It is probably no coincidence that the nation’s two largest department store chains find themselves in the same place at the same time. Each may have traveled to this point via a different path and each may be in a somewhat different position to deal with its problems but there’s no mistaking the fact that for Macy’s Inc. and JC Penney the retail clock is ticking.
Even though Penney finds itself in bankruptcy court sunk by excessive debt from previous very bad management decisions while Macy’s still has a working financial balance sheet that gives it some economic breathing space, both chains face the same dire situation:,
• Each has too many stores – too many bad stores in bad locations – and each has said it will close about 150 units in what could only amount to the first wave of retrenchment.
• Each relies on a physical store makeup that is heavily dependent on shopping centers, perhaps the most vulnerable real estate in retailing. Many of these malls are in sub-par B, C or even D-rated facilities being drained of life by the closings of other anchors – Sears, Bon Ton nameplates, Lord & Taylor, et al – as well as faltering specialty stores.
• Perhaps most critical, each relies on a merchandising strategy that positions it right smack in the middle of the marketplace, a terrible place to be right now. Being unable to match the value merchants on price or the better retailers on upscale attributes they are in no-man’s land in an increasingly polarized marketplace.
It’s why the answers we’ve seen so far from each retailer have been incredibly disappointing. Closing stores only reduces the number of irrelevant stores without fixing the core problem. Fewer bad locations is not a solution.
Nor is both chain’s returns to their self-destructive promotional bents. As Macy’s has reopened, it is back to running one-day sales as if nothing has happened over the past four months. The tone-deafness of these event is mind boggling. Penney is no better, offering its usual gimmicky cocktail of coupons, sale days and endless percentage points.
With the incredible gains in market share made over the last 120 days by e-commerce, Walmart and Target, dollar stores and warehouse clubs, neither Macy’s nor Penney has an endless open window to right itself and make department stores meaningful again.
The collapse of an entire retail channel is not unprecedented. The five-and-dimes of the Woolworth era are long gone. So too the short-lived catalog showroom era. When the basic business model is no longer relevant you either reformat or perish. It’s why each needs to be looking at a total reinvention rather than just reorganization. And the solution for each is very different.
Macy’s so far has spent most of its recent efforts on everything but its core business. Backstage and Blue Mercury may be worthwhile endeavors but they don’t fix the mothership. Story, particularly with the departure of Rachel Shechtman, has been a failure and one Market by Macy’s test store is insignificant in the bigger picture.
Macy’s needs to take its fundamental strengths and double down. Macys.com has been a godsend for the company during the pandemic and it should be plowing enormous resources into this business. E-commerce has yet to find a leading fashion goods marketplace, the equivalent to Amazon in general merchandise or Wayfair in home. Macys.com could be the one given its enormous head start.
A digital first strategy would turn the stores into adjuncts to the online business, places for order pick-ups, returns, try-on showrooms, alterations and other service functions supporting dot.com…rather than the other way around. It would require far fewer physical locations but that’s where Macy’s is headed anyway so why not get there faster and more strategically – rather than defensively.
Turn those B, C and D locations into Backstages or fulfillment centers or anything else that comes along. A 250-unit Macy’s with 400 Backstage stores and the country’s leading fashion apparel website? Sounds pretty compelling, doesn’t it.
For Penney, the path is somewhat less easier to chart. The retailer opened an excellent test store just outside Dallas last year and it featured many exciting elements. But in the end it was just a very good Penney store and that may not be enough to cut the retail mustard.
Penney has always relied on its private labels to drive much of its business and that is its most obvious vehicle to lead it back to retail relevance. Keep a Levi’s perhaps but build virtually the entire assortment around its very rich stable of house brands in apparel and home. Take what’s working for Zara and Uniqlo and Pottery Barn –and used to work for Gap and Abercrombie – and explode it out to the entire store. It would provide the proprietary merchandise that is a must in this online-price-comparison era and allow the retailer to work off a decent price structure. Be promotional, sure, but not at the expense of margins.
Penney would also need to rebuild its direct-to-consumer business. Ironic because this used to be big part of its success a generation ago. But no matter how bad it has deteriorated it’s still ahead of most other private label apparel players who continue to struggle with e-commerce. Penney’s infrastructure, particularly with a still sizeable physical store distribution and pick-up network would be a significant advantage.
Here’s the thing: maybe not all of these strategies are right and probably not all would work. But each must reinvent, not just reorganize or restructure. Macy’s and Penney simply being better at being Macy’s and Penney is a path to retail extinction.