Retailers face hard decisions
Macy’s and Sears have opposing outlooks based on progression, profitability.
Macy’s is pruning a plant and Sears is a sinking ship.
Both retailers announced store closures and changes to their corporate strategies in the past month, but Michigan State University professor of retail Patricia Huddleston said the two companies are in different positions.
Macy’s and Sears, which owns Sears and Kmart stores, announced closures in West Michigan, including the Sears at Woodland Mall. Macy’s is closing its Battle Creek location, while Kmart is shuttering stores in the Muskegon and Grand Rapids areas.
The differences start with Macy’s profitability, Huddleston said.
“They’re profitable, but not as high as they’d like to be,” she said. “As an organization, they’ve been doing the right things. Sears has not been profitable for several years.”
The right things for Macy’s include shutting down underperforming stores, such as the one in Battle Creek, but also focusing on digital commerce and refocusing efforts on bettering a shopper’s experience. Store remodels are led by a $400-million investment into Macy’s flagship store in New York City.
In recent years, Huddleston said, Sears has neglected to update its store environments and has stayed afloat by selling off assets, including most recently, the selling of the Craftsman tool brand to Stanley Black and Decker for $900 million.
Kmart also is struggling to find its place in the market place, Huddleston said, as the discount industry is led by retailers with strong footholds, such as Walmart and Target.
“Walmart and Target have clear market positions,” she said. “Kmart hasn’t stood for anything in at least a decade, and really longer than that. Sears seems to be hanging by membership loyalty, but unless you invest in retail store experience, it’s difficult to stay afloat.”
Huddleston is hesitant to predict any death knell for Sears’ future, as two other big name retailers have struggled in recent years. Toys “R” Us and JCPenney also were struggling a few years ago but have since turned themselves around with new CEOs.
JCPenney is a direct competitor to Sears, according to Huddleston, and lost 25 percent of its revenue following a strategy change four years ago. Huddleston believed the company was not long for the world but, with a CEO change, has redirected the company strategy and has since stabilized.
“Not on a huge upward trajectory yet, but they’ve reduced their losses,” she said. “Sears and Penney’s are like and like, and comparatively, Penney’s is doing a lot better.”
While some national retailers are struggling, Huddleston said there’s a larger issue at play and why profitable stores are shrinking their footprint. The retail space in the United States is too large.
The United States has approximately 25 square feet of retail space per capita. Canada has approximately 13 square feet per capita and Europe is less than 3 square feet per capital.
“It’s true of the United States for decades, we have too much store space,” Huddleston said, adding online shopping is a factor. “I don’t know that there are too many retailers, but some of the legacy retailers have too many stores. You require less retail space when people do online shopping. People are going online more and not to stores.”
With Sears vacating more than 300,000 square feet of space at Woodland Mall, plans are to fill the space with multiple smaller-scale retailers, according to a proposed site plan from the mall owner, Philadelphia-based PREIT’s website.
Included would be an anchor tenant, Iowa-based Von Maur, filling approximately 88,000 square feet, with a variety of niche retailers and food service tenants in outlot spaces.
Huddleston said there isn’t a trend right now to replace departing anchor tenants. She mentioned malls often replace a store with a TJ Maxx, Marshalls or Home Goods — all part of TJX, a company with upward trajectory — but nearby Shops at Centerpointe currently has TJ Maxx and Home Goods.
“A lot of times when an anchor store leaves, it leaves a mall floundering,” she said. “Von Maur would be a good asset, a little competitive with Macy’s.”
For future retail success, the national retailers need to focus on shopper experience, both online and in-store, Huddleston said.
“Retailers that are successful are creating a better shopping experience, providing great customer service, unique merchandise and a beautiful environment,” she said. “Struggling retailers, some of them just haven’t done enough to know what the customer wants.”