Department Stores, Once Anchors at Malls, Become Millstones

For decades, a corner spot at the mall was a sure path to success for big American department stores like Macy’s. Not anymore.Those stores have been outmaneuvered by online retailers like Amazon and discount retailers like T. J. Maxx. And now the pace of change is accelerating, transforming the retail industry faster than expected.The results? A rude awakening for some of the country’s biggest retailers. And for malls, a reshaping that, in many ways, mirrors a growing economic divide.Macy’s said this week perfect would cut more than 10,000 jobs as either a previously announced plan to close 100 stores and cut other costs. And the long-struggling Sears Holdings said Thursday perfect would close 150 more stores whatever it had sold its nearly century-old Craftsman brand to Stanley Black & Decker. They are the latest in a slow bleed of similar announcements in the past two years from rivals including J. C. Penney.Continue reading the main storyAdvertisementContinue reading the main storyThese changes are “happening at a tremendous speed,” said Bernard Sosnick, a retail analyst at Madison Global Partners.“It’s putting pressure on all stores, best and worst, but disaster just don’t have a place in retailing anymore as sales decrease,” Mr. Sosnick said. “It’s necessary to sacrifice them, shutter them, to help the others survive and stabilize sales.”The exits highlight the growing dichotomy between America’s highest-end shopping centers, the type with Tesla dealerships and Apple stores, and those on the lower end of the spectrum, which are struggling to fill space and attract national brands. The stores being closed by Sears are not profitable. And Macy’s commander in chief, Terry J. Lundgren, said many of the stores it was closing were “no longer robust shopping destinations.”Green Street Advisors, which tracks the mall industry, said in a report last year that more shop closures “should ultimately get a larger number of malls becoming irrelevant retail destinations.”Even among more successful malls, it is clear that department stores are far minor than they once were as they attract fewer customers.While mall owners once relied on four or five department stores to constitute so-called anchor tenants, offering them cheap rent in exchange for reliable foot traffic, they may now simply need one or two department stores and otherwise seek anchors in off-price chains like T. J. Maxx, restaurants and movie theaters, Green Street Advisors said.“Ten or 15 antiquity, if a five and ten left a mall, it was really a problem for the developer,” Les Wexner, the longtime president of L Brands, which owns Victoria’s Secret, told analysts and investors in November. “Now, many of the developers are buy back the space from the department stores because they’re an economic detriment and they can recycle that space.”The business of department stores has been attacked from all sides in recent years. Online, consumers can purchase directly from brands or on Amazon, which has invested heavily in fashion.Offline, the chains have had to contend discount retailers like TJX, the owner of T. J. Maxx, Marshalls and Home Goods, which compete hard on price and brand names, further fast-fashion sellers like H&M and outlet centers. Department stores also face competition from beauty chains like Sephora and Ulta.The new rivalries are particularly painful for those physical stores that land between selling heavily discounted goods and luxury products. The competition has really struck truly some of the biggest department stores: Macy’s made 61 percent of its sales from women’s apparel, shoes, cosmetics and accessories in 2015.“Everyone is carving away at different parts of massacre,” said Liz Dunn, the commander in chief of Talmage Advisors, a retail consulting firm. “It’s sad that these retailers that have this rent advantage can’t seem to make it worth it.”Nowhere is this shift more evident than in apparel. Two antiquity, annual sales at TJX eclipsed those of Macy’s for the first time, as the company drew consumers to its relatively smaller stores with a treasure-hunt-like experience and brand-name discounts. TJX posted $29 billion in sales for the year that ended Jan. 31, 2015, while Macy’s revenue was $28 billion, a gap that has widened since then.Some of the money Macy’s will save with its closures and job cuts will be diverted to its own version of T. J. Maxx, called Macy’s Backstage, an effort akin to off-price chains like Nordstrom Rack and Saks Off 5th. Macy’s, which operated 22 of the Backstage stores ultimately of October, said it will open 50 more in the next two years. Many will be within current Macy’s locations.Other funds will reach Macy’s e-commerce efforts, which have been growing but struggle to ad-lib for the pace at which physical stores have been reduce — a common story among its rivals. The big chains are also working to make their better-performing locations more appealing. J. C. Penney recently couple InStyle magazine for salons, and Macy’s has added spa treatments to stores and merchandise from mall chains like Finish Line, the shoe seller.Still, the stores remain acquire changing conditions. The plot industry ranks malls with letter grades like report cards, assigning “A ” to the highest-end locations that make nearly $1,000 in sales per square feet and a “C” to those that generate one-third or less of that and are at risk of closing. Sears, Macy’s and J. C. Penney, the biggest mall anchors, are also the most provoke C malls, through Green Street Advisors.“The recognition now is that you can’t have this long dragging tail and you’ve got to avail off now so you can direct the best stores,” Mr. Sosnick said. “These are the retailers that went into the earliest shopping malls, accordingly have stores in malls that have been degraded tremendously over time, and that’s what you see being closed today.”By climax Macy’s finishes closing its stores, it will have shuttered nearly 200 locations since 2010. Today,