With Macy's closing 150 locations, is the department store going the way of the dinosaur?

By Charles Passy

Experts say the once-dominant retail concept needs to adapt and evolve. But the clock is ticking.

At 60, I'm old enough to remember a time when it seemed like all Americans did their shopping in department stores.

Or at least my family did. There was barely a weekend that passed when we didn't make our way to one of the many stores in New York City, where I was born and raised. In particular, I can recall spending countless Saturdays at the now-long-shuttered B. Altman store - we 'd have lunch or tea at its restaurant (the lemon chiffon pie was to die for), after which I'd head straight to the toy department while my mother shopped for clothes or other necessities.

I've been thinking about those Saturday expeditions as I read more about the current stage of the decline of America's department stores, with Macy's (M) announcing last month that it was closing 150 stores by 2026 as part of a rethink of its business model.

"A bold new chapter serves as a strong call to action," Chief Executive Tony Spring said in a conference call with analysts. "It challenges the status quo to create a more modern Macy's Inc."

Such a call to action must be needed. Because here I am, a child of what could be called the department-store generation, and I can't think of the last time I went into a Macy's or the like to make a purchase. In fact, about the only time I visit a department store these days is when I'm near Bloomingdale's (M) in Manhattan and have a craving for frozen yogurt - the store's Forty Carrots restaurant is justly famous for the chilly treat.

My story is America's story. Consider that in 1985, department stores accounted for 14.5% of U.S. retail sales, according to GlobalData, a market researcher. By 2023, that figure had fallen to a mere 2.6%.

Like so many others, I do much of my shopping online. And when I do feel the need to buy something in person, I'm more likely to head to a big-box chain like Target (TGT) or Walmart (WMT) or a smaller specialty store, such as an electronics or menswear retailer. I simply find department stores too big and confusing for my taste. I don't need to spend a half-hour roaming through multiple floors and aisles just to find a pair of jeans I like.

But my story is America's story. Consider that in 1985, department stores accounted for 14.5% of U.S. retail sales, according to GlobalData, a market researcher. By 2023, that figure had fallen to a mere 2.6%.

Or consider the many department stores that have closed shop or been swallowed up by other companies. Among those in the last quarter-century are such iconic names as Lord & Taylor, Stern's, Marshall Field's and Filene's.

It's no secret why this is happening. The advent of online retail is indeed a major culprit. And retail experts will tell you that the pandemic only hastened the shift to e-commerce for many Americans, who discovered they could easily get much of what they wanted without stepping foot into a store.

I simply find department stores too big and confusing for my taste. I don't need to spend a half-hour roaming through multiple floors and aisles just to find a pair of jeans I like.

Plus, even when it comes to bricks-and-mortar retail, things have changed, experts note. Many brands now opt to sell primarily through their own stores - Lululemon (LULU) is a good example. And many online brands have launched their own physical locations.

The result for department stores? "You're in a much different competitive landscape than you were even a decade ago," said Matt Garfield, a managing director in the retail and consumer-products practice at FTI Consulting.

It's not as if department stores have done themselves any favors along the way. Experts point to the fact that they have often stuck by the same bigger-is-better model that many consumers no longer think is better. That is, shoppers prefer something more streamlined and curated these days.

"Department stores are overwhelming," said Karen Alberg Grossman, editor in chief of MR Magazine, a trade publication focused on the menswear business.

So, is it a lost cause? Is the department store as doomed as the dinosaur?

Not necessarily. If they are to survive, they will need to adapt, much as the Macy's chief executive suggested.

That means not just having fewer stores but also having stores with a smaller (and thus easier-to-navigate) footprint. Macy's itself has a "boutique-sized" concept that speaks to that, and the company says it plans to add up to 30 small-format stores over the next two years, among other changes designed to refresh its brand.

It may also mean having stores within stores and turning the department store more into a minimall of boutiques. That idea is already starting to catch on. For example, at many Kohl's (KSS) locations, you can shop at a Sephora store. Kohl's launched the program in 2021 and says it's been so successful it will be expanded to all 1,100-plus of its locations by 2025.

The ideas don't end there. Experts argue that department stores need to up their customer service: Shoppers value having a relationship with sales staff and receiving advice about what to buy rather than being left to roam the aisles in confusion.

It also wouldn't hurt if stores put on events or had offerings that turned the shopping experience into something more dynamic or "experiential," to borrow a current retail buzzword. The concepts can take many forms - Instagram-worthy showrooms, elaborate product demonstrations or add-ons ranging from concert presentations to cocktail bars. The point is it's no longer enough just to feature the merchandise, especially when the merchandise can easily be found online.

Of course, there are shoppers who still see value in the old-fashioned ideal of department stores. Mandy Gutman, a working mother in Brooklyn, N.Y., told me she feels "passionately" about the stores precisely because they're so big and varied and can provide a one-stop solution to all her family's needs.

"I can swiftly navigate through sections, picking up essentials for my kids, myself and my husband - all within the span of an hour. This convenience is unparalleled," she said.

But it would appear there aren't enough shoppers like Gutman left to sustain the stores in their present state. And experts wonder if the stores are beyond salvation altogether.

Neil Saunders, a retail analyst with GlobalData, called the decline of department stores "astonishing" in its trajectory and said, in the politest of terms, that the stores are "just not very nice places to shop." He predicts further decline in the near term as inevitable, though he said extinction can be avoided if stores "evolve in a way they haven't so far."

Such evolution is clearly warranted if you're going to convince shoppers like me there's more to a department store than some tasty frozen yogurt.

-Charles Passy

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03-16-24 1600ET

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