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What’s Next For Consumers After Macy’s And Sears Closing?

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Steve Pomeranz, Sears Closings
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I’m sure by now you’ve heard about Macy’s and Sears closing their doors left and right.  First announced last summer, we now have the official list of the 68 Macy’s stores closing and the grim news of more than 10,000 employees being laid off.

Sears has also found itself in the same boat, mounting losses of 150 Sears and Kmarts to be closed or sold.

American malls, in general, have been struggling to stay relevant and profitable while online shopping becomes more and more prevalent.

Kohl’s, for example, has been reporting weak in-store sales with many looking to make it up this holiday and failing to do so due to the undeniable convenience of online shopping and delivery.

So, to what extent are Macy’s and Sears in trouble?  How bad is it?  And what does that mean to you?

Macy’s and Sears have triggered losses in their stock prices with underlying problems that have been building for some time.

Macy’s has consistently been losing money for the past two years, while Sears scraped a new low by losing almost $750 million in one quarter.

Sears was more or less forced to sell its Craftsman Line to Black and Decker for $775 million in an attempt to make up the negative numbers.

Lost revenues will hurt Macy’s bottom line to the tune of $575 million in the short term, although they expect to save $550 million from the closed stores going forward.

According to their current CEO who is leaving the firm, “We are closing locations that are unproductive or are no longer robust shopping destinations … as well as monetizing locations with highly valued real estate”.

So, what does that mean?  It means people are getting laid off and both Macy’s and Sears are attempting to sell their stores to make up for some of the loss.

Their plans also include investing substantial amounts in their online presence (I wonder what took them so long!) and developing new store concepts, such as expanding “stand-alones” like Macy’s Bluemercury beauty shops.

Now, interestingly, Bloomingdale’s (also owned by Macy’s) is doing ok, so they are expecting to open some new international Bloomingdale’s locations.

Declining Foot Traffic at Macy’s

Despite Macy’s ambitious plans for restructuring, CEO Lundgren doesn’t deny that things aren’t looking great.  As we all know just from going into either Sears or Macy’s, the stores have been empty and in disarray for some time.  The products are disorganized and everything appears to be on clearance. Just walking around to browse is rather unsettling.  Even the flagship stores have been neglected.

Growth of Online Retail Eclipses Brick and Mortar Sales

So, what’s next?  Are the day of department stores over, with nothing but doom and gloom when you walk in?

Everyone, including your grandparents, probably know by now that online shopping is a great way to get deals and find less common products (first editions of Harry Potter, anyone?), not to mention avoiding all that parking lot traffic.

Amazon has revolutionized into a magical place where you can buy just about anything you can imagine and that’s become a fact that is now universally known.  The fact that this has long been taking a toll on brick-and-mortar mom and pops and large chains alike should come as no surprise.

Even though many of us don’t like the idea of hurting local businesses, it’s now become a struggle between convenience vs tradition.

While I’m paraphrasing, extensive data backs up the prevailing trends of online sales growth which, unfortunately, comes at a great cost to traditional retailers, who have been closing their doors more and more.  It also explains a good deal about why Macy’s and Sears are desperately trimming fat and changing up tactics.

Macy’s and Sears Closings: Isolated Event or Bellwether?

What are the consequences and lessons to be learned?  Are there reasons to expect that other department store chains that we’ve come to love and rely on will face similar demise?

It’s reasonable to assume that they are already fighting many of the same battles, but it’s tough to make predictions without resorting to speculation and crystal balls.

We know it’s impossible to ignore the long shadow cast by Amazon over the US retail market.  As Jan Dawson puts it: “It’s becoming increasingly clear that Amazon has built all kinds of very strong differentiators across logistics, brand, selection, and more that are making it very tough for others to compete on level footing.”

Expect this conflict between Amazon and its competitors to be drawn out and bloody. Liz Dunn, Founder and CEO of Talmage Advisors, is doom and gloom about the outcome.  She believes that what we’re seeing with Macy’s and other department stores today is merely an acceleration of something that’s long been coming since 15-20 years ago, that it is virtually unchangeable, and that “the overall trend of department stores losing market share to online retailers … is going to continue.”  In other words, this is just the beginning.

Greg Petro, in an interesting article on Forbes.com, argues a different point of view, one which acknowledges the challenges posed by Amazon but also offers department store chains hope that they can still differentiate themselves from competitors and strengthen their brand identities.

He warns against strategies that depend too much on discounting or that follow tried responses like “store redesigns, celebrity appearances, adding restaurants, coffee shops and beauty shop all of which have been found wanting.”

Instead, he focuses on the lack of product differentiation amongst competitors, noting that Amazon sells roughly 70% of the same items found in chains.  In the absence of unique product, customers simply don’t have enough good reasons to get out of the house and down to the mall.

He makes note of three concepts: 1) Test your ideas, designs, and products; 2) Price it right the first time; 3) Minimize time to market.  Big brands have the resources to get these kinds of initiatives right.  Petro advises retailers not to ignore millennials demand to be presented with product they want, not simply the product you’re trying to sell.  Simply marking products down in today’s hyper-competitive environment just isn’t cutting it anymore.

The Legacy of Macy’s and Sears Store Closings

How will these Macy’s and Sears store closures affect you?  Certainly, the most dramatic impact will be on laid-off employees and their families, but, beyond that, some investors expect that a number of malls losing both department store tenants could find themselves going under, creating a domino effect of other store closures and job losses.

It’s not completely that simple; just take the formation of the new company that was created to take all of the Sears stores and convert them to high-end retail space, like restaurants gyms and the like. You might already be seeing some of these changes at your local mall. Sears is paying about 3 bucks a square foot, but the newer tenants are paying significantly more. That sounds like a good business to me.

Finally, on a positive note, some new jobs will be created, though not nearly enough to offset layoffs. Many of us, fortunately, will be spared the worst of these effects. For the rest of us, it leaves the question: “Where the heck am I going find a lug wrench this afternoon?”, or “How can I try on these boots before ordering them online?” with the obvious answer being “not Sears” and, for the most part, no longer Macy’s, as well.

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