Macy’s Must Learn That Bailing Doesn’t Fix The Hole

Earlier this month, as part of a previously disclosed three-year store closure plan, Macy’s announced it would shutter an additional 45 locations this year. Like most of its moderate department store brethren, Macy’s has gone from being a highly productive, traffic-driving mall anchor tenant to a long-suffering, chronic under-performer. During the past five years, when the stock market has nearly doubled, Macy’s has lost about three quarters of its value.

Faced with multiple years of tepid sales and a brutal contraction in business caused by the pandemic, Macy’s decision to close so many stores might seem sensible. But just like JC Penney, Sears and other retailers that have been stuck in the mediocre middle for a long time, Macy’s does not fundamentally have a “too many stores” problem. It has a customer relevance and remarkability problem made plain by its continued share of wallet losses with its core customers and lackluster profitability. Macy’s will never cost cut and store close its way to prosperity. Bailing won’t fix the hole.

The troubles for the department store sector are hardly new. While it’s convenient to blame Amazon, in particular, and e-commerce more broadly, for their woes, department store market share has been declining for some two decades. For the most part, customers have defected to off-price retailers (TJX, Ross, et al) and discount mass merchants (Walmart, Target, Kohl’s)—not to online-only retailers. And obviously nothing fundamentally prevents Macy’s from getting its fair share of e-commerce anyway.

There is no question that the accelerated growth of online shopping is changing the role of physical stores, in many cases quite radically. The commercial retail real estate market was long overdue for a correction given the rampant overbuilding of the past decade or so. The size, configuration and operating principles of many brick-and-mortar locations need to be fundamentally reimagined to address the realities of shifting consumer preferences, new competitive dynamics and supply chain fulfillment requirements.

But here’s the undeniable truth, despite the goofy “physical retail is dead” narrative: Very few brick-and-mortar dominant brands that have a remarkable value proposition, well executed against a clearly identified and big enough set of target customers are closing stores, even in the Covid economy. In fact, across a spectrum of categories, dozens of national retailers that already have sizable footprints—Lululemon, Sephora, Tractor Supply Company, Five Below, AtHome, Aldi, IKEA, Costco, Dick’s Sporting Goods, and more—are collectively opening a lot of stores. While Macy’s is on its way to 400 or so locations, Kohl’s, its most similar competitor, has over 1,100. Kohl’s has been winning on off-the-mall convenience for years. Macy’s keeps making Kohl’s (and other direct competitors with many more outlets) even more convenient as it continues to vacate dozens of markets. The idea that Macy’s will make up much, if any, of this online is unlikely.

Every time a national retailer announces an aggressive store closing initiative without having clearly laid out how they are going to profitably win, grow and keep sales with a well identified set of core customers, I now reflexively hear the voice of an airline captain coming over the PA system announcing that we are about to begin our initial descent. Store closings by themselves do precisely nothing—zero—to improve Net Promoter Scores, help acquire valuable new customers, grow sales with existing customers or anything that point to Macy’s ever becoming a remarkable retailer. In fact, closing stores can undermine these efforts and make it even harder to deliver a harmonized shopping experience with directly competitive retailers that have more convenient locations.

To be fair, Macy’s has been more innovative than many legacy retailers. The current leadership team inherited a business model with huge structural disadvantages. I know from my time years ago at Sears that addressing these issues is done neither quickly nor inexpensively. To the extent that their Polaris Strategy might turn out to be more than a slightly better version of mediocre, the Covid-19 crisis has put much of this on hold. The harsh reality is that having not been able to move the dial on customer relevance, and faced with strong headwinds for at least the next six months, they were left with no good near-term options.

Nearly a decade ago, when I first started speaking, writing and advising clients on the inevitable collapse of the unremarkable middle, I frequently pointed out that if you understood where disruption was taking us—and did a little basic retail math—you could easily see that for most struggling retailers to thrive, much less survive, they had to focus 80% on revenue growth (a decent proxy for customer relevance) and 20% on cost reduction. Going forward, particularly for brands like Macy’s that lack the capital to aggressively reinvent their fundamental business model, the percent grows ever closer to 100%.

As tough as store closings and headcount reductions are on associates and local communities, they are comparatively easy to execute. But to believe they are meaningful strategic progress is wrong. Fixing the hole(s) that inevitably led to having no other reasonable options is now the only thing that really matters to prevent a descent into oblivion.

This article originally appeared on Forbes.com where I am a senior retail contributor. It builds on concepts from my bestselling book Remarkable Retail, which will be released in an expanded and completely revised 2nd edition in April. The hardcover and ebook are available for preorder at Amazon, Bookshop.org and just about anywhere books are sold.