Macy’s, the legacy retail department store found in just about every mall in America, is going through a bit of a rough patch. The company has seen sales and foot traffic steadily decline over the past several years. And recently it announced a wave of store closings and layoffs in an attempt to regain its footing.
Macy’s isn’t alone in its struggles. The entire retail industry has been undergoing dramatic changes. And when the game changes, you need to change, too. But when it comes to longstanding companies, such as Sears and Macy’s, change isn’t something that comes easy. For that reason, these titans of retail are finding it hard to stay relevant.
Just what is wrong with Macy’s? Mainly it comes down to three things: increasing costs for labor and resources, a consumer base that is changing the way it shops, and an influx of more agile competitors.
It’s a veritable tornado of trouble for department store brands. And the signs of desperation are there — it’s why everything in Macy’s seems to be 40% off at any given time. And if you’re not convinced, all you need to do is take a look at the company’s earnings report. When announced, the report led to Macy’s stock tanking by 17%. Let’s take a closer look at why Macy’s is sinking so much.
What’s sinking Macy’s?
Macy’s isn’t alone in its recent troubles. JCPenney, Sears, Kohl’s, and many other retail department stores are also trying to keep their brands relevant. For some, it’s not going so well. For others, new strategies are proving at least somewhat fruitful in the short term. But the numbers paint a fairly ugly picture. Retail sales are down, and forecasts predict the slide will continue.
You could say Macy’s troubles aren’t unique. There might not be any individual thing (with one exception, which we’ll discuss) the company is doing that’s killing its business. The company’s troubles could be chalked up to simple business evolution or even blamed on technology. Whatever you want to blame, there’s one thing that’s very clear: There’s no easy path out of the woods.
Why is it happening? Primarily, it boils down to three main reasons, starting with an increased price for personnel.
1. Labor costs
We’ll start with labor costs. Retail jobs are notoriously awful. They require you to be on your feet for a long time, facing customers who can be rude and unforgiving. These jobs also don’t pay well, on average. As the labor market has tightened, it’s become harder to fill these jobs. So costs of finding, training, and retaining employees have cut into margins. Also, many states and cities have bumped up the minimum wage, further hitting profit margins.
And when you combine increased operating expenses with a business model that is quickly proving itself to be outdated? Trouble’s a-brewin’.
2. An outdated model
Second, the business model itself is proving it might no longer be sustainable. Consumers are changing the way they shop, and it seems many are no longer willing to wander around giant retail stores to find what they want. Why do that when you can simply buy something from your couch with your smartphone? This is something all department stores are struggling with — even big-box retailers. It’s why Wal-Mart is starting to change its model to take on Amazon, for example.
And speaking of Amazon, it’s one of the other key reasons Macy’s, and other stores like it, are failing.
The third huge variable at play here is more agile competition. The most obvious threat, as far as this goes, is Amazon. But others are catching up. Wal-Mart, for example, recently purchased Jet.com to better position itself for online sales battles. But companies like Macy’s? They’re still dependent on physical sales. Without the additional costs of huge stores, stocked with slow-selling merchandise, a company like Amazon will have an edge going forward.
There’s also another association that could be hurting Macy’s: its business ties to the president of the United States.
And what about that boycott?
During the 2016 campaign, Macy’s ended up dumping then-candidate Donald Trump’s clothing line from its stores. This was met with cheers from those who dislike Trump, but it also led to a backlash in the form of a boycott from those who support him. Trump has personally taken shots at the company via Twitter. The question, though, is whether any of this had any real effect on the business at large.
The truth is it’s really hard to say. Macy’s was experiencing all sorts of problems before the boycott kicked in, and the company’s CEO Terry Lundgren has said he stands by the decision. Though Trump and his supporters might like to take credit for Macy’s continued circling of the drain, it’s hard to say whether there was a significant impact.
Aside from public feuds with politicians, Macy’s troubles run way deeper.
Picking at the bones of retail stores
The retail industry’s troubles aren’t easily fixed. Large, physical storefronts continue to be the bread and butter of companies like Macy’s. When you look at the numbers, sales at brick-and-mortar stores are still where the vast majority of economic activity takes place.
This doesn’t mean these companies can survive without evolving. Retail stores operate on fairly thin margins. Any cut into those margins is going to make it that much harder to flourish.
The retail industry’s struggles can be good for consumers. As mentioned, if you walk through just about any Macy’s, JCPenney, or Sears store these days you’re bound to come across aisles of clearance racks and signs reading “50% off.” It’s like Black Friday every day.
More competition (from online companies particularly) has forced brick-and-mortar retailers to start fighting pricing battles they’d rather not, and that means savings and deals. Macy’s is even experimenting with a concept that Nordstrom has also pushed: discount stores. The long-term outlook for companies like Macy’s might not be positive. But at least for the time being, consumers can take advantage. The question is whether retail companies will be able to evolve and survive into the 2020s and beyond.