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Home Market Research Business

Macy’s, Kohl’s close department stores as they struggle to remain relevant

by TheAdviserMagazine
7 months ago
in Business
Reading Time: 6 mins read
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Macy’s, Kohl’s close department stores as they struggle to remain relevant
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America’s department stores are trying to stay relevant in a new era of consumer behavior.

As consumer preferences have shifted to low-price convenience players like Amazon (AMZN), Walmart (WMT), TJX (TJX), and Ross Stores (ROST), legacy department stores face a critical juncture.

“There’s all these other alternative retailers [that] didn’t use to exist like Walmart and Target, … in hardware Home Depot and Lowe’s, and in beauty like Ulta, and, of course, online like Amazon,” Morningstar analyst David Swartz told Yahoo Finance. “The department stores were created for a completely different customer.”

As Macy’s (M), Nordstrom (JWN), and Kohl’s (KSS) persist with their turnaround attempts, brick-and-mortar department stores have slowly lost sales as younger, tech-native consumers look to online players. Since 2010, department stores’ retail value has declined 44%.

Many have turned to store closures to stem losses and as part of their turnaround plans. Macy’s plans to close 66 unprofitable stores this year and 150 total in the next three years, while Kohl’s announced plans to close 27 stores this Saturday. JCPenney, now private, recently shared plans to close eight stores this year after shuttering several hundred stores in 2020 in its turnaround attempt.

The efforts to revitalize department stores face growing headwinds as US consumers begin to show signs of stress from stubbornly high inflation and higher interest rates. Now, the effects of tariffs on inflation, consumer behavior, and retailers’ costs will be another wild card analysts are watching.

Kohl’s CEO said discretionary spending is constrained for consumers making under $100,000 a year and especially for those making less than $50,000.

“It’s definitely a hard operating environment,” S&P Global director Amanda O’Neill told Yahoo Finance. “Amazon is a winner, Walmart is a winner. Costco is a winner. … Then, as a retailer, you have your brick-and-mortar locations. Then you also have to be seamless through omnichannel. It’s very hard to do.”

People walk by a Macy’s store in Brooklyn after the company announced it was closing the store along with over 60 others on Jan. 13, 2025, in New York City. (Spencer Platt/Getty Images) · Spencer Platt via Getty Images

Macy’s, Nordstrom see green shoots, but challenges remain

The turnaround efforts at Macy’s, Nordstrom, Kohl’s, and others show diverging paths as the department stores look to bring customers back.

Macy’s continues to be the largest department store company in the US and an important channel for brands like Ralph Lauren (RL) and Tommy Hilfiger, Swartz said. But it has weaknesses to contend with.

In the fourth quarter, which is crucial for retailers given the holiday season, Macy’s grew overall same-store sales by just 0.2%. That’s compared to overall US retail sales, which grew 0.7% month over month in December. Macy’s also warned that profits will take a hit as President Trump’s tariffs take effect and consumers lean on value.

Story Continues

But while Macy’s attempts to address growing challenges, investors’ patience is wearing thin. Shares are down 33% over the past year and currently trade around $13 each, well below the all-cash buyout offer from Arkhouse Management and Brigade Capital Management in December 2023, which valued the company at $24 per share.

NYSE – Delayed Quote • USD

At close: March 28 at 4:00:02 PM EDT

Macy’s may have a path forward, GlobalData retail managing director Neil Saunders told Yahoo Finance, “as long as investors can see light at the end of the tunnel.”

Some of its efforts are beginning to bear fruit. The retailer saw a 1.2% same-store sales improvement in the first 50 stores where it invested in more marketing, staff, and assortment.

“Macy’s is in a process of reinvention,” Saunders said. “There are signs that some of the things they’re doing are starting to work.”

For Nordstrom, a turnaround plan will continue in the private markets.

In December, the founding Nordstrom family, which owned a roughly 33% stake in the company, teamed up with retail and real estate operator El Puerto de Liverpool to take the company private. Both will acquire all outstanding shares in an all-cash deal valued at about $6.25 billion.

Going private allows a company to “fix the business for long-term growth,” as it can enact necessary changes without being “under that public scrutiny,” O’Neil told Yahoo Finance.

The soon-to-be privately held Nordstrom outperformed in its fourth quarter results. Nordstrom’s same-store sales jumped 4.7% as sales at the namesake Nordstrom business and off-price Nordstrom Rack business increased 5.3% and 3.5%, respectively.

“Nordstrom has been successful at getting brands that are on trend,” O’Neil said. She noted these brands and lower price points have been resonating with Gen Z.

Nordstrom’s decision to go private could become a playbook of sorts. Swartz noted that publicly traded department stores could be nonexistent in the next five to 10 years. At the same time, he doesn’t think Macy’s or Kohl’s “will be sold anytime soon because the valuations are too low at this point.”

A different story for Kohl’s and JCPenney

Kohl’s is in what Saunders called the “last-chance saloon with investors” after its same-store sales dropped 6.7% in the fourth quarter.

Kohl’s CEO Ashley Buchanan, who joined the company in January, is now the retailer’s third CEO in three years. Buchanan previously led the privately held Michael’s craft store chain and worked at Walmart and Sam’s Club.

He quickly took action with plans to cut roughly 10% of Kohl’s corporate workforce and shutter stores.

Kohl’s has gone through previous reinventions, but “nothing has worked,” Saunders said. With shares down more than 65% in the last year, investors will be eager to see quick results.

Still, “you can’t expect [Buchanan] to work miracles overnight,” Saunders added.

NYSE – Delayed Quote • USD

At close: March 28 at 4:00:35 PM EDT

Buchanan will have to reverse many of Kohl’s missteps, like shifting away from private-label brands and toward name brands like Under Armour (UA), which are often excluded in coupon offerings and “took away the opening price point” for core customers, O’Neil said.

Kohl’s now plans to invest in an assortment of categories like fine jewelry, petite apparel, and intimates, Telsey Advisory Group CEO Dana Telsey said. It’s also trying to build “momentum across key growth areas” like its Sephora partnership and home decor.

JCPenney and Arkansas-based department store Dillard’s (DDS) have also been quietly operating.

JCPenney hasn’t reported fourth quarter results yet, but third quarter results were grim, with net sales declining 8% year over year to $1.4 billion.

Given Kohl’s and JCPenney share a similar audience, Swartz said Kohl’s would have benefited had JCPenney gone under five years ago. Still, JCPenney pushes ahead with its $1 billion reinvestment plan announced in 2023.

Meanwhile, Dillard’s has also struggled with the same issues as the others. But that hasn’t been reflected in the share price, which trades at more than $360, nearly 20 times its peers.

While Swartz doesn’t cover the stock, he said it was a company “people had more or less written off as dead,” as the family owns a majority of shares.

As Dillard’s began to improve margins, “investors started jumping into it,” Swartz said.

—

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at [email protected].

Click here for all of the latest retail stock news and events to better inform your investing strategy



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