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Macy’s Closures: Why The Midwest Was Hit The Hardest

Macy’s sales losses were the worst in Midwest cities, 1010data finds. Here’s why — and how the chain will double down on an omnichannel approach to turn things around nationwide.

Macy’s recently announced the closure of 100 stores all across the U.S. — but the department store chain’s biggest struggles came from sales declines in the Midwest, according to a report from 1010data.

Using its Local Market Intelligence (LMI) product, 1010data found that the top cities where Macy’s lost the most market share between 2014 and 2015 were Milwaukee, WI (14 percent loss) and Pittsburgh, PA (12 percent loss). Additionally, seven of the ten cities with the greatest declines were located in the Midwest.

So, what’s going on here? Is the heartland of the U.S. just an untenable market for “traditional” department stores? Is it simply that e-commerce is eating away at in-store sales? Or is something more complicated going on?

Overexposed?

“As we dug deeper into the data, we found evidence that the challenge faced by Macy’s, and perhaps many traditional retailers, is quite complex,” a spokesperson from 1010data told GeoMarketing.

In quite a few cities facing sales decline, Macy’s primary problem appeared to be retailers cannibalizing their own share in saturated markets.

An example of this is Pittsburgh: Macy’s appears to have nine stores — with one store being split between two locations in the same mall — in the Pittsburgh area with a 12 percent loss in share, 1010data reported. In comparison, there is only one Nordstrom store in the area — and yet Nordstrom has 44 percent of market share in Pittsburgh. And at this Nordstrom, consumers are in fact spending money in-store; basket size is actually up.

This suggests that Macy’s may have simply overextended itself in areas that favor shopping malls — which is notably the case in both suburban communities and cities within the Midwest, explaining why Macy’s appears to struggle there and not as much on the coasts. Over representation in these areas has contributed to declines and, ultimately, closures.

Reallocating Resources

The second piece of the puzzle is that Macy’s is feeling the crunch when it comes to spending on omnichannel initiatives designed to integrate online-and-offline, creating an in-store experience that leverages both digital and physical advantages. In order to do this, Macy’s needs to shrink its footprint and invest in developing technology at store locations that are performing better; it’s just a numbers game.

As we wrote earlier this month, while e-commerce’s 10 percent claim on consumer spending is rising rapidly, what we’re seeing with Macy’s is a realization that the “omnichannel” consumer experience demands a re-thinking of the century-plus old concept of “the store.”

Macy’s stated goal of “re-creating its physical store footprint” by closing 100 stores can be translated as a strategy that intends “to capitalize on Macy’s unique competitive advantage of operating in the most attractive retailing locations in America.”

While still maintaining a significant bricks-and-mortar presence in 49 of the top 50 U.S. markets, Macy’s will “operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations.”

According to Jeff Gennette, Macy’s Inc. president, the strategic closures will “help us to accelerate our progress in building a vibrant omnichannel brand experience. With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping.”

About The Author
Lauryn Chamberlain Lauryn Chamberlain @laurynchamberla

Lauryn Chamberlain is the Associate Editor of GeoMarketing.com. A New York City based journalist, she specializes in stories related to retail, dining, hospitality, and travel.