeted towards America’s shrinking middle class, have struggled as a result.
Failure to Adapt: The Root of Macy’s Woes
According to retail analyst Neil Saunders from GlobalData, the primary problem for struggling department store chains like Macy’s is their failure to evolve and adapt to changing consumer preferences and new competitors.
Department Stores: A Retail Giants’ Decline
Once the giants of American retail, department stores such as Macy’s, Sears, and JC Penney, offered a diverse selection of products and convenience that reshaped the way Americans shopped for their homes. From clothing to appliances, toys, and electronics, department stores catered to a broad range of consumer needs.
The Disappearing Middle
The victims of changing consumer tastes have not been the department stores that anchored malls but rather the smaller, locally owned stores in downtown shopping districts. No longer are these stores a viable option for shoppers.
Competing with Big Box Retailers and Online Shops
Department stores have been unable to compete effectively with big box retailers like Walmart and Target, which offer the same products at lower prices and the convenience of groceries. Online shopping has further eroded their customer base.
The Impact on Malls
As department stores close, many malls have suffered alongside them. The loss of these anchor tenants has hurt the remaining stores in hollowed-out malls with reduced foot traffic.
The Future of Department Stores
According to Neil Saunders, department stores will continue to decline in the next decade. Total sales by US department stores are projected to fall from $103 billion in 2018 to only $81 billion by 2026, according to Coresight Research. However, Saunders believes that extinction is not inevitable.
Adapting to the New Retail Landscape
Macy’s new CEO, Tony Spring, acknowledged that customer needs are not being fully met and promised to shift resources towards more successful stores and upscale brands like Bloomingdale’s. However, Macy’s faces challenges from activist investors seeking to take the company private.
A Trend with No End in Sight
The retail sector is facing significant headwinds, including the pandemic’s impact on malls and consumer preferences for curbside pickup and contact shopping. As a result, department stores must adapt quickly to remain competitive in this new retail landscape.
