Macy’s remains a storied and immense American retailer. Founded in the 19th century (as many department stores were), the company operates 850 Macy’s and Bloomingdale’s stores in 45 states, the District of Columbia, Guam and Puerto Rico, reporting 2015 sales of just over $27 billion. Its elephantine, 115-year-old New York City flagship is still the world's largest department store, and the brand also holds an enviable place in popular culture thanks to Hollywood — “Miracle on 34th Street” is still a popular holiday movie and “Christmas in Herald Square” a favorite song — and its annual Thanksgiving Day parade, which it’s held since 1924.

But Macy's isn't the icon it once was. Sales are falling, and, after several store closings in recent years, the company shed another 41 in 2015, with yet 100 additional locations slated to shutter by early next year.

It’s not just Macy’s. A lot of department stores these days are stymied by shifting demographics, changing consumer priorities and behaviors, confounding competition from Amazon and a precarious economy that's dampened spending. Department stores in general may have doomed themselves as far back as the 1960's, when they began to trade their place in the urban landscape to become mall anchors, forsaking beautiful Beaux Arts buildings for mundane adjuncts to suburban shopping centers (sites that are themselves in steep decline).

Macy's does face some unique challenges, however. Its namesake stores in particular are neither discount retailers like Target or J.C. Penney nor luxury shopping destinations like Saks Fifth Avenue, so they’re muddling along in an ill-defined middle. At the same time, Backstage, an off-price effort Macy's launched last year in response to the continued success of retailers like T.J. Maxx, Ross, and Burlington, threatens to dilute its brand.

“Look at the growth rate of TJX and Nordstrom Rack,” Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive. “That’s where [Macy's] market share is going.”

But perhaps above all, Macy's also is grappling with an expansion that has left it over-stored and ill-equipped to offer merchandise that shoppers find unique or exciting. In 2005, department store operator Federated Department Stores (which changed its name to Macy’s in 2007) bought St. Louis-based The May Company, which itself had been amassing a series of department stores and retail chains throughout the West and Midwest, including most of the stores held by Dayton-Hudson, the parent company of a smaller discount chain called Target. In the wake of the deal, Federated crowed about its new juggernaut of “950 department stores, along with approximately 700 bridal and formalwear stores,” and Dayton-Hudson rebranded under the Target aegis. 

That acquisition is the root of Macy’s troubles today, Egelanian says. And our experts contend that the takeover of so many department stores didn't just leave Macy's with too many locations over a wide swath of the country (though that's part of the problem), but that Macy's also gobbled up, Pac-Man-style, department stores that were once thriving local retailers deeply embedded in their respective communities and made them merely cogs in a machine, stripping away their local identities and connections while offering shoppers a homogeneous customer experience with few if any regional differentiators.

Macy's has already begun to address this problem of subtraction by addition, scaling back massively. But experts suggest its current store closure plans may very well turn out to be just the tip of the iceberg.

“Twenty years ago, Dayton-Hudson sold its stores, which became Macy’s, and put all their eggs into the Target model,” Egelanian said. “Sometimes you think you’re beating your competitors, when you’re actually buying the remnants of their dying chains.”

The blow to merchandising—and loyalty

Macy's didn't invent department store consolidation. But its acquisition of The May Company and the subsequent rebranding of several institutions originally founded by local entrepreneurs like Marshall Field in Chicago, William Filene in Boston, Simon Lazarus in Columbus and Edgar J. Kaufmann in Pittsburgh one by one supplanted a local ethos with corporate conformity. That has eroded the connection with customers that once made those stores dependable, go-to retailers and that kept shoppers loyal.

“Those places were the town center, with a big one in the middle of town, maybe a couple near the outskirts," said Lee Peterson, executive vice president of brand, strategy and design at customer experience consultancy WD Partners. "They had amazing atmospheres and amazing service — they’d get something to your house! Before online shopping, especially in apparel, there was always this element of surprise. ‘What’s Ralph Lauren coming out with? What’s up at Calvin Klein?’ And you’d have to go to the stores to see that stuff.”

Department stores (especially their flagship locations) were places of discovery because talented, attentive people were in charge of both the assortments and the service, Peterson explains. Buyers would go to New York City to see the new merchandise, then bring back what they believed would appeal to their hometown customers. 

These days, Macy’s is instead generally buying for the entire chain, acquiring 500,000 of an item rather than the small purchases of maybe 300 or 500 once made by local buyers, Peterson says.

“In the consolidation of department stores, you lost the local thing,” Peterson said. “Once Lazarus became a Macy’s, it’s all about high-level decisions. Merchandise may be important in Columbus, OH, but not across the board, so it goes. And that’s how you lose loyalty.”

While much is made by retailers these days about the ability of data and analytics to foster decisions that can be drilled down to the local level, Peterson says that actual people were key to the process because they literally knew their customers, understood their communities and could anticipate what trends would work in their stores.

“The buyers were the ones working on the sales floor, they’d talk to their customers,” he said. “They’re the ones who would all gather and go to Market Week in New York City. That’s different than an algorithm. There’s a big difference between getting the Lazarus buyers there, who know their customer — that stuff is all human. Unless they really spend a good amount of time in the store, [department stores] are going to buy things based on algorithms, and they won’t tell you what might work that’s new.”

As a mid-tier department store, Macy’s is in a particular pickle, left without the appeal of bottom-barrel prices for lower-income shoppers or the pull of luxury for their higher-income counterparts. Plus, fast-fashion — which has brought trendier styles (if not high quality) swiftly to market at low prices — has hurt apparel sellers in the middle especially hard, Peterson says. 

“That mid-market fashion took a big hit,” he said. “It reminds me of income in general — now you’re either a have or a have-not.”

But without differentiating merchandise locally or personalization to loyal customers, price begins to stand out as an important sales driver whenever numbers are crunched by corporate decision makers, Peterson notes. 

“With consolation and giant corporate decisions, they see that with price reductions, you double your sales, and the next thing you know, you start to kowtow to price,” Peterson said. “That’s a quick spiral down, and once you’re on that train you cannot get off. And even so, Amazon will kick your butt on price.”

In fact, Macy’s appears to be the poster child of that pricing phenomenon, points out Columbia University business school retail studies professor Mark Cohen.

“It kills their regular business,” Cohen told Retail Dive last year. “I cannot almost imagine buying something at full price at Macy’s anymore.”

E-commerce can’t come to the rescue

As it closes a record number of stores by early next year and makes improvements to remaining stores and its assortments, Macy’s also said it would emphasize e-commerce sales and omnichannel efforts. With a full 67% of U.S. millennials and 56% of Gen Xers favoring online over in-store shopping, according to L2's  Digital IQ Index of Department Stores, there's good reason for that thinking. 

But Egelanian says that Macy's is “dreaming” if it thinks there’s salvation to be found online. “I’m telling you there’s virtually no chance of that strategy succeeding,” he said.

Macy's may also be learning the hard way how much e-commerce sales actually depend on brick-and-mortar: According to Egelanian, a Macy's real estate executive speaking at an ICSC conference in Minneapolis earlier this month noted that when the company closed a Bloomingdale's store at the Mall of America in 2012, e-commerce sales originating from that area plummeted.

That anecdote tracks with a recent note from Moody's Investor Service cautioning retailers to take care in closing stores because doing so not only reduces a merchant's presence in the market area, but also dampens online sales from zip codes surrounding a shuttered store.  

Nevertheless, Macy's will inevitably have to reduce from its bloated presence nationwide to a much more rational size, with major stores concentrated on the coasts, according to Egelanian. Indeed, after he described that scenario to Retail Dive, data analytics company 1010data weighed in, predicting that the stores Macy’s is most likely to close will be Milwaukee, which saw a 14% loss from 2014 to 2015, Pittsburgh (12% loss), Detroit (8.2% loss), St. Louis (6.2% loss), Columbus (7.5% loss), Cincinnati (5.9% loss) and Cleveland (5.7% loss), according to preliminary results emailed to Retail Dive. Other Macy's cities expected to experience major losses include Philadelphia, Hartford, CT and Daytona Beach, FL.

Macy's told Retail Dive that the company hasn't yet finalized which stores will close early in 2017, but will likely release a list later this year. Otherwise, the company declined to comment on this story.

Macy's also faces pressure to reduce its footprint from activist investor Starboard Value. Starboard estimates Macy's real estate holdings to be worth at least least $21 billion. The Securities and Exchange Commission in July dialed up the pressure to make things official, writing the company a letter suggesting that investors would be better served if it lists real estate sales as gains in a separate line on income statements, rather than as expense reductions.

Terry Lundgren, the man who oversaw Macy's rapid growth years ago, is departing as CEO early next year, and seems destined to watch the steady undoing of that expansion from afar. Still, while store closings and real estate matters threaten to overwhelm Macy's core retail efforts, the retailer likely will survive, perhaps well into its second century, at least in Tony Bennett's beloved Herald Square and a few — if far fewer — other places.

“There’s still a place for a department store like Macy’s,” Egelanian said. “It’s going to be a small chain, maybe a 150- to 250-store chain, and it’s going to carry stuff that’s relevant in today’s fashion, something that people can’t get at T.J. Maxx and H&M. They just announced they’re closing the Union Square men’s store in San Francisco — they’re starting to monetize their real estate as they wind down the operation in an orderly way."

Macy’s New York and Macy’s San Francisco will endure, Egelanian added wistfully. "They're irreplaceable.”