The state of retail operations

If tens of thousands of stores close in the next five years as some analysts foresee, they’re unlikely to be off-price stores nor, specifically, stores run by TJX’s banners. In fact, the company has potential for growth, despite already being, according to Bank of America analysts, the world’s largest off-price retailer. 

“Longer term, we see the potential for global square footage growth across multiple concepts,” Bank of America analysts Lorraine Hutchinson and Melanie Nuñez said.

TJX Cos, which runs more than 4,900 stores spanning nine countries, could expand its global fleet by 1,300 or more additional locations, CEO Ernie Herrman told analysts.

This year alone, the off-price retailer plans about 141 net new locations, expanding its footprint to nearly 5,100 and reflecting growth of about 3%, Chief Financial Officer John Klinger said. Also, about 480 stores will be remodeled and about 40 will be relocated, he said. 

In the U.S. this year, plans are to add 45 net new Marmaxx locations (T.J. Maxx and Marshalls), 40 HomeGoods locations and 26 Sierra locations. Outside the U.S., plans are to add 10 stores in Canada, 15 in Europe and five in Australia, Klinger said.

There are various reasons for TJX’s capacity to expand its global fleet, including imminent department store closures, most notably Macy’s. In the U.S. and Canada, as department stores close, especially in areas where it doesn’t already run stores, the company sees opportunity to expand, Klinger said.

“One of the things that's happening with all the store closures is the importance to the vendor community keeps rising for our merchants amidst less brick-and-mortar competition,” Herrman said.

Jefferies analysts led by Corey Tarlowe said they “believe Home and International expansion represent unique growth opportunities for TJX,” according to a client note. Similarly, UBS analysts led by Jay Sole also see “big potential” for store growth at TJX’s newer banners like Sierra and HomeSense and within its European footprint. Moreover, UBS sees e-commerce growth slowing over the next two years, boosting the opportunity for brick and mortar.

“We are convinced that significant market share opportunities remain across the U.S., Canada, Europe and Australia,” Herrman said. “Over the long term, we see potential to further expand our store footprint by at least another 1,300-plus stores with our current retail banners in our existing countries alone.”

Walmart joins large retailers including Target and Dollar General in scaling back or amending its self-checkout processes.

Walmart is removing self-checkout kiosks at select locations, including two stores in Shrewsbury, Missouri, and Cleveland, in favor of associate-staffed checkout lines.

The retailer already removed self-checkout lanes from three stores in New Mexico last year. “We currently have no additional conversions to announce,” a Walmart spokesperson said.

The decision was based on feedback from employees and customers, shopping behavior and business needs at those particular locations. “We believe the changes will improve the in-store shopping experience and give our associates the chance to provide more personalized and efficient service,” a Walmart spokesperson said.

Target recently limited self-checkout lanes to 10 items or fewer and gave store managers more control over the ratio of self-checkout lanes to cashier-operated lanes. 

Dollar General also said that it would reduce self-checkout at thousands of locations and remove it entirely from 300 locations most prone to shoplifting. At the same time, Dollar General is increasing staffing for checkout assistance. 

“While self-checkout has contributed to the convenient proposition for our customers in certain stores, it does not reduce the importance of a friendly, helpful employee who is there to greet customers and assist while the checkout process is happening,” Dollar General CEO Todd Vasos said during an earnings call.

Self-service and cashier-operated checkout lanes are not an either or solution, and instead work best in tandem.

While self-service can be beneficial to a customer who doesn’t want to speak to a store associate, self-checkout has its limitations. It can sometimes add friction to the process, especially during payment or if an associate isn’t nearby to help if there is an issue.

Walmart already allows its store managers the freedom to adjust the number of cashiers to self-checkout lanes based on need.

Despite years of attention on retail crime from business groups, media, prosecutors and political leaders, retailers are understanding less about the issue than before.

There are few if any numbers to cite, ever since the National Retail Federation in 2023 retracted one of the most widely repeated data points about organized retail crime, deleting it from its special report on the issue.

“We stand behind the widely understood fact that organized retail crime is a serious problem impacting retailers of all sizes and communities across our nation,” Mary McGinty, NRF VP of communications and public affairs said in a statement. “At the same time, we recognize the challenges the retail industry and law enforcement have with gathering and analyzing an accurate and agreed-upon set of data to measure the number of incidents in communities across the country.”

However, this is arguably not widely understood. The NRF itself reported that theft and shrink rates have remained fairly steady for several years. In 2022, retailers collectively experienced some $112 billion in total inventory loss, mostly (63%) due to various causes within their operations. The other 36% was lost to theft from outside, including shoplifting, burglary, break-ins, robbery, credit card fraud, organized retail crime and other retail crimes committed by non-employees, according to the NRF’s survey.

While the bulk of shrink is internal, industry groups and individual retailers have maintained a spotlight on outside theft, and law enforcement and politicians are under pressure to respond to mounting complaints. Alarming videos of often violent, smash-and-grab incidents at stores have gone viral. But their impact in terms of frequency, scale and financial loss isn't well known. 

“Theft has increased and is becoming more of an issue in some locations. It also seems to have become more brazen, which poses a risk to staff,” GlobalData Managing Director Neil Saunders said by email. “Retailers are eager to point this out. I think some are frustrated that more is not done to punish gangs and shoplifters.”

Some analysts have speculated that some companies could be highlighting theft to explain underperformance. Even at well run companies, though, tight margins can make even a “usual” amount of shrink stand out against the bottom line, Saunders noted.

“I think there is a bit of a bandwagon effect. Shrink has become a buzzword, so, because it’s in the minds of investors, retailers are calling it out more,” he said. “Now that performance is squeezed, shrink matters more and it has more of a tangible impact on things like profits. Retailers might be using it as a bit of a shield to hide behind, but in relative terms it is probably more impactful on their business than it was a few years ago.”

Here are seven issues that complicate the discussion of shrink and retail theft.

1. Reported retail crime is going down in many areas, including cities singled out as especially troublesome for stores.

In general, property theft has gradually but steadily declined over the last three decades, according to Michael Lawlor, a criminal justice professor at the University of New Haven and former prosecutor. Nationally, in 2022, robbery incidents rose 1.3% year over year, according to the Federal Bureau of Investigation’s annual crime statistics report. 

Shoplifting reported to police is up since falling dramatically in 24 large American cities during 2020, when most stores were closed for months due to the pandemic, according to research from the Council on Criminal Justice. However, taking out New York, reports in the other cities fell 7%. That includes San Francisco, which is often singled out as rife with crime that causes trouble for stores. The area had among the largest decreases in shoplifting from the first half of 2022 to the first half of 2023, per the report.

The industry is most focused on “organized retail crime,” a type of shoplifting loosely defined as involving two or more people stealing goods for resale, though many retail executives often include all types of theft, including various incidents of shoplifting or employee theft, when discussing the issue on earnings calls. 

“We try to make clear in our report that we're measuring shoplifting, and we're not measuring organized retail theft or organized retail crime,” Ernesto Lopez, a research specialist at the Council on Criminal Justice and one of the authors of the report, said by phone. “Our current crime data and infrastructure — what police collect, what the FBI collects — is not designed to capture organized retail theft. As a researcher, my goal is not to say, ‘Look, the industry is right, or look, the industry is bad.’ It's really just, these are the data we collected, and this is what the data show.”

It’s extremely difficult to track how goods are used once they’re taken from the store, Lopez said. Also, even if a trove of stolen merchandise is found at a warehouse or elsewhere, that wouldn’t be linked to a theft event at a store, he also said.

For these and other reasons, some shoplifting may be considered organized retail crime or vice versa, if it’s categorized at all. Often, law enforcement or even a retailer’s own staff disagree on how to categorize an event, according to Trevor Wagener, director of the research center and chief economist at the Computer & Communications Industry Association.

“Data even from two police departments in the same state may not be directly comparable. And in order to count it, someone has to report it, and that doesn't always occur,” he said by phone. “Retailers define issues a little bit differently, and there's certain elements of definitions that come down to a lot of employee-level discretion and interpretation. All of which is to say that it's a tough nut to crack. That's not to say it can't be done, but certainly a lot of thought has to go into improving the data.”

In the short run, improved reporting will likely provide a false sense that shoplifting is up, but retailers should try to report these incidents so that they, their surrounding communities and local law enforcement can devise effective solutions, Lopez said.

“There's under reporting of basically all crimes except homicide,” he said. “If reporting is sporadic or is not consistent — maybe one retailer reports, one doesn't — it doesn't allow law enforcement to get a complete picture of the harm in their city and doesn't allow them to really be strategic in their resources.”

2. Self-checkout is an inventory sieve.

Lost merchandise from self-checkout causes more shrink than organized retail crime in many stores, according to Congressional testimony last year from CCIA’s Wagener. A 2022 study from the University of Leicester in England estimated that self-checkout in the U.S. and elsewhere causes between one-fifth and nearly one-quarter of all unknown store losses.

There may be various reasons for this. New technologies designed to foster convenience can sometimes also make things easier for thieves. Button starters made it easier to steal cars, for example, and self-checkout tech has similarly enabled theft from stores, according to Lawlor. Losses come from clumsy customers accidentally failing to scan an item as well as outright stealing, Wagener told Retail Dive.

Plus, a store with fewer workers can be encouraging to thieves, Lawlor and others said. Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, has decades of experience in retail, including once managing stores. Reducing store staff gives potential thieves the edge in the age-old “cat-and-mouse game” of theft deterrence, he said by phone.

“Retailers are faced with less traffic and their stores have just not been as profitable as they were the previous 15 years or even 30 years, really. And so to make them more profitable, the first thing to go is payroll,” he said. “Increased staffing is absolutely one of the top three or four things that you should almost immediately do to combat theft. Higher prosecution is maybe number 10 on my list.”

Unlike the high-profile smash-and-grab incidents that can net thieves tens of thousands of dollars worth of goods at a time, self-checkout theft is often unseen and, per incident, possibly less lucrative. But nearly 40% of all thefts within grocery stores occur at self-checkout, which last year became the dominant checkout format in the segment.

“There's a premium on automation, so a lot of the checkouts are self-checkout, which is very logical,” Lawlor said. “But one of the downsides of that is you have fewer and fewer people working the front of the store. So it's easy just to walk around and through the door, and you don't have to go by any person to do that.”

Costco CFO Richard Galanti blamed a small uptick in shrink a few years ago to the company’s rollout of self-checkout, and said that, at that point, shrink was up by less than a basis point. Last year Walmart pulled self-checkout from at least two stores in New Mexico, according to the Albuquerque Journal, joining several retailers in scaling back or rethinking self-checkout.

3. Employees steal more goods and money than any other type of theft.

Theft by employees accounts for nearly a third of all shrink, and the NRF considers it "just as concerning for retailers as other forms of theft. Employees have more access to merchandise and monies; more control over security measures and processes; and opportunities not available to outsiders," according to its report. 

Costco enjoys below-industry shrink rates, and has attributed that to its store layout, limited entrances and membership model, as well as its higher wages, which the company said leads to higher employee satisfaction and lower internal theft.

After implementing RFID sensor technology to detect theft, Macy’s discovered that even some longtime employees were stealing, including someone who had worked there for more than six decades, according to Joe Coll, Macy’s vice president of asset protection operations and strategy.

“I like to think they were not stealing for 62 years,” Coll said during a presentation at a recent NRF conference. “But they were stealing from us, and they had been working for us for 62 years.”

By contrast, an emptier store — where workers are fewer and farther between, lower paid and less satisfied — may be more vulnerable to theft by both customers and employees, according to Lawlor. Especially if it’s a chain that seems disconnected from the community, he said. In 2022, the average reported dollar loss from employee theft (including merchandise theft, refund fraud, cash theft or passing merchandise to friends) was $2,180, in line with 2021 and 2020 levels, according to the NRF’s report. 

“In the good old days, a lot of stores were family-owned, the owner was right there,” he said. “You knew them or the family, you had a personal relationship, or you might just feel more of an obligation and be protective of the inventory and the business. So all this kind of builds upon itself.”

4. Shrink isn’t the biggest hit to margins, even at retailers citing it as a major problem.

In recent quarters, more executives have proactively mentioned shrink and/or theft or been asked about it. In August, Dick’s Sporting Goods said shrink is an “increasingly serious issue.” In May, Ulta said it would lock up some merchandise to combat theft, later reporting that it paid off. 

Target has repeatedly pinpointed its issue in concrete terms. The retailer cited theft as the reason for closing nine stores, although some of those landlords disputed that, saying Target provided other reasons for the closures, according to Bloomberg’s reporting. Moreover, crime rates were much lower at stores that Target closed than at those it has kept open, even at locations near the closures, according to a report from CNBC. 

In November, Target executives said that shrink losses would end the year better than expected, though still probably worse compared to 2022.

Target is seeing bigger margin hits from e-commerce fulfillment and markdowns. In its 2022 annual report, the retailer said its gross margin fell to 23.6% from 28.3% in 2021, with shrink contributing 0.7% to the decline. That’s less than the impact of fulfillment of online orders and supply chain issues (a 0.8% hit) and merchandising issues including higher clearance and promotional markdowns, merchandise costs and freight costs (3.4%).

5. Many related costs are not factored into shrink or theft reports.

Target said it lost sales in the second quarter after it removed Pride merchandise and altered some displays when people destroyed items and put store workers at risk. 

The expense of cleanup or repair after theft or vandalism aren’t accounted for in shrink or retail theft statistics, according to CCIA’s Wagener. It’s possible that the financial consequences of theft are up significantly, even if actual crime rates or shrink levels aren’t. There also may be costs from preventive measures like beefing up security personnel or technology.

“A smash and grab can impose economic costs an order of magnitude larger than the inventory loss that occurs,” he said. “We don't think that the amount of goods being taken is actually changing much. There’s a possibility that could be consistent with what we're hearing from retailers, which may not actually indicate a rise in shoplifting or theft, but a shift in tactics that could impose larger economic costs on retailers. As far as I know, that’s not being measured in any systematic way.”

6. The threat of violence is a major risk that complicates loss prevention.

The prevalence of guns in the U.S. makes confronting thieves in stores potentially deadly, complicating retailers’ approaches to loss prevention, according to a number of crime and retail experts. 

“It’s scary — a guy could brandish a gun, so some stores have a policy that, if somebody’s stealing something, let them go, don't chase after them or don't confront them,” Peterson said. “Thieves have figured that out in like five seconds.”

Target CEO Brian Cornell told analysts that in the first five months of 2023, Target stores had a 120% increase in theft incidents involving violence or threats of violence. During a press conference in Washington, D.C., following meetings with members of Congress, NRF CEO Matthew Shay said that organized retail crime is “not only about the dollars involved here, it is about, in some cases, the tragic loss of life, the violence, the aggression, that's playing out in these retail locations.” 

The level of theft and violence impacts store workers and customers, hampers retailers’ ability to hire and retain workers and leads to worries about safety, the NRF said in its latest report. In 2022, the NRF said “the current climate of active assailants and gun violence add to retailers’ concerns about being able to keep employees and customers safe.”

According to the most recent research, retailers’ views around violence have actually tempered somewhat, but most still view it as a major risk, with 72.3% concerned about violence during a criminal act; 65.6% concerned about mass violence or an active assailant; and 65.2% concerned about guest-on-associate violence.

Given such worries, it’s understandable that the policy at most retailers is for staff to let shoplifting and other theft slide, Lawlor said. Still, that can embolden thieves and complicate any response from law enforcement, he said.

7. Cargo theft is an under-appreciated aspect of retail crime.

The NRF includes cargo theft within its assessment of organized retail crime. Cargo theft is escalating and is likely under-appreciated, according to supply chain risk management firm Overhaul. 

Cargo theft has been on the rise in the U.S. following the supply chain disruptions of the pandemic, Overhaul Intelligence and Response Manager Danny Ramon said by email. Losses can occur at various points in the supply chain, including invoice errors, warehouse losses or cargo theft, and aren’t always attributed accurately. 

In the U.S. and Canada in 2022, there were 1,778 supply chain risk events of various types, up 15% year over year, according to CargoNet, a network that collects and shares information with law enforcement and cargo theft victims. In 2023, incidents escalated, with the number in the second quarter up 57% year over year in the region, per CargoNet. 

In the U.S. alone in the second quarter of 2023, there were 132 cargo thefts, up 15% year over year, with an average loss value of more than $428,000 — up 55% from the previous quarter, according to Overhaul data.

“Discrepancies in inventory are often attributed to retail shrink or theft, but they may also be due to cargo theft,” Ramon said. 

Walmart recently discontinued a test of a machine that verified purchases people made using the retailer’s scan-and-go checkout solution at one of its stores in Bentonville, Arkansas. 

The machine, which the retailer was piloting since at least November, used Radio-Frequency Identification tech to verify what customers purchased. The pilot marks the latest checkout innovation tested by the retailer as companies look to reduce shrink at their front ends. 

During the pilot, customers who used the retailer’s scan-and-go checkout solution could have their carts scanned by the machine, which used RFID to verify people had purchased the items in their carts, a Walmart spokesperson said.  

A blue marker appeared on the floor by the machine and signage directed customers to “Place your cart on the square.” The machine also had a bagging area next to it. Other signage by the machine encouraged customers to “Try our new, faster checkout.” 

The appearance of the machine suggested it was a new type of self-checkout system. A news site for the kiosk industry even noted in a post that the machine was a new form of self-checkout, when in fact it is a receipt verification system for scan-and-go.

The Walmart spokesperson did not comment on why the pilot of the automated receipt check machine ended but noted that the retailer will use its findings from the test as it continues to try out more innovations. 

The pilot occurred at the Walmart Neighborhood Market at 205 N. Main St. in Bentonville, the spokesperson confirmed. Scott Benedict, an affiliate partner at McMillanDoolittle and former Walmart and Sam’s Club associate, said that the machine had been at the store for a couple of months.

Although the test run of the new technology has ended, it underscores the emphasis retailers are placing on securing self-service checkout options like scan-and-go and self checkout. It’s also notable for its use of RFID technology, which has been around for decades yet is now gaining more traction at retailers like Walmart and Uniqlo.

Walmart has been using RFID technology, which uses radio frequencies to track objects, since at least the 2000s. In 2022, the retailer announced that it was expanding its use of the technology beyond retail apparel to other departments such as home, entertainment and hardline department, mandating suppliers implement RFID tags by September of that year. 

During an earnings call, CFO John David Rainey noted that RFID is among the technologies the retailer is leveraging to “drive speed and proficiency.” 

Retailers have increasingly adopted RFID tech at a time when loss prevention and inventory management have become top-of-mind issues for the retail sector. 

“RFID is a fantastic technology for being able to quickly identify products down to the individual item. This can be used to automatically check consumers out or for the purposes of inventory checking. It basically saves a lot of manual work in either checking people out or doing stock takes,” GlobalData Managing Director Neil Saunders said in emailed comments.

However, while RFID is currently used in retail, it is more challenging to implement in a low margin and high volume category like food due to supplier compliance and high costs associated with having an RFID label for each individual item, Saunders said. 

“There is no doubt that the use of RFID is growing, but it will likely be quite some time before a grocery store has an RFID register like those found at Uniqlo,” Saunders said. 

Saunders noted that RFID technology for self checkouts at Uniqlo and Zara not only “are very popular with customers and work extremely well” but also allow monitoring for retail theft. 

Benedict said that the cost per tag for RFID technology has come down “significantly” in recent years, but is still expensive. 

“For it to become very efficient, it's got to be put on that manufacturing process and not a manual process either after it gets to the store or somewhere in the supply chain,” Benedict said. 

Other recent innovations around streamlining shopping and checkout by Walmart include exit scanners that use AI and cameras at Sam’s Club stores, digital cake ordering at Sam’s Club locations and an AI-powered replenishment algorithm for the Walmart InHome delivery service.

In an era when the department store model is under siege, two major examples of it in the U.S. — Macy’s and J.C. Penney — are pursuing very different brick-and-mortar strategies.

They do have much in common, with plans to improve stores and streamline their supply chains, indicating an abiding faith in the department store as a still-relevant retail destination. J.C. Penney last year announced a $1 billion investment in store refreshes and tech upgrades; this year, the company said it would revamp 200 stores by the end of the year and touted improvements in the speed and cost efficiency of its supply chain. And at Macy’s, newly arrived CEO Tony Spring said he would use lessons from his time leading the company’s Bloomingdale’s banner to inform the flagship chain’s transformation.

Their differences are real, however, particularly when it comes to plans for the size, number and location of their stores. Analysts peg the reasons for those differences on their current — and potential — ownership.

Dropping anchors

These two retailers have long anchored shopping centers, a setup from the mid-20th century meant to drive consumer traffic to the mall. Today, Macy’s has increasingly broken this mold, while J.C. Penney remains firmly ensconced in it.

For both its Bloomingdale’s and Macy’s banners, Macy’s Inc. has been experimenting with stores about one-fifth the size of its sprawling downtown and mall-anchor locations, placed at strip centers. Last year, Macy’s announced it would accelerate this small-format strategy by opening as many as 30 smaller stores through the fall of 2025, which would triple their number and sometimes also entail shuttering a full-line store in a given market.

Speaking at the Shoptalk conference in March, Spring said that Macy’s runs “too many locations that were built for a different era” and that it has “no choice” but to close stores if it is to prosper.

By contrast, J.C. Penney, which was acquired out of bankruptcy by shopping center REITs Simon Property Group and Brookfield Properties, is maintaining its relationship to the mall. Its turnaround plan makes no mention of experimenting with small formats or entering strip malls as Macy’s has done.

“I think their plans make a lot of sense. They’ve got a great leadership team that’s leading them into the next generation of what a department store should be,” Kevin McCrain, CEO of Brookfield Properties U.S., told Retail Dive about J.C. Penney. “They are very focused and know exactly who their consumer is, and they’re looking to cater to that consumer, which is exactly what every department store should be doing.”

Open and shut

Another stark difference between Macy’s and J.C. Penney’s real estate strategies lies in how each contemplates adjustments to the sizes of their fleets. As of its most recent quarter, the Macy’s banner runs 481 full-line stores, 12 small-format stores and nine Backstage off-price stores. According to a recent financial report, J.C. Penney runs 663 stores.

Macy’s previous CEO, Jeff Gennette, said that the closure of four full-line stores meant that the retailer was largely finished with its plan to shutter about 125 underperforming stores, part of a turnaround announced in 2020. But this year, Spring said the company would shutter another 150 stores over the next three years. Stores won’t be spared just because they turn a profit, he also said, a hard line that analysts say may be necessary in the long run.

Normally, profitability is the main driver of whether or not to run a store, unless a different location might generate even more sales or consolidation might drive efficiencies, according to GlobalData Managing Director Neil Saunders. But neither Macy’s nor Penney are in normal situations, he said by email.

“It is no secret that Macy’s has been in decline for a very long time, and it is probably the case that some locations are seeing an ongoing deterioration in sales, so in five or 10 years they may not be profitable,” Saunders said. “If Macy’s acts now it can get in front of the problem and focus its efforts on investing in the stores it thinks can carry the business forward. In some ways this is like amputating gangrenous parts of the business: it’s not very pleasant and it has arisen because of a lack of care in the past, but it is necessary for survival.”

This approach balances profitability, capital cost, operating costs and potential real estate value, making it “the right thing to do,” according to Nick Egelanian, president of retail development firm SiteWorks.

“Macy’s needs to exit stores with no future, to focus its limited resources on its most promising future investments,” he said.

The state of affairs at J.C. Penney couldn’t be more different. As part of its bankruptcy in 2020, J.C. Penney slated 144 stores for closure, but that may be the extent of its downsizing. Simon Property Group CEO David Simon told analysts that he doesn’t “anticipate much portfolio real estate activity” at J.C. Penney, citing the chain’s profitability and importance to the communities where it operates.

“I don't necessarily believe in ‘shrink to grow,’” he also said. “It's very hard to achieve.”

If anything, the retailer could benefit from expanding because even many of their low-volume stores turn a profit, at least as measured by EBITDA, he said.

“Penney is able to produce positive EBITDA even if there's not high sales,” he said. “In fact, I think Penney almost can be a beneficiary of opening new stores as opposed to closing stores.”

Both McCrain and David Simon have said that saving local jobs factored into their companies’ interest in acquiring J.C. Penney. But Egelanian is skeptical, and says that Penney should probably also put more focus on its best performers.

“What matters is shareholder value, and what determines that is a combination of profits and the hope for or path to future profits,” he said. “So JCP must focus on promising investments and exit dead-end businesses.”

Taking ownership

The contrasting real estate plays at Macy’s and J.C. Penney have everything to do with their ownership, and, in Macy’s case, potential ownership, analysts say.

Macy’s is a publicly traded company, beholden to stakeholders including investors, employees and customers; J.C. Penney has been private since being purchased out of bankruptcy four years ago by Simon Property Group and Brookfield Asset Management; since then, brand management firm Authentic Brands Group has acquired 16.7%.

“Macy's is in the retail business,” Erik Gordon, professor at the University of Michigan’s Ross School of Business, said by email. “Simon and Brookfield are in the mall business.”

However, Macy’s could soon also be a private company if one of its investors — namely real estate-minded investment firm Arkhouse Management — gets its way. Arkhouse and its financial partners have bid $6.6 billion to take over the retailer (which includes Bloomingdale’s and Bluemercury). Since Arkhouse’s overture, Macy’s has been more preoccupied with its properties, beefing up its board’s real estate expertise and announcing that property value will be a factor as it contemplates which stores to close in the next three years. 

“As Macy’s owns a lot of its shops, in some cases it might make more sense to monetize them and take the proceeds to invest in the business,” Saunders said. “In the case of the activist investors, that money would be used to generate a return rather than invest — but the same principle applies.”

J.C. Penney, meanwhile, is owned by two of its landlords. Both Brookfield and Simon have invested in other retailers besides J.C. Penney, and analysts have long speculated that was at least in part to prevent vacancies at their malls. Penney’s position as an anchor is especially valuable because an empty anchor often trips clauses in other tenants’ leases that reopen rent negotiations or allow those retailers to leave.

“Macy's doesn't own malls,” Gordon said. “It just does retail, so it closes marginal stores. Simon owns malls, so marginal Penney's stores can be valuable enough to the mall business to keep open.”

Saunders agrees that “the viability of the malls in which J.C. Penney operates” depends on keeping stores running, that the success or failure of Penney stores would influence the malls’ footfall, sales and property value, and that a closure could upset other tenants.

“That would be very undesirable, so the priority is to keep the stores operating for the greater good of the business,” he said. “That said, I think Simon has a genuine desire to make J.C. Penney work better and to keep it profitable.”

Target is doubling bonuses for salaried employees, the company confirmed to Retail Dive. The retailer said it will pay 100% of employees’ eligible 2023 bonuses. For the prior year, the company paid 50% of eligible bonuses.

“Like many companies, Target offers a bonus plan for select employees, including leaders in our stores and supply chain operations, that is designed to reward their performance in driving our results,” spokesperson Brian Harper-Tibaldo said in an emailed statement to Retail Dive. “The bonus structure is informed by goals set at the beginning of the fiscal year, and includes sales performance and profit outcomes.”

Workforce costs are Target’s largest operating expense. The Minneapolis-based company has about 400,000 employees, 1,956 U.S. stores and nearly 60 supply chain facilities. Target declined to say how many hourly versus salaried employees it has but noted that hourly team members make up most of its workforce. A spokesperson confirmed that select store-level employees are eligible for bonuses under a separate program.

CEO Brian Cornell credited employees with changing the company’s business momentum, which improved fourth-quarter sales, traffic and profitability ahead of expectations. 

Target is “rewarding our team accordingly” after its associates helped drive an additional $2 billion in profit growth, which exceeded a goal the company set for the past fiscal year, Harper-Tibaldo said.

As the company moves to open 300 more stores over the next decade, the human element of the business “as exemplified by our team is a continued differentiator for Target in a world where commerce is becoming increasingly mechanized and impersonal,” Chief Operating Officer Michael Fiddelke said. 

Rival retailer Walmart also recently announced that it’s boosting bonus incentives to reward employees and help retain talent. The Arkansas-based retailer raised the average store manager’s salary to $128,000 annually and announced plans to add $20,000 in stock grants to the compensation packages of managers who lead Walmart Supercenter stores. With those changes, a manager at one of Walmart’s largest U.S. stores could earn over $400,000 annually.

As Americans flocked to the suburbs in the mid-20th century, the mall took off and, in the process, gave their department store anchors — many of them retailers founded in the 19th century — a new lease on life. The shopping centers quickly morphed into de facto town squares and cultural hot spots, where people not only shopped but also hung out for hours. Now, though, as many anchors close, tenants leave for other sites and traffic has ebbed at some malls, many observers see the concept as in flux.

Brookfield Properties U.S CEO Kevin McCrain disagrees. Along with some urban retail real estate, Brookfield Properties’ U.S. portfolio includes more than 130 malls in 40 states, from Hawaii to Maine, according to a company spokesperson. That includes some from its 2018 acquisition of mall operator GGP. Speaking via video conference, McCrain gave Retail Dive his perspective on the past, present and future of malls.

Editor’s note: This interview has been edited for brevity and clarity.

RETAIL DIVE: You take issue with the idea that the mall concept is in flux. How would you describe it?

KEVIN MCCRAIN: “Flux” has a negative connotation to it, right? [It implies that] people don't know what's happening, and they're trying to figure it out. I can't speak for any other business, but we know exactly where we're going. All of our assets — and any real estate asset — evolves over time.

You need to have the right strategy in retail real estate to curate that asset for the local consumers. We're fortunate at Brookfield that we have an amazing team of people ... all focused on what is the right next best step for our assets, and investing capital behind that, to bring in the right brands for the local market and bring consumers back again.

Is there something going on with malls that we could paint with a broad brush? Or is each a local, case-by-case situation?

What you can say with a broad brush is that the death of the mall was a myth.

People like to shop, and they like to shop in places that they like to be at, and that includes malls, indoor or outdoor. We spend our time focused on curating the right brands and restaurants and entertainment concepts for those consumers in their local market. The more localized nuances are “What's the right thing to put in there, and who has the right team to operate in those markets?”

Do malls, or many malls, need major facelifts? For example, we hear that open-air concepts are winning. Does that mean an enclosed mall should take its roof off?

I think you'd be hard pressed to find somebody that's really taking a roof off. People talk about it, and then they realize it's very costly and actually is not going to change anything.

I stand by this, and I'll say it again: The narrative around the enclosed mall dying is just completely unfounded. Shoppers come back year after year, our sales go up year after year, our retailers perform year after year, whether that was before COVID or after COVID, that is one universal truth.

A lot of observers believe the pandemic reignited or accelerated e-commerce’s disruption of brick-and-mortar retail. Are malls being tested anew by online shopping? 

There are narratives out there that online retail disrupted the market or didn’t disrupt the market. But now every brand is very clear-eyed as to what their strategy is, and their strategy is 100% that stores matter and store growth matters. It matters to their bottom line, it matters to how they connect to their consumers, and they absolutely need it.

Do they still sell through digital? Of course they do. And they try and upsell you in their stores, and they try and drive you from online to their stores. But even digitally native brands — I don't even know if that term should even exist anymore, because any brand that was digitally native now has stores. They've all come to us realizing they need stores. I had a digitally native CEO say to me, “I fought for years against stores, Kevin, years, and then I opened my first store and my eyes were wide open. I couldn't believe it. I make so much more money through my store sales.”

But are the glory days over? This isn’t the ’80s or even the ’90s, when people would hang out at the mall all day.

It’s an evolution, right? Look, the 1980s model that was a giant X or T or plus sign, with four anchors and apparel running [through] — that was bound to evolve as consumers evolved and brands evolved. But you said that people don't like to hang out at the mall anymore, and I think if you looked at studies of Gen Z and you walked our malls, you'd see Gen Z actually loves to hang out at the mall. They walk the mall and elderly people love to walk the mall — those are two groups of people, younger and older, still hanging out at the mall.

The mall has evolved, it’s just the nature of what people are looking for. People want to be able to shop brands, but they want to be entertained and go out to dinner. So you find more restaurants, and we curate our assets to cater to those brands. The right restaurants are in the right markets, so Tyson's Galleria will have high-end restaurants, and more middle market will have will have appropriate restaurants for that consumer. Then we've got miniature golf, we've got bowling, VR gaming. Providing that to a range of people, from young to senior, is paramount to what we're trying to do.

Macy’s promised to expand its off-mall fleet of smaller stores, saying it would likely have to close a few full-line anchors in the process; this year it announced it would actually close 150 stores over the next three years, threatening several more mall locations. Do you see the move off-mall as just an experiment or is there a department store flight that is a problem for malls?

There have been some department stores that have announced some recent closures. I would say other department stores are still leaning into their mall fleet because they know that their mall fleet is a huge driver of sales for their business. Department stores are evolving, as everything needs to evolve over time. But there is a place for them in the market, for consumers that are looking for a broad-based shopping in one place.

But, they have closed, and we've invested over $2 billion over the last 10 years redeveloping 100 department store boxes. We're not afraid if a department store wants to close because we have an amazing team that's going to redevelop that box into something amazing for the asset. We've redeveloped into apartment buildings, we’ve redeveloped into restaurants and entertainment concepts. It is an opportunity to further enhance our asset if a department store doesn't want to be there anymore, for whatever reason. It's not something that we shy away from. We lean into our assets because the lifeblood of our assets is our consumer and we're always looking to make them better for our customers.

You mention residential being one option when it comes to rethinking the mall, and “mixed use” is a buzzword right now. How much mixed use are we going to see, and is it going to be mostly new construction or an overhaul of existing malls?

It's a new-development option across our portfolio, and I won't speak for anyone else. We look at all the options for an asset to try and make the best decision for our customers and our tenants. At the end of the day, the site is a mall, a consumer haven for commerce, but sometimes the best way to do that is to put a 300-, 400- or 500-unit apartment building on it.

We just finished a 325-unit apartment complex in Atlanta at one of our assets there, we've got a few 100-unit apartment buildings at Alderwood in Seattle, which is a great asset and was made even better. Usually when we do this, we enhance the profile of the retail part of the asset as well as make it more neighborhood friendly. That way there is some convenience and seamless connectivity between the apartment building and the retail asset, to create that center that the tenants at the apartment building are looking for. But it's one lever that we use as we think about enhancing our retail assets overall.

In 2020, Brookfield and Simon Property Group acquired J.C. Penney when it was in bankruptcy. Now Brookfield owns 42%, with Simon and Authentic Brands Group owning the rest. More recently Brookfield and Simon made a bid for Express, also in bankruptcy. Why the interest in ownership of these tenants?

We have great a track record of doing this in partnership with groups. We are cognizant of a few things: One, these retailers are massive employers of people. We were very focused on trying to save as many jobs as we could. It was one of the reasons why we got into J.C. Penney. Two, we are a believer in retail real estate, as a driver of profit and growth for these brands.

And we think these legacy brands sometimes just need a different way of thinking about what their next evolution is. Brands evolve over time, and sometimes hit a little bit of a stumble. When you're in a giant brand house, it's OK to stumble, but when you're by yourself, it becomes a lot harder to stumble and then regain your footing. This is just part of helping that brand into the next phase of its evolution while allowing it to leverage retail real estate and keep all or a significant number of its employees.

There's no talk from J.C. Penney about leaving the mall, but there is talk about revamping stores. How important do you think remodeling is for some of these legacy anchors that are sticking around?

J.C. Penney just opened a new store at Willowbrook mall in New Jersey. They moved into one of our malls from an asset across the street. J.C. Penney has a billion-dollar plan on investing capital into its stores over time because they know that the stores are its lifeblood for generating sales.

I think it's huge what they've announced, I think their plans make a lot of sense. They've got a great leadership team that's leading them into the next generation of what a department store should be. They are very focused and know exactly who their consumer is, and they're looking to cater to that consumer, which is exactly what every department store should be doing.

Simon seems to be pulling back on its retail investment. Is Brookfield similarly being a little bit more careful?

We're disciplined in everything that we do, and we’re not going big. Simon invested in more brands than we have. We make these kinds of investments when we think there's an opportunity. There isn't a thesis on pulling back or diving in — we take opportunities one at a time and evaluate them as they come about.

You mentioned the new J.C. Penney store at Willowbrook. The departure from Wayne Towne Center across the street is likely to be hard on that mall, which Penney anchored for 50 years, and there are several malls that have closed or are emptying out. Do you think there is some shakeout still to happen? Is it just an inevitability that some malls are going to go away?

If they are, it's at the margins. A lot of the shakedown has probably happened by now. I think the issue is less about whether there too many malls or not — that remains to be seen. There have been enough mall operators that have had issues over the last number of years that we can sort of see where the market has shaken out.

The winning companies have a great collection of assets. We're happy that we were able to buy Brookfield Properties Retail, formerly GGP.  We have some some truly iconic properties that are alive and well and thriving, and a hub for retail commerce.

The White House is making moves to limit China-founded e-commerce platforms Shein and Temu’s use of the de minimis exemption, but industry observers aren't sure how much the plan will affect its intended targets.

The Biden-Harris administration's proposal looks to cut off the use of de minimis, which exempts shipments of less than $800 from import duties and taxes, for a range of products covered by Section 201, 232 and 301 tariffs.

This would raise duties for many companies reliant on parcel shipping between the U.S. and China, such as Shein and Temu, which experts say would likely trickle down to price hikes for consumers who flock to the companies for a variety of fast fashion goods.

Beyond the need to pay import duties, scrapping the exemption would also call for standard reporting, bond and document requirements for these shipments, just like other freight entries, Flexport wrote.

The proposal also aims to push businesses to provide more detail about goods’ destinations and shipments’ contents, such as describing cargo as a "100% cotton men's T-shirt" rather than just a T-shirt, Flexport added. The White House says this will promote greater visibility into de minimis shipments.

"Some companies exploit the de minimis to conceal shipments of illegal and dangerous products and avoid compliance with U.S. health and safety and consumer protection laws," according to a White House fact sheet. "Other foreign entities use it to circumvent U.S. trade enforcement actions intended to level the playing field for American workers, retailers, and manufacturers."

The White House's efforts appear to be targeting Shein and Temu, but industry observers say that the two e-commerce giants known for leveraging the de minimis exemption can navigate these changes without much trouble. Smaller businesses, on the other hand, could be strained by the added costs and administrative requirements.

Shein and Temu could skirt the impact

Even with import taxes factored in, Shein and Temu are likely to maintain competitive pricing versus U.S. retailers, Anthony Pizza, VP of marketing at freight forwarder Accelerated Global Solutions, said in a statement. Amid long-standing de minimis scrutiny, both companies have expanded and diversified their supply chains to limit their exposure to regulatory shifts, including by expanding their U.S. operations.

"Shein, for example, has expanded its manufacturing operations to countries such as Turkey, Mexico and Brazil," Pizza said. "The company has even begun producing some items in the U.S. through a print-on demand model. Meanwhile, Temu is adopting a semi-managed logistics approach to mitigate risks associated with these types of policy changes."

The changes could encourage further supply chain shifts by Shein and Temu, said Cindy Allen, CEO and managing director of the consultancy Trade Force Multiplier. One possibility is that Temu will ship more containers to U.S.-based warehouses for storage, so that the actual sale occurs after it arrives in the country. While Temu would pay duty on those containers imported into the U.S., it would streamline the entry process for the company if the de minimis exemption changes are realized.

"[They’ve] gone from 5,000 individual packages in that box to one entry for U.S. Customs," Allen said in an interview. "It's still going to have the same 5,000 individual items in that box, and they're probably going to be individually packaged."

While Temu is monitoring de minimis developments, its growth doesn't depend on policy related to the exemption, a spokesperson said.

Shein wants reform on the exemption "to create a level, transparent playing field," and import compliance remains a top priority, a Shein spokesperson said in an email.

Hurdles for smaller businesses

Smaller businesses that lean on direct-to-consumer shipping from China or the resale of China-based goods in the U.S. may face a more sizable challenge in navigating de minimis changes, experts said. Many of these companies lack the resources to quickly adjust their supply chains like Shein and Temu can.

One hurdle for these businesses is to classify their 10-digit Harmonized Tariff Schedule codes, which the proposal aims to mandate, according to Flexport. The codes, which categorize imported goods and determine duty rates, aren't always needed for de minimis entries today. If that changes, importers would face more customs requirements and related costs, since classifying products at the 10-digit level is defined as "customs business."

"This would mean hiring licensed customs brokers, executing customs power of attorney and establishing responsible supervision control procedures," Flexport said.

Temu and Shein can secure low customs brokerage fees due to the high volumes they ship, but many other e-commerce enterprises don't have that luxury, Allen said.

"They're going to be impacted by having to pay more duty, having to navigate a customs broker relationship that they don't have today," Allen said. "They're going to have to pay higher costs."

Still, there are some ways businesses can adjust their strategies to mitigate the impact of the White House's push, such as manufacturing in countries outside of China. Companies could make products in Vietnam to skirt Section 301 tariffs, said Izzy Rosenzweig, founder of e-commerce fulfillment company Portless, which helps shippers utilize a Shein or Temu-like supply chain model.

As importers respond to the White House's proposal, they should also consider that changes to the exemption can happen as it advances through the implementation process, Craig Radford, co-CEO at Wizmo Solutions, noted in a LinkedIn post.

Trade-focused proposals also can take several months to finalize, he added.

"Rules that face legal challenges, significant lobbying, or political controversy can experience longer than normal delays," Radford said. "This one checks all boxes and has logistical and technical hurdles that other [government] agencies will present."

While the likes of Macy’s, Urban Outfitters and other retailers in recent earnings discussions called out uncooperative weather and/or macroeconomic headwinds as challenges, Abercrombie & Fitch Co. executives discussed neither.

In a recent report, Morgan Stanley analysts led by Alex Straton noted that lack of discussion around weather or other headwinds. "This lends credibility to the idea that there have been legitimate changes to the A&F banner such as a more disciplined inventory management, increased ‘core’ assortment, and greater exposure to more stable, higher [income] consumers, among others ...that altogether minimize the business’ margin volatility” compared to its own history and its rivals, they said.

It further suggests that Abercrombie’s improvements “are durable,” they also said. This is a remarkable shift for a brand that was in shambles a decade ago, when Mike Jeffries finally stepped down as CEO. Today, in an era when AI seems poised to only amplify the role of technology in running an apparel brand, observers credit much of Abercrombie & Fitch’s rehabilitation to something they say many apparel retailers have long neglected: old fashioned merchandising chops.

Jeffries has been widely blamed for the apparel retailer’s past troubles — a history of discrimination and sexualized marketing that helped land it on the American Customer Satisfaction Index of least liked brands in the U.S. Despite all that, the company struggled to replace him for years, clouding hope for meaningful progress as sales continually faltered.

Now, though, Abercrombie & Fitch Co., which runs the namesake brand and its sister, teen line Hollister, is a standout in an otherwise tepid apparel segment. In 2023 net sales rose 16% year over year, reaching $4.3 billion, as comps rose 13% and gross margin expanded by 600 basis points to 62.9%. The momentum continued in Q1, when the company topped a record-setting billion dollars in net sales, and comps rose 21%. Net sales at the Abercrombie brand in the period grew 31.1% to $571.5 million, with comps up 29%, and at Hollister grew 12.3% to $449.2 million, with comps up 13%.

“Ten or so years ago, many had written off Abercrombie & Fitch. Today, the company is producing extraordinary results which mark it out as one of the best performers in the retail market,” GlobalData Managing Director Neil Saunders said in emailed comments. “This is the result of years of hard work to reengineer the brand, so it connects with the needs and desires of modern consumers. Enacting a 180-degree turn is extremely difficult at the best of times, but to deliver this against the backdrop of first a pandemic and then a period of economic disruption is a testament to the focus and skill of management and all working in the business.”

Merchant led

“Management” at Abercrombie & Fitch Co. is led by Fran Horowitz, who had nearly 30 years of merchandising experience before she joined the company in 2014 to lead its Hollister brand. A year later she was promoted to chief merchant for the entire company, and shortly after was part of an interim team of three executives that took over from Jeffries when he left.

“At Abercrombie & Fitch, Fran has always been about making the product the hero. When you talk to her, she’s enthusiastic about the small things and the details,” Saunders said. “That bleeds into the team and sets the right culture. This has played a big role in the brand’s revival, especially since product design had to really evolve and change as part of the brand’s restoration.”

She was officially tapped as sole CEO of the parent company in 2017. Corey Robinson, who has been with the company in various merchandising roles for nearly 20 years, is currently chief product officer and oversees multiple functions in both merchandising and design. 

Unsurprisingly, the company uses data to help it make informed decisions around its assortment, according to a company spokesperson. But the team also believes “there is an art and science behind merchandising,” the spokesperson said by email.

An overly automated system “cannot replace the human touch — The human intuition on trends, recognizing the sentiment of the customer you're buying for, or knowing how to plan sales for the following year based on your buys,” said Rimi Gill, a retail strategy consultant with Retail Evolved, who has worked with the company.

“Automization is a buzz word in the retail industry now. Many chief merchandising officers and CEOs believe systems and automization will help drive their retail business and cut costs. But in turn what they are seeing is loss of customers and sales declining because they are losing sight of the human advantage,” she said. “There is definitely a place for automization in merchandising, for menial tasks, but the art of buying cannot be replicated by AI because this industry is based on creativity and understanding what the consumer wants/needs.”

Other observers have noted that Gap, a brand that once defined casual American style, fell into this trap. By contrast, a strong merchandising team who understands the strengths and limits of data helps a retailer advance, Gill said by email.

“As a buyer who worked closely with Abercrombie & Fitch I know the company is a merchant-led retailer. Because of their human advantage they have stayed relevant from the ‘90s to present (with a few blips in between) as they have been able to recognize and evolve with their teen customer base,” she said. “Walking at their offices in Columbus, Ohio, you can see that the brand even hires merchants who happen to be their customers that live and breathe the Abercrombie & Fitch lifestyle. The merchandising division is at the forefront of decisions being made in their company.”

The merchant mind

Both Abercrombie & Fitch and Hollister have become nimble apparel sellers because they understand their customers, according to experts — and Horowitz herself.

“We’ve further defined what each of our brands stands for and the customers they serve, presenting a significant global addressable market opportunity they are capitalizing on with relevant assortments and compelling brand voice,” Horowitz told analysts during the company’s most recent earnings call. “Both brand families are contributing nicely to our business results while expanding our customer base through increased marketing spend and improved omnichannel customer experience.”

The merchandising team developed Abercrombie’s new Wedding Shop from customer insights from both men and women interested in various types of apparel suitable for matrimonial events of various kinds. Based on the success of the Wedding Shop, Horowitz said the merchandising team may explore more such brand extensions.

“The Wedding Shop has brought in lots of new customers. It’s also been an opportunity to add value to the customers that we already have,” she said. “It was built off an extension of this best-dressed guest collection that we had already seen success in, so we are seeing exciting acquisition by customer.”

Horowitz’s merchandising background is evident when she speaks, according to Liza Amlani, principal and co-founder of Retail Strategy Group.

“When I look at commentary around ‘being more customer focused,’ ‘listening to the customer’ — these are all things that are part of the merchant world and the way a merchant thinks,” Amlani said by phone. “’What does my customer want? Am I listening to her? Am I listening to him and closing the feedback loop?’ And that's exactly what Fran does.”

The brand’s success with dresses epitomizes this, Amlani said. It’s now a top category for Abercrombie & Fitch, thanks to a mindset that listens to the customer and invests in that demand.

“Having that merchant mind is the way a merchant thinks about the customer and connecting them to product,” she said. “That is why Abercrombie I think has really come up from the trenches of their past.”

It also means that the product has attributes that stand out, according to Saunders.

“Attention to detail in fashion is important, even within the mass market. The small things Abercrombie and Fitch has changed like better buttons, softer fabrics, and little design embellishments all make its proposition more defensible in a crowded and competitive marketplace,” he said. “They also represent added value which gives people a reason to spend a bit more on the products rather than trade down to cheaper alternatives – of which there are many.”

Merchandising improvements extend to stores, as well, which no longer have the dark, heavily perfumed ambiance favored by Jeffries, as well as more inclusive messaging, according to Amlani.

“The customer experience has completely shifted from what Abercrombie was under Michael Jeffries to what it is today,” she said. “We've seen a transformation where you're not going into this dark store with these white models. The lighting alone has allowed more customers to come in, it just gives a different feeling. It's not this dark, sexy, exclusive place to shop —it’s for a lot more customers.”

Macy’s, like other major department stores, has pared down its store footprint over the years. Former CEO Jeff Gennette said the company had closed 170 locations since 2016 and was in the “final stretch” of shuttering stores. But at the beginning of this year, all of that changed. 

Macy’s announced five more anchor closures alongside a 3.5% workforce reduction in January. Then a month later, the department store said it would close 150 more locations over the next three years, with 50 closing in 2024 alone. One of the stores slated for closure was a fixture of the Ballston Quarter mall in Arlington, Virginia. Here’s a look at its final weeks in business.

Macy’s Ballston location, now closed, sat on a popular street surrounded by a slew of dining options, including Ted’s Bulletin, Shake Shack and True Food Kitchen. The mall features a Regal movie theater, an action entertainment experience called “5 Wits,” a CVS, a Onelife Fitness and even more dining options.

As the Macy’s prepared to shutter, the department store’s multiple entrances all showed easily visible store closing signs. People advertising the closeout sales also stood on nearby street corners for hours at a time, holding signs detailing the depth of discounts, which spanned all three floors at first and slowly condensed as inventory dwindled. 

Macy's was careful to specify in stores that only the Ballston location was closing. Now, though, dozens more will shutter in the year ahead as the department store raises the bar on go-forward locations. CEO Tony Spring, who took over in February, told analysts that even cash-positive stores will be closed if they’re underperforming.

The executive told an audience at Shoptalk that Macy’s simply has “too many locations that were built for a different era” and said the company had “no choice” but to close stores in order to thrive. Spring added that the stores slated for closure in the next three years make up 25% of the department store’s square footage but represent less than 10% of its sales.

The end goal is a fleet of 350 core Macy’s stores, with continued investment in some of the department store’s smaller formats. Spring said in February that Macy’s plans to open 30 more small formats in the next two years, including 12 this year.

Meanwhile, many of its traditional department store formats will begin winding down.

As the Macy’s in Ballston shuttered, some displays were well-stocked, while others were already sparsely filled just a week after announcing the closure. Many racks were left empty as product was purchased, even as boxes of inventory cluttered the selling floor. In certain areas, extra stock usually stored in a back room was sitting out in boxes on wood pallets or stacked up on metal shelving units.

Most employees were either manning cash registers or unloading inventory onto shelves. All sales at the store were final as of Jan. 22, and it was accepting returns up until Feb. 20. A few more employees were stationed behind some of the department store’s beauty and jewelry kiosks.

While jewelry was heavily discounted, beauty appeared to be one of the only areas Macy’s wasn’t compromising on. The retailer offered no sales on any of its fragrances and also said many cosmetics products were excluded from the closing sale. Macy’s “Last Act” merchandise, which is already discounted, was also not on further promotion.

Other deals at various points included 20% off housewares, 40% off men’s suits and separates and 25% off outerwear, including from brands like Ralph Lauren. Luggage, toys, kids apparel, pillows, linens and small kitchen accessories were also up for grabs at discounted rates.

The Macy’s at Ballston Quarter included a whole floor dedicated to furniture and mattresses, as well as a wide rug selection, all of which were meaningfully discounted during the store closing sale. Sofas, armchairs, mattresses, coffee tables, nightstands and other items all featured steep discounts, sometimes hundreds of dollars off their original price. Sign wielders advertising the closing store early on touted 60% off area rugs, and some mattresses were 30% off.

As the department store required less space, store floors were left empty or stacked with unneeded fixtures like empty shelves, mannequins and tables. Dollies for carting around merchandise were left unmanned. Some merchandise display tables, as well as various pieces of decor, were up for sale or slated to be sent to other Macy’s stores, including a box dedicated to letters for Santa Claus. 

In the weeks since Macy’s announced its new slate of closures, analysts have expressed surprise at the magnitude of the pullback, speculated whether the retailer is closing enough stores and taken a look at who could benefit most from the iconic department store’s exit from certain markets. On that last question, off-price is at least part of the answer.

Analysts with Jefferies and Earnest Analytics recently both predicted that off-price retailers, including those run by TJX, would benefit most from the department store’s closures. Jefferies noted “significant” customer and real estate overlap between Macy’s and TJX, translating to “a few billions of dollars of share gain opportunity” over the next few years. No matter who gains from the closures, one thing is clear to Macy’s: it needs to evolve.

“Of course, we’re very sensitive to the impact a Macy’s closure has on our colleagues, our customers, our vendors and the local community,” Spring said in March. “But this is a critical step as we move forward. This isn’t about shrinking. It’s about improving historically, to make sure that we’re giving people the opportunity to shop the way they want.”

Visuals Editor Shaun Lucas contributed to this story.