The state of retail operations

Understaffing a store isn’t headline-worthy. Yet, at many retailers, such inefficiencies forfeit more inventory than the smash-and-grab robberies that go viral or make the news.

Organized retail crime continues to hold the attention of policymakers and retail industry groups. But some loss prevention experts say the impact of external theft on inventory loss or shrink is overstated, while the causes of nearly two-thirds of shrink are going largely unappreciated and, therefore, unaddressed.

Inventory loss is out of the spotlight to a great extent, in part because many, if not most, retailers that had been complaining about shrink levels have reported improvements. After about 30 years, the National Retail Federation last year said it would no longer report on shrink trends in the industry. 

Still, laxity related to labor, pricing, promotions, stock management and other store operations leads to shrink and costs retailers billions, according to a recent study from Coresight Research. The percentage of gross sales lost to in-store inefficiencies stands at 5.5% on average, up from 4.5% last year. Overcoming those inefficiencies could save U.S. retailers in the home improvement, drugstore, grocery, mass merchant and warehouse club sectors as much as $162.7 billion, up 27% since last year, per Coresight.

Tackling this requires a hard look at store operations and, for most retailers, a more holistic approach to loss prevention, experts say.

“When I started, I was a bad-guy catcher. I wanted to catch bad guys, I was good at catching bad guys. I loved the adrenaline, I loved the cat and mouse. That's all I wanted to do,” said Johnny Custer, senior director of retail risk solutions at ThinkLP. “I’ve evolved from that. There are some very progressive retailers where the relationship between operations and LP is seamless, where loss prevention is a specialized extension of the operations team. That's ultimately where we all need to be. But they are few and far between.”

Margin protection

That evolution requires retailers to view their loss prevention teams as not just crime fighters but as protectors of profits and margin more broadly.

“Loss prevention is perceived as a cost center. A necessary cost center, a part of doing business,” Custer said by video conference. “My goal is to change that perspective so that people understand that we're not a cost center, we can actually be a profit driver.”

Errors in merchandising, pricing and other functions add up quickly, according to Brad Bogolea, CEO and co-founder at Simbe Robotics, which sponsored Coresight’s research.

More than 80% of the 394 retail business decision-makers that Coresight surveyed said they’re losing at least 5% of their operating margin to in-store inefficiencies; last year just 70% reported that. This year, mistakes related to promotions have been the biggest challenge, with nearly 40% ranking it in their top five, while nearly that many cited pricing errors. Losses from out-of-stocks also stood out, with 57% reporting the issue.

“Even small lapses — a product on the wrong shelf, an incorrect label — can cascade into major losses,” Bogolea said. “These issues erode margins and create friction for shoppers. In contrast, retailers that solve for visibility are seeing a step-change in performance across supply chain, e-commerce fulfillment and store operations.”

Unpacking where margins are being squeezed by operational failures requires data, something Custer learned when he was working in loss prevention for someone who was a data analyst.

“He expanded my mind and asked me to look into point-of-sale. And then, not only point-of-sale, but center of store, all of the sales-floor data, then the back of the store — all the inbound, outbound flow data,” he said. “To look for similar patterns of behavior that occur within each, because loss can happen anywhere in the building. I did it reluctantly, but I became a believer the moment the financial results came out.”

Tech to the rescue

Getting that data — and the visibility into store operations that it provides — is enabled by technologies that find mistakes, flag needs and detect patterns.

Retailers are increasingly turning to them. In the U.S., retailers’ plans for investment in store intelligence technologies for the next year have skyrocketed over 150%, Coresight found. More than a third of retailers say they’ll be investing at least $500,000 in that time; on average each company is dedicating more than $415,000.

Some 60% of retailers have turned to AI to assist in loss prevention, with another 30% planning to do so in the next year, according to a February study from vision AI firm Everseen. 

Tech is helping break down the divisions between the loss prevention and operating teams, according to loss prevention consultant Brand Elverston, who works with major retailers and brands.

“The silos of risk mitigation, store operations and supply chain are all but going, and that's been fueled largely by countless use cases of technologies that are out in the space today,” he said. “I can do your in-stock. I can tell you if it came in off the truck. I can tell you how many people are in the store. I can tell you, if somebody stole something, what door they went out of.”

Some tech designed to detect crime or criminal intent has gained broader uses, as at Verensics, an employee questionnaire-based platform. Some retailer clients are now sharing information gleaned from employee questionnaires so that teams in store ops, human resources, loss prevention and elsewhere can connect various dots, according to Verensics CEO-founder Russ Law. Similarly ThinkLP platforms leverage point-of-sales data, human resources data, inventory data and more.

“The data is geared towards crime, obviously, but it's being used more and more for operational integrity issues,” Verensics’ Law said by video conference. “Maybe the inventory isn't being done right because nobody knows exactly what they're supposed to be doing. Or maybe there's a manager who's not getting the point across the way they're supposed to. It’s identifying places where there are training opportunities, or where there are opportunities to tighten up processes, as well as identifying bad actors.” 

The human touch

As much as technology has revolutionized store operations, though, retailers risk undermining their systems if stores are inadequately staffed. 

Store-level thefts, always a problem in retail, got a boost around the time of the Great Recession. ThinkLP’s Custer attributes that to job cuts, especially around 2008 or so, that went too far and haven’t been restored in the years since.

“Retailers cut a lot of non-essential personnel, and one of the first groups of people they cut were the perpetual inventory, day-to-day count keepers, the folks that scan the store and keep count,” Custer said. “That has had a ripple effect across so many profitability areas — from clearance markdowns to in-stock position to day-to-day customer service. I can point to that one mistake and say that if that wouldn't have happened, we'd be in a much different situation right now.”

Similarly, during the COVID-19 pandemic, retailers eliminated many of the non-essential employees who weren’t coming into work, and shrink ballooned, according to Elverston.

“The worse the backroom looks, the higher the shrink. It's just the way it is,” he said by video conference. “If you're not managing inventory, you've increased your risk of shrink.”

The “cost of goods plus markup” formula for determining retail price, often a delicate balancing act in the best of times, is especially fraught in the age of tariffs.

Trade policy under President Trump has been in flux, so it’s often difficult to know what the cost of goods is, or will be. Plus, consumers, whose capacity to spend on discretionary items is already sorely tested, are on the lookout for deals and easily shun anything they deem overpriced. Lower-income shoppers are struggling to afford essentials, while higher-income ones are trading down to more affordable options.

This all makes pricing “a really tough needle to thread” and different from the tariffs instituted under the first Trump administration, which were more easily passed on, according to Ali Furman, consumer markets industry leader at PwC.

“You have to really weigh all your options to mitigate tariffs and protect your margin, inclusive of passing on price,” she said by video conference. “But we're in a very different moment with today's consumer than we were in 2018. And you know, no retailer wants to be the one that's called out on social media as gouging the consumer.”

Walmart sets the pace

Import taxes are paid by the retailer receiving the goods. So far, few have been padding their prices on inventory acquired before tariffs hit, according to Owen Carr, chief merchandising officer at Spreetail, an e-commerce marketplace accelerator specializing in oversized products.

“There may be some retailers that try and get margin when they can, and raise price ahead of their actual cost going up. But that'll be the exception, not the rule, because you don't want to be the only high-priced person at the party,” Carr said by video conference. “If you're the first retailer to go up, the customers remember that. So I do think that a lot of retailers will try very hard not to raise prices until they have to.”

In fact, Walmart’s recent announcement that it may take an operating margin hit in Q1 because it’s committed to keeping prices low is likely to be highly influential, according to Matt Pavich, senior director of strategy and innovation at Revionics.

“When Walmart makes pricing moves, the rest of retail follows, to some degree, on a lot of products,” he said by video conference. “You want to take care of your customers, because anyone can make a quick profit. But the problem is that it's quick, and then you've lost your customers. It's a short-sighted, short-term strategy. Consumers have options.”

Keeping a lid on prices during peak inflation — when Walmart’s “always low prices” commitment was also a factor — helped several retailers grow share and even profits, according to Revionics data.

“The other piece about profits, is you can make up for it,” Pavich said. “You can have a lower margin but still make more profit because of the volume you sell.”

Tech gains importance

When inventory costs more, retailers must decide not only whether to pass on the increase, or how much of it, but also whether the assortment needs to change, according to Furman and others.

For many, especially smaller businesses, those decisions may be instinctive. Ariane Harris, who runs a women’s apparel boutique in Bend, Oregon, said her vendors so far aren’t changing their prices. Her store, Dutch & Bow, specializes in sustainably made clothing sourced from places including Vietnam, Europe, the U.S. and China. 

“If prices go way up, I may just not carry them anymore, and take that budget and put it towards something else,” she said by phone. “Because part of it is, people will pay a certain amount for certain things, but if it goes above a mental amount they won’t.”

For hard goods, price jumps of as low as 1% to 3% led to a 20% drop in sales, according to a Spreetail study from last fall.

Retailers with bigger operations, multiple departments and varied assortments require technology for such calculations, and the tech has evolved to meet the moment, experts say. Revionics earlier this month announced the alpha release of its multi-agent AI pricing system, for example.

“It's a great time to, frankly, adopt the bleeding-edge agentic AI strategies, because the impact that these agents can have is so material,” PwC’s Furman said. “Even in the last three months there's been a significant evolution in what AI agents can do in terms of taking a manual, laborious business process and applying agents to it.”

Merchants need data to understand which products are coming from where, what the tariff risk is, how best to offset cost increases, and what customer reactions to prices (price elasticity) are likely to be. That can vary by not only product but also demographics and location, according to Pavich.

“You need to set yourself up to be able to make data-driven decisions quickly,” he said. “Having the analytical solutions that can help you do predictive modeling to say, ‘If my costs go up on these 200 items, how do I offset that in a way that most benefits my customers?’ Because consumers are more budget-conscious than ever.”

How to offset tariff risk

As tariffs spike prices, retailers and brands have various levers to pull.

One is tamping down other costs, like marketing, an option most viable at larger companies like Walmart, according to Greg Stoller, master lecturer at the Boston University Questrom School of Business.

Another is hiking prices on goods with less price elasticity, while reserving promotions for those with more.

“Maybe it's taking a promotion that was 25% off and now it's only 15% off,” Pavich said. “You're still writing a promotion, but maybe you're saving some margin there. Or I'm maybe in the red on some products, but it's okay because I'm able to make up for it on some other products. Or maybe this one store is going to be a little more negative profit than another store, and that's okay, because you're still finding ways to offer better prices for consumers.”

Buying ahead to avoid tariffs is one opportunity that may be gone by now. December and January had some of the highest import volumes ever, according to Spreetail’s Carr. Few retailers would stock up on more than 30 or 60 days of stock because it’s financially risky, though having about that much inventory does provide flexibility and time, Carr said.

It may be time to work with suppliers on development of private labels, however, given that consumers have been turning to them in inflationary times, Pavich said. Essentially all households (99.9%) purchased at least one private label grocery item in the past 12 months, with similarly large percentages for other categories, per a Numerator report in December. 

Launching a private label requires open communication with suppliers, experts said. Longer term, subbing American-made goods for imported ones may be an option. But that is a complex, difficult, expensive, multiyear endeavor that isn’t possible in some cases, according to Furman.

“Should companies consider reshoring their manufacturing operations or should they consider moving them to lower-tariff Southeast Asian countries?” she said. “My answer is ‘it depends.’ It's hard to know. Certain retailers, like luxury, are never, never going to, because part of their brand DNA is the fact that you're buying from artisans, like craftsmen from Europe or ‘Made in Italy.’”

Talking tariffs with vendors, customers

Tariffs are price hikes that someone has to pay, and communicating with suppliers and customers is essential to maintaining a sense of fair play.

Retailers and brands already tend to have close relationships with their manufacturers, including those in China, which is on the receiving end of the highest tariffs and most severe rhetoric. Some industrial areas there fly American flags, reflecting “long-term relationships and business models built around China-U.S. trade,” according to Brad Kayton, a fractional CFO and regional director of The CFO Centre.

“They're going to be impacted very heavily. But there's going to be some negotiation there,” he said by phone. “You need to look at negotiating with your vendors, and saying, ‘Let's get through this.’”

To the extent that customers pick up part of the tab, retailers must communicate the fact that the trade policy is outside their control. Some grocers in Canada are displaying the impact on prices via shelf edge labels, and that will grow commonplace as more tariff-related hikes get passed on to the consumer, Furman said. 

“I know for a fact some companies that are contemplating passing on price to the consumer are really focused on transparency,” she said. “Things like, should we have a line item on the receipt that specifically says, ‘This is the tariff-related cost that you're being asked to pay, separate from the cost of the product or the good or the apparel item.’”

Unlike inflation, which involves complex macroeconomic forces that politicians — and retailers — are often implicated in, tariffs are more easily understood, Pavich said.

“This is different. People know why this is hitting and why this is hitting hard, so get out there and communicate it,” he said. “It's not your fault as a retailer. Put a sign up to say, ‘Unfortunately, due to tariffs, my cost went up 20% on this item. I am not raising your price 20%, I'm absorbing half of that cost, so you don't have to.’ Whether it's a handwritten one in a small boutique store or some fancy one created for a tier-one mega, super-retailer, that can go a long way. In Canada, you're seeing signs as simple as ‘buy Canadian.’”

It’s going to be a tariff-ic holiday

Most consumers are likely to feel the first pinch from tariffs during the year’s peak shopping periods.

The additional warehousing costs and distribution costs from any extra inventory could mean somewhat higher prices in late spring, early summer, Furman said. But, because most retailers have been well stocked for those seasons, price jumps from tariffs aren’t likely to be felt until the holidays, starting with back to school, experts said.

“July, August, September will be when folks will feel it,” Carr said. “Your summer season and spring season will be pretty solid.”

The Toy Association last month called for toys to be excluded from tariffs. But traditional purchases like trees, lights, pajamas, game consoles and other gifts are also poised to get more expensive, given that the U.S. is the largest importer of goods in the world, according to the Tax Foundation. Consumer goods including toys, clothing, jewelry and electronics added up to more than $757 billion of imports to the U.S. in 2023, according to that report, “Are Tariffs the Ghost of Christmas Future?” from December.

Some people appear to be spending ahead of tariffs, which some analysts say helped push up March retail sales by 3.6%, and that could happen around the holidays. The situation may be similar to holiday 2021, when supply chain issues and shipping delays created gaps on shelves, John Mercer, head of global research at Coresight Research, said by email. Such shortages could also push up prices, which Mercer called a secondary price effect of tariffs.

“You could get some pull-ahead holiday sales from some savvy buyers,” Pavich said. “But I've heard a few retailers refer to tariffs as the coming ‘Christmas tax.’”

Sponsored content

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Retailers today are facing pressure from every direction. Labor costs are rising. Inventory accuracy is under the microscope. Pricing changes are constant. And store teams are being asked to do more with less, often without the tools they need to succeed.

At the same time, customer expectations are growing. Shoppers want full shelves, accurate prices, and a clean, safe store—every single time they visit. For many retailers, keeping up with these demands has become a daily struggle.

That’s where Badger Technologies comes in.

A product division of Jabil, Badger Technologies deploys autonomous robots that serve as in-store digital teammates. These robots scan store shelves multiple times per day, identify operational issues in real time, and help store teams respond faster and more efficiently. With more than 1,000 deployments worldwide, Badger Technologies is helping retailers turn everyday execution into a competitive advantage.

Addressing the Top 10 Challenges in Retail Operations

1. Labor shortages and cost pressures

Retailers are finding it harder than ever to hire and retain associates, especially for routine tasks like auditing shelves or checking prices. Badger Technologies’ robots perform up to 80 hours of scanning each week, giving store associates more time to focus on customer service, restocking, and higher-impact work.

2. Inventory accuracy and product availability

Out-of-stocks remain one of retail’s biggest profit leaks. At McCoy’s Building Supply, Badger Technologies helped reduce out-of-stock rates by up to 50 percent. Robots can scan up to 50,000 SKUs in just two hours, flagging gaps and helping staff replenish quickly. In some locations, inventory accuracy has reached 97 percent as a result.

3. Pricing accuracy and margin protection

Frequent price changes and promotions make it easy for errors to slip through. Badger Technologies compares shelf tags to back-end pricing files and flags mismatches before they become customer complaints. At McCoy’s, pricing accuracy improved to 97 percent after rollout.

4. Shrink and inventory loss

While Badger Technologies is not a security device, the robot helps detect inconsistencies that can lead to shrink. By capturing shelf conditions daily, store teams gain a clearer view of what’s missing, misplaced, or not moving as expected.

5. Customer confidence and satisfaction

When shelves are full, prices are accurate, and the store looks organized, shoppers notice. Badger Technologies helps reinforce trust by giving stores a more polished appearance and helping teams deliver a consistent experience—no matter how busy things get.

6. Sustainability and food safety

Retailers focused on ESG goals are using Badger Technologies to support smarter rotation practices and expiration tracking. In grocery stores, robots can leverage RFID to assist in identifying expired or soon-to-expire products, helping reduce waste and improving food safety compliance.

7. Store-level adoption and task execution

Technology adoption at the store level is often a barrier. Badger Technologies solves this by delivering clear, task-level insights through mobile dashboards. Associates receive prioritized lists of what needs attention, helping them respond faster and with greater confidence.

8. Hazard detection and safety alerts

Retailers lose millions each year due to preventable slip-and-fall accidents. Badger Technologies’ robots patrol the aisles looking for spills or obstructions and alert staff when hazards are detected. This helps reduce liability and creates a safer environment for everyone.

9. In-store engagement and retail media

Some deployments include a customer-facing screen, which can be used to deliver helpful information or brand messages. This creates a new touchpoint for shopper engagement and opens the door to monetized in-store media.

10. Omnichannel readiness and real-time data

As retailers push to improve their buy-online, pick-up-in-store experience, accurate shelf data becomes essential. By replacing hours of manual auditing with faster, more reliable scans, Badger Technologies helps stores fulfill online orders more accurately and avoid substitutions.

The Impact

The results speak for themselves. Badger Technologies’ robots have scanned more than 4 billion shelf items and operate at over 99 percent uptime. Customers like Busy Beaver have reported improved store execution and more time for associates to work on what matters most.

Retailers using Badger Technologies are gaining better visibility into daily operations, improving inventory accuracy, and delivering a more consistent shopping experience. And because the solution is offered through a Robotics-as-a-Service model, there’s no major upfront investment required.

Looking Ahead

Store conditions change by the minute, and every delay or distraction can affect performance. The most successful retailers are the ones that can respond quickly, keep teams focused, and eliminate the guesswork.

Badger Technologies gives them that ability. It’s not about replacing people. It’s about helping store teams do their jobs better, faster, and with fewer disruptions.

When the pressure’s on, a reliable digital teammate on the sales floor can make all the difference.

Learn more at www.badger-technologies.com

A dark store may look like a regular shopping location, but there’s a catch: the public isn’t allowed inside. 

Walmart is testing dark stores, or brick-and-mortar locations that fulfill online orders but are not open to the public, the company stated. The retailer is currently piloting the concept in Dallas. Another location is planned for Bentonville, Arkansas, the retailer’s hometown.

The dark stores will carry some of the retailer’s most popular products. 

“We regularly test new tools, features, and capabilities to better connect with and serve our customers — wherever and however they choose to shop,” a Walmart spokesperson said in an email to Retail Dive. “Regardless of the channel, our goal remains the same: to deliver a fast, seamless, and engaging customer experience.” 

Dark stores are used to speed up and streamline online fulfillment, which is important for a retailer that is accelerating its operations. The company has been using its store footprint and technology, including drones, to advance delivery in recent years.

Walmart U.S. achieved e-commerce profitability in Q1 for the first time, with sales up 21%, a metric CFO John David Rainey said is “an important milestone for our company.” 

E-commerce net delivery costs have declined as the retailer densifies last-mile deliveries and as Walmart shoppers pay fees for faster delivery services, per Rainey. The company anticipates soon reaching 95% of the U.S. population with delivery options of three hours or less. The number of deliveries in under three hours grew by 91% in Q1 compared to the year-ago quarter. 

Walmart reported that revenue in Q1 grew by 2.5% year over year to $165.6 billion, while operating income increased 4.3% to $7.1 billion. The company at the time warned of price increases due to fluctuations in tariff policies.

“We’re positioned to manage the cost pressure from tariffs as well or better than anyone. But, even at the reduced levels, the higher tariffs will result in higher prices,” CEO Doug McMillon said at the time. 

Walmart recently cut 1,500 jobs on its U.S. retail and global tech teams as a way to streamline operations.

Lower-performing shopping malls in the U.S. that once seemed destined to languish or close are getting renewed attention. 

Walmart recentlyrevealed that it bought a mall in the Pittsburgh area, and Simon Property Group said that for the next two years it will refurbish many of its B malls.

“Frankly we've been organizationally very focused on — for no better word — the A's,” CEO David Simon told analysts last week. “We do think there is real effort, focus, growth for us in the B's, where we're investing our dollars. So that's a big program for us in ’25 and ’26.”

First in line at Simon is Smith Haven Mall on Long Island, New York, where improvements will include updated flooring and fixtures inside, as well as a fresh coat of paint, new landscaping and refreshed signage outside. The food court is being overhauled, and new tenants will include Zara and Sur la Table, the company said.

Walmart has partnered with Texas real estate and development firm Cypress Equities to redevelop the Monroeville Mall, which is anchored by J.C. Penney and considered a B mall by some analysts. The plan is to transform it into a mixed-use site that includes retail, entertainment, restaurants, residential, hospitality, office and public spaces.

Any effort to reenergize a low-performing mall entails enticing retailers into empty spaces, refurbishing interiors and stepping up leasing and marketing efforts — and a lot of dollars, experts say. Meanwhile, the payoff is uncertain because it remains unclear whether even improved B malls can withstand the decline of their department store anchors.

The ABCs of malls

Generally speaking, A malls are top notch, with the best tenants and most robust sales and foot traffic; B malls are middling; and C malls are forlorn.

A mall’s rank has traditionally been linked to its ability to generate sales for its retail tenants. B malls probably generate about $300 in sales per square foot, according to Nick Egelanian, president of retail development firm SiteWorks. These days, factors like footfall and deferred maintenance are also considered, according to Green Street analysts, who count roughly 300 B malls in the U.S.

Those analysts describe B malls as having average sales productivity, often at least one anchor vacancy and declining occupancy. They can be a solid mall in a small market, or the third-best mall in a five-mall town, they said in their mall outlook report for 2025. Combining effective rents and occupancy into one metric, growth at B+ malls rose 0.3% last year, at B malls fell 2.5% and at B- malls fell 5%, Green Street found. Growth at A malls rose 2.4% to 5.5%, and at C malls fell 6.5% to 8%.

“The retail prospects for most malls graded 'B-' or below are generally dire; many will be repurposed with another real estate use over the next decade,” Green Street analysts said in their report.

Reward and risk

Simon and others may nevertheless see potential in lower-performing shopping centers because, despite ongoing store closures, retail space is tight.

With little new development in the pipeline and rising demand since the pandemic, the U.S. retail vacancy rate last year remained at just over 4%, according to Colliers. Tenants also reported “a lack of quality space as a key marketing challenge,” according to that report.

“Given the limited space availability in A Malls, landlords have a prime opportunity to elevate the leasing efforts in B Malls,” Anjee Solanki, national director of retail services at Colliers, said by email. 

The rise of e-commerce and consumer struggles with spending power have been especially challenging to B and C malls, and the success of such a project depends on a mall’s location and tenant mix, according to Solanki. Simon’s approach of targeted investments suggests “that landlords see value in strategic redevelopments rather than widespread overhauls,” she said.

Even that can get expensive, because it still requires tenant incentives, capital expenditures, and repositioning and marketing, with cap rates at 13% to 17% for B malls, compared to 5.5% for top-tier A malls, “indicating higher risk and return expectations,” Solanki said.

”With department store vacancies increasing and mall owners focusing on diversified revenue streams, the investment needed to reposition these assets is substantial,” she said.

The biggest obstacle

It can be tough to remember that malls originally latched onto department stores as anchors because they were a huge draw. Today, though, traffic at department stores is down nearly a third from pre-pandemic levels, according to Solanki. Overall, the sector has been in a steep decline for decades.

“The idea was ‘get department stores and they’ll draw the traffic,’” Egelanian said. “The mall format is not a format that anybody will build again, and the reason why they won't build it again is because department stores don't rule the business anymore.”

Still, malls remain dependent on department stores. Seven of Simon’s top anchors, by total square footage, are department stores, including 97 Macy’s stores, 53 J.C. Penney stores, 35 Dillard’s stores, 24 Nordstrom stores, 19 Saks stores, seven Belk stores and seven Von Maur stores.

Yet department stores leave malls with a problem when they leave, too. Macy’s is in the midst of closing about 150 stores. As with Sears’ mass closures a few years ago, those cavernous spaces can be hard to fill, though non-traditional anchors like mass merchants, grocery stores off-pricers, fitness, entertainment and even medical offices are gaining traction, according to Colliers’ Solanki.

But those seldom send many customers into the rest of the mall, and in fact stores with cheaper goods can diminish traffic and sales at other tenants, according to Egelanian.

“It all goes back to how America shops today,” Egelanian said. “Every time they put more discount in the mall, it just makes the situation with the department stores that much worse.”

Like Simon, Solanki sees potential in B malls, in light of the limited space at A malls, and an opportunity for landlords.

“By focusing on emerging, expanding brands, and making strategic capital investments, landlords can significantly enhance the overall experience,” she said.

But Egelanian sees little future in them, considering that many owners, including Simon, have been happy to sell off their B malls, even at a loss. CBL Properties, the previous owner of Walmart’s new mall, sold the 1.2 million-square-foot property for $34 million, some $200 million less than what it paid for it in 2004.

“The obvious question is, what's changed?” Egelanian said. “What do you know that nobody else does? What do you know that you didn't know a year ago? The last 40 years of department store sales declines isn't going to stop.”

The pandemic may have hit retail five years ago, but its impacts came in wave after relentless wave for months after that. Immediate, dramatic effects — including widespread staff furloughs and the temporary closure of entire store footprints — gave way to longer-term challenges as supply chain chaos swept the industry.

Government-funded stimulus payments, handed out to ease consumers’ pain, boosted spending, but left long-tail impacts that are still hurting retailers today. A lot of stimulus money ended up in the retail sector, which meant the industry “really ballooned” during the pandemic, according to Coresight Research’s head of global research, John Mercer.

“One point we've made repeatedly is that consumers, we think, still haven't ceded what they've spent,” Mercer said, referring to the increased levels of spending shoppers adopted during that time. “But then, of course, the long-term effects of that stimulus is fueling inflation, which then obviously is challenging for consumers.” 

The rise of inflation also coincided with the depletion of many shoppers’ pandemic-era savings. The result? Shoppers pulled back on discretionary purchases, particularly in those categories that they overspent on while stuck inside. That’s led to the past two years of declines and stagnation in categories like home, which in turn has fueled bankruptcies, even years after COVID stopped being a regular word on the public’s lips. 

“We're certainly closer to the end, and there's a couple of data points that you can look to that would support that idea,” Declan Gargan, retail director at S&P Global Ratings, told Retail Dive. 

One of those is the Personal Consumption Expenditures Price Index, which measures shopper spend on goods versus services. According to that data, the pandemic-era shift towards physical goods, which has remained elevated for several years, has swung back almost entirely to its pre-pandemic share of shoppers’ wallets. “Exiting 2024, it's pretty close,” Gargan said.

Mercer believes there’s still a ways to go before discretionary spending normalizes, especially because services like travel were gaining more and more share annually before the pandemic hit. A recent report from real estate firm JLL also expects service-based tenants will account for more retail leases in the coming years, in what it says is an acceleration of a decade-long shift. That suggests the long-tail trends from COVID might still be with us a while longer.

“If that balance swings back to how it was before the pandemic, there's still that potential for a multiyear trend to continue in terms of services gaining at the expense of goods,” Mercer said. 

Still, many of the strongest impacts from the pandemic are finally starting to show up in the rear-view mirror. Here’s a closer look at some of the long-tail impacts from the global health emergency, and what they say about how the industry has recovered.

The threat of e-commerce replacing physical retail circulated for years prior to the moment the pandemic forced the issue. Amazon and the rise of e-commerce made regular appearances in bankruptcy documents, with retailers declaring themselves incapable of adjusting fast enough to the shifts in consumer shopping behavior.

Then 2020 happened and retailers had to adapt — or risk losing out on sales of any kind. Improving websites and services like buy online, pick up in store became critical investments across the industry as cautious consumers avoided stores even after the initial pandemic scare was over. Unlike other areas of retail that boomed in 2020, though, e-commerce growth has yet to stagnate. 

According to Gargan, U.S. retail e-commerce sales as a percentage of total retail sales (excluding automotive) had reached roughly 22% as of Q4 last year. That’s compared to roughly 15% in the fourth quarter of 2019. Looking at the U.S. Commerce Department’s monthly numbers, e-commerce sales in December 2024 were more than $60 billion higher than they were five years previously, a 66% gain in that time period.

“We think really it's going to be the larger retailers that benefit — the ones that have the resources, that have been making investments in capital spending, strengthening their digital capabilities,” Gargan said. “They're going to take that growing share and that's a trend that we expect to continue. But that might have been accelerated in terms of consumers adopting online shopping, because they were essentially forced to in the early days.”

The idea that stores will be replaced by e-commerce is still nowhere near the truth, but Mercer noted that there is more of an emphasis on where physical retail can prove its worth. The way Coresight Research views it, stores should provide convenience, collection services (as in the picking up of orders), discount offerings or be a destination for shoppers.

“There are places where stores can fill in those gaps around e-commerce and digital if they focus on some of those,” Mercer said.

Even so, the growth curve of e-commerce may be tapering off soon. A report from FTI Consulting last year suggested the channel was “maturing” and that it would plateau around 35% in the next decade. That still leaves about 12 percentage points of share for e-commerce to take in the coming years, per FTI’s estimate, and new entrants are also making the space more competitive.

“Shein and Temu, collectively worldwide, generated sales of over $100 billion last year,” Mercer said. “Now a minority of that is in the U.S., so that's not all coming from U.S. retailers, but a chunk of it is coming from the U.S. — and those are coming predominantly from legacy retailers.”

In fact, Mercer said the impact of these competitive challenges on retailers is an “underrecognized story” in the industry, perhaps sidelined given widespread policy changes and consumer sentiment concerns. All of those macro issues are leading to more pressure on legacy retailers, and heavy predictions for store closings in 2025.

Numerically, 2020 was a lighter year for store closures than 2019. And 2025 could be worse than both.

Partially, that’s because Coresight Research’s store count numbers are based on permanent closures and openings, which leaves out the rash of temporary store closures that swept the world in 2020. But it’s also because 2020, though bad for many retailers, also led fairly swiftly to an influx of stimulus money for shoppers, which meant more spending — and fewer closures.

As a result, both 2021 and 2022 saw significantly lower store closings across the industry, with 2022 marking the lowest number since 2012, Mercer said.

“And then it kind of got worse from there,” Mercer said. Store closures in 2023, for example, were the worst since 2020 — until last year surpassed them. “So these things, I think, tend to come in waves.” 

Openings, on the other hand, have stayed incredibly consistent over the years. That may be because the same types of retailers reliably open stores year after year, including dollar stores, grocery stores and off-price retailers.

When it comes to closures, though, pandemic-era stimulus money kicked off a boom in consumer spending, which then contracted due to inflation and other pressures. Now we’re seeing the impacts of that subdued spending in an aggressive store closure prediction for 2025. Coresight Research’s expectation — that 15,000 locations could shutter this year — would equate to a 55% increase over 2020’s count, and would more than double last year’s total. 

But there’s reason for it. Party City ended 2024 by outlining plans to shutter its entire 700-plus store footprint, Joann’s recent announcement adds another 800-plus locations to the count and Big Lots and Macy’s are also pursuing hundreds of closures this year.

“They're already piling up,” Mercer said. In addition to the lingering effects of the pandemic, a weak housing market and the overflow impacts of bankruptcies from last year, there are also increasing competitive pressures from the likes of Temu, Shein and TikTok Shop. 

“In some cases, retailers need to slim down their estates — and I think we see that particularly for legacy sectors like department stores and drugstores,” Mercer said. 

For others, like those in bankruptcy, it’s often more about reducing their cost base. But the pandemic-era pressures causing bankruptcies in some sectors may finally be easing, which could spell lighter store closure numbers in future years.

For the home space, the pandemic was a fairy tale turned horror story when the enormous sales gains fueled by stay-at-home orders largely dissipated, leaving retailers reeling from the sudden (and sustained) dropoff in revenue. That category wasn’t the only one hit by shopping behavior changes — electronics and outdoors purchases also boomed in the early days of the pandemic before facing a pullback as consumers moved on from their COVID-era needs.

“The pandemic — it's still impacting how consumers shop, where they're shopping and what categories they're shopping for,” Gargan said. “If you think about it, today, the areas in retail that are the most pressured tend to be kind of the specialty retailers — the ones that are focusing on more discretionary-type merchandise — and particularly those that are largely focused on home-related categories.”

S&P Global Ratings isn’t expecting a significant uplift in spending across retail this year, but the categories that have been hit the hardest may finally be reaching “trough levels,” Gargan noted. 

Wayfair leadership said as much in the retailer’s latest earnings call, with CEO Niraj Shah commenting that the e-commerce company believes it’s reached “the bottom of this downcycle” in the home market. Best Buy announced falling electronics sales would reach the end of that cycle in 2023 — and indeed, monthly sales in the sector in 2024 were largely flat or up compared to the year prior — but not at Best Buy, which continued to see sales declines. 

And crafts and outdoor retailers, which are counted under the same category by the Commerce Department, continue to struggle through lackluster sales trends as well. Those pressures have led to two Joann bankruptcies in roughly a year, layoffs at the likes of REI and Patagonia, and even pullback from Dick’s Sporting Goods on its outdoors ambitions. 

“To really see an inflection or catalyst that would support sales growth, there's got to be some macro factors that change — and that's principally lower interest rates, bringing mortgage rates down, starting to see improving housing turnover,” Gargan said of the home space.

Spaces like electronics could also start to benefit from the product renewal cycle, according to Mercer, as shoppers look to replace the laptops or TVs they bought five years ago.

“We've possibly reached, or gone past, the kind of dip in stuff — ‘Oh, well, I bought it during the pandemic. I don't need it anymore,’” Mercer said. “Because five years on, things change. Things wear out. You move house — whatever.”

Until sales trends fully recover from the peaks and valleys brought on by COVID, distressed retailers will still be citing the pandemic as a major driver in bankruptcy filings — and according to Gargan, many of them have reason to. 

“It really wasn't a precipitous dropoff, a one-year period,” Gargan said of the pandemic. “It was really kind of these incremental effects.” 

There was the pull forward in demand, then the supply chain disruptions, then inflation and higher interest rates.

“I think those are all — you can kind of tie that back to the pandemic to some degree,” Gargan said. “And so in that regard, I think it is a fair characterization.”

2020 itself was still an enormous year for bankruptcy filings, as many retailers stopped being able to afford rent without any foot traffic to their stores, but the same trends that kept store closures at bay in 2021 and 2022 played out in bankruptcy filings. Now, faced with the reversal of those behaviors, things have ticked up again.

Of the five traditional retailers that defaulted in some fashion last year, the “vast majority” cited the pandemic as a contributing cause, Gargan said of S&P Global Ratings’ data. Four of those five defaults were Chapter 11 filings, he added, which suggests lenders are less willing to negotiate with struggling retailers outside of bankruptcy court. S&P Global Ratings marked 34 bankruptcies in the consumer discretionary and retail markets overall last year.

Joann is an interesting example. The retailer closed no stores during its first bankruptcy and is now liquidating its entire 800-plus footprint during its second one after a group including the retailer’s lenders won a bankruptcy auction for the company.

“The relationship with their vendors, I think, was impaired beyond their expectations,” Gargan said, noting that suppliers started tightening terms prior to Joann’s first bankruptcy. “I think those issues persisted longer than Joann expected. I think they expected them to be resolved once they exited Chapter 11 the first go around.”

With pandemic-driven bankruptcies and closures in 2020 also came meaningful job loss — and surges in hiring as stores reopened and shoppers returned. Layoffs in 2020 more than doubled from 2019, while hiring was up 33%. But ever since then, hiring (and, for the most part, layoffs) have been much more muted.

In fact, hiring declined for three consecutive years after 2020 — and in 2024, hiring totals were nearly 40% lower than they were in 2019. Layoffs, after hitting a high of about 185,000 in 2020, were extraordinarily low for two years before popping back up to 2019 levels in 2023. Last year, layoffs were down almost 50%, though still significantly higher than retail’s stimulus-fueled years. 

“Whether your category is performing better than others, issuers are all facing the same elevated inflationary costs on their business — and so they're looking for ways to offset that,” Gargan said, noting that tariffs and freight rates pose uncertainties for retailers this year. 

Workforce reductions, like store closures, is one of the ways retailers can trim costs. In a Challenger, Gray & Christmas report earlier this year, the outplacement firm noted that retail jobs have “fundamentally changed” and require different skills than they did in the 2010s. In an email to Retail Dive, Senior Vice President Andy Challenger acknowledged the impact of the pandemic on retailers, but hinted that other forces are now at play.

“The pandemic seemed to have permanently shifted how retailers staff and operate, but we've entered a new era where economic uncertainty and falling consumer confidence are driving decision-making,” Challenger said.

Walmart recently expanded its real estate portfolio with a $34 million purchase.

However, the type of property the retailer bought gave some industry experts and observers pause. That’s because Walmart bought the Monroeville Mall, a more than 50-year-old shopping center near Pittsburgh with over 100 operating businesses.

To several industry experts and analysts, the retailer made a smart move — the Monroeville Mall offers an attractive real estate parcel that’s already set up for retail use. It also gives Walmart a measure of control on what businesses operate in the center.

“This move aligns with broader retail trends where major players are rethinking how they use real estate, especially as traditional malls struggle with declining foot traffic,” Jonathan Zhang, a professor at Colorado State University's College of Business, told Retail Dive in an email. “Walmart could see this as an opportunity to repurpose underperforming malls into mixed-use spaces with a strong retail anchor — whether that’s a supercenter, a fulfillment hub or a combination of both." 

If this strategy works in Pittsburgh, the company may try it again elsewhere, tapping into underperforming malls with prime locations, Zhang noted.

Walmart is working with Texas-based Cypress Equities to lead the redevelopment process, which includes the mall proper and an annex building of additional retail stores. Beyond that, Walmart isn’t offering many details on its plans. 

In response to questions from Retail Dive, the retailer said it didn’t have anything to add beyond a statement it provided earlier this month confirming the mall’s purchase. In that statement, Walmart said in part that it “is very interested in being part of any future redevelopment of this site” and working alongside Cypress on operations and potential redevelopment plans.

A good deal for a small investment

A ready-to-go parcel of real estate for $34 million represents a modest investment for Walmart, which reported $681 billion in revenue for its most recent fiscal year. In its latest earnings statement, the company reported $260 billion in total assets. Nearly $120 billion of that figure was property and equipment.

“I don't think they have any interest in the mall itself. I think it's a real estate deal,” Nick Egelanian, president of SiteWorks, a retail development firm not connected with the deal, told Retail Dive. 

Rather than a desire to get into the mall landlord business, Egelanian said it appears the price was right for a site they wanted — the mall operation is a fringe benefit. From a logistical or financial point of view, it’s generally easier for companies to redevelop existing retail parcels, according to Zhang.

That process comes with advantages such as favorable zoning and fewer regulatory hurdles versus starting from scratch, Zhang said. “There’s also an efficiency factor — utilities and transportation access are already in place, which can save millions in development costs.”

Even if some challenges arise, such as dealing with existing leases or needing to update outdated infrastructure, the cost-benefit equation often favors redevelopment, Zhang said.

Neil Saunders, managing director of GlobalData, noted that the mall’s purchase price is “a relatively small investment” for a company of Walmart’s size. The retailer may have a redevelopment vision that includes a new Walmart store or might be testing ways to diversify its revenue streams with property ownership, Saunders said in an email to Retail Dive. 

“The latter is not all that unusual as Ikea, for example, owns a lot of shopping malls and has a big real estate business. It is also the case that Walmart has been looking beyond its core retail business for avenues to bolster growth,” Saunders said.

For Zhang, buying a mall gives Walmart a three-point redevelopment head start.

“First, the location is already a proven commercial hub with built-in infrastructure — roads, utilities, and parking — all of which would take time and money to develop from scratch on an empty parcel,” Zhang said. “Second, the mall already has tenants and customer traffic, which means Walmart can generate rental income while planning its redevelopment.”

Finally, such a move allows Walmart to control a high-traffic retail space instead of competing for it, according to Zhang. That lets the company shape the future of the property to align with long-term business goals.

Still, mall-related real estate is often complicated and the future of malls is in question. Yet, the popular narrative on mall performance — that many are dying or dead —  is shifting as visits at indoor and outdoor malls rise, according to recent data from Placer.ai. Visits in January rose 5.5% for indoor malls, nearly 3% for open-air shopping centers and 2.7% for outlet malls from a year ago.

Performance also largely depends on the property. Class A malls are seeing more robust demand than Class B or Class C mall spaces, according to a recent JLL report, and lifestyle centers continue to do the best. Overall, though, malls have the highest vacancy rate across property types.

But the performance of malls does not rest solely with the owner. Because anchor stores often own their own buildings and land, developers might be required to buy out the contract of an operating department store before it can shut down.

If or when stores close, the legal encumbrances around redevelopment sometimes disappear with them, Egelanian said. As a result, a depressed mall lacking a robust roster of high-performing stores is often a good deal because there are fewer legal hurdles blocking redevelopment plans. It’s a good time to be a buyer as well. According to JLL, current market conditions present an opportunity for investors to acquire retail properties below their replacement costs

Retail is an inherently complex industry and companies that branch too far away from their core strengths tend to fail, Egelanian said. As a result, the industry will be watching closely to see how Walmart handles the Monroeville Mall.

Bath & Body Works wants shoppers to check out its Gingham style. 

The company recently debuted a store design dubbed Gingham+, which includes a new layout, technology features and scent bars in select locations. 

Fifteen new Bath & Body Works locations currently feature the design. The company will roll out Gingham+ to a majority of new stores in the U.S. this year. 

Design elements with Gingham+ include improved store navigation with dedicated zones for specific product categories, larger aisles and more shopping space. Some stores will have scent bars where people can test candles, wallflowers and fragrance mists. Videos will help shoppers discover fragrances and products. 

Bath & Body Works is specifically interested in reaching Gen Zers through the design. 

“We’ve heard from this demographic that many of their purchase decisions are rooted in their ability to try a product first, and while we’ve previously offered this, our new design is more intentional with specific destinations in store to test and learn,” Eduardo Tonietto, group vice president of store design, said in a statement. “Our team also knows that Gen Z is looking for a more relaxing and toned down in-store experience, so we’ve brought in a softer color palette for our fixtures and finishings and incorporated a more neutral palette.”

Bath & Body Works CEO Gina Boswell highlighted the importance of the demographic on a recent earnings call. “We think about younger customers as both an area of recent success and also a continued opportunity,” Boswell said.

Young shoppers have been drawn to the retailer’s lip products and its “Everyday Luxuries” line. The company is increasingly being seen as “a more youthful brand,” Boswell said. 

Part of the retailer’s growth strategy is to improve in-store and online customer experiences, Boswell said. That means investing in marketing, loyalty and technology. 

The company is now a predominantly off-mall retailer, with nearly 60% of its North American stores in off-mall locations with a goal of reaching 75% over time. In 2024, the company opened 106 stores in North America, nearly all in off-mall locations. It also closed 61 stores, predominantly in malls. 

With one less week in the quarter, the company reported net sales were down 4.3% to $2.8 billion in Q4. Net income was down nearly 22% to $453 million. For the year, with one less week year over year, net sales were down 1.6% to $7.3 billion.

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.”

Retailers’ ability to offer customers many happy returns is becoming more difficult and costly.

Total returns in retail amounted to $743 billion in 2023, according to a report from the National Retail Federation. That equates to $145 million in merchandise returns for every $1 billion in sales. This year, shoppers are expected to return $890 billion in merchandise, which represents nearly 17% of retailers’ annual sales, according to a recent NRF report.

Faced with the escalating challenge of returns, retailers are taking diverging approaches to dealing with the issue. And while not all returns involve fraud, that is one of the issues retailers are addressing. Most of the retailers surveyed in the NRF’s latest report said return-related fraud and other exploitative behavior was an issue for their business. 

“The rise in e-commerce shopping has led to an increase in return rates and volumes across most categories because online shoppers can’t touch and feel products before they buy,” David Morin, vice president of customer strategy at returns company Narvar, said via email. “The notion that ‘the living room is the new fitting room,’ where consumers try items at home before deciding whether to keep them, has led retailers and brands to review their return programs, including tightening their return policies.”

Buying multiple items with the intent to return some of them, also known as bracketing, has grown among younger people, the NRF found, with 51% of Generation Z consumers acknowledging they’ve done it. 

Morin said Narvar’s research has found rising rates of what it terms “friendly fraud” — behaviors like bracketing or wardrobing, where someone buys and wears an item with the intention of returning it. But Narvar also found rising rates of potentially criminal return policy abuse.

“The increase in fraud, along with the heavy incurred costs to retailers, is driving a larger focus on strategies that identify potential fraudsters and create unique workflows to deter the behavior,” Morin said. “Retailers are also balancing out strategies that still reward trusted customers to maintain the sense of ‘peace of mind’ that is critical in returns.”

Indeed, a return abuse or fraud crackdown must be balanced with maintaining customer experience, Katherine Cullen, the NRF’s vice president of industry and consumer insights, said in the organization’s latest report. Other experts echoed that perspective.

“Although Amazon, REI and Target and others have tightened their return policies this quarter to ‘combat fraud,’ the Gen Z and Alpha customers still expect to have a satisfactory and easy ability to return unwanted items in an efficient manner whenever they please,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University of New York, told Retail Dive in an email. “This is part of their seamless retail shopping experience of which they have grown accustomed.”

Who gets hit the hardest by returns? 

Some categories in particular are more vulnerable to returns. For example, several analysts told Retail Dive that apparel makes up the majority of retail returns.

“This is for multiple reasons,” Neil Saunders, managing director of GlobalData, told Retail Dive in an email. “Sizing is a major issue, especially if buying online, and many consumers will buy multiple sizes and return the ones that don’t fit. How things look in person is important in apparel, and this is another factor driving returns.”

Returns also peak during certain time periods. Besides the holiday season, Saunders said returns typically surge after big promotional periods, like Amazon’s Prime Day. Apparel also follows seasonal trends, which may drive upticks in returns as consumers buy new outfits for the changing seasons, Saunders said. 

Additionally, the prevalence of online apparel shopping and an inability to try on items before buying contributes to high return rates in the category, as do consumers’ expectations on issues like fit, color and fabric, Jonathan Zhang, a professor at Colorado State University’s College of Business, told Retail Dive in an email. 

And for the same reasons — look and feel — Zhang said home goods, like furniture and decor, also have high returns. “Items in this category are often returned due to damage during shipping, mismatched expectations about size or color, or changes in customer decisions after seeing the product in their home environment.”

Services like Stitch Fix that allow shoppers to try on apparel at home before purchasing came about to help solve this problem. Yet many such offerings have shuttered in recent years. Amazon also made a major change this month involving its own apparel try-on service. The retailer plans to phase out its Try Before You Buy service, effective Jan. 31. The program allowed Prime members a seven-day trial of select apparel, shoes and accessories. Amazon said it’s ending the service as an increasing number of customers turn to AI-powered features like virtual try-on as they shop for apparel.

Regardless of the driving factors for returns, the rising tide of returned merchandise also poses a sustainability issue for retailers. More than 11% of the $100 billion worth of purchased apparel that’s returned to retailers eventually ends up in a landfill, according to research by Equal Ventures, a venture capital firm.

“Consumers are increasingly aware of the environmental impact of returns, such as waste from disposed products and emissions from reverse logistics," Zhang said. “Retailers are under pressure to address these concerns, either by encouraging exchanges over returns or by implementing fees to disincentivize habitual returning behaviors.”

How are retailers responding?

During the last couple of years, retailers across the industry have made some noteworthy return policy changes. A key driving factor, according to industry experts and retailers themselves, is the escalating cost and volume of handling returned merchandise.

In 2024, Morin said Narvar saw about 25% more retailers charging for return shipping. Many others shortened their return windows, especially retailers that had policies longer than 30 days. 

“Rising return costs and fraud are pushing retailers to overhaul their policies,” Zak Stambor, a senior analyst for retail and e-commerce at Emarketer, said in an email to Retail Dive. “While many have rolled back free returns, others are taking more targeted steps to cut costs and curb abuse.” Stambor added that the nuanced approaches retailers are employing “reflect the growing pressure on retailers to balance customer satisfaction with operational efficiency.”

Here’s a snapshot of some of the changes retailers recently made to their return policies: 

• Walmart said it has increased return shipping rates for its third-party sellers. Additionally, the retailer said its Walmart Marketplace sellers can allow customers to keep items and receive a refund, thus avoiding the need to pay for return shipping.
• Amazon said sellers using its fulfillment services can now issue product refunds without requiring customers to return the item. The move avoids sellers having to pay for the reverse logistics of accepting returned merchandise.
• Kohl’s began accepting Amazon returns at all of its locations in 2019. Last year, the department store chain added an additional return service in partnership with Narvar and Inmar Post-Purchase Solutions, which allows customers to return items from several brands to Kohl’s stores, including Carhartt, Hanes and Levi’s.
• REI said it is now declining returns from a “small subset” of its members. These individuals have repeatedly abused REI’s policy, the company told Retail Dive in a statement. The people in question represented less than 0.02% of REI’s 24 million members but had an average return rate of 79%.

Data analytics advancements are now enabling retailers to identify and address return patterns among specific customer segments. Zhang said advancements in data collection make personalized return policies a possibility in the near future, although he cautioned the data should be handled carefully and decisions should be based on actual behavior to avoid any perception of preemptive discrimination.

Morin said another significant factor is that regulations on handling consumer data are becoming stricter. That’s making first-party customer loyalty program and membership data more valuable — and more costly to acquire.

“Loyalty and membership programs are some of the most valuable sources of first-party data for merchants, but consumers, especially younger generations, are increasingly mindful about sharing their data and may only be willing to provide personal information if they perceive the value exchange is equal.” 

Morin said some retailers are launching more incentive-based loyalty and membership programs with built-in returns benefits such as free shipping in response to concerns about data privacy. Better logistics and automation could also make the retail returns process faster, more seamless and more consumer-friendly by the end of this year, the NRF forecast in its report.

Saunders said a leading factor that’s likely to shape future return policies are changes in the cost and volume of returns, along with how rival retailers are responding. “The aim of any retailer is to reduce returns, but this must be balanced against protecting sales,” Saunders said. “Return policies that are too onerous can cost retailers sales.”

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.