by Aaron Jodka

In August, Macy’s announced plans to shutter 100 stores, in response to shifts in shoppers’ habits. Stiff online competition is not the only problem facing Macy’s and other retailers. The types of clothing in vogue now—fast fashion—and the merchandising efforts of Macy's formerly exclusive vendors and the broader appeal of that merchandise (once-aspirational brands are now ubiquitous) have hurt foot traffic. But Macy’s is not alone. Sears Holdings is closing 68 Kmart locations in addition to 10 Sears stores and may sell off its Craftsman, DieHard, and Kenmore brands. The department store segment of the retail market is getting hit, and hit hard. In fact, since the official end of the Great Recession (June 2009), this segment’s sales have dropped nearly 15% (see chart below). This isn’t a new trend, as department store sales are just two-thirds of their levels in late 2000/early 2001. What has changed since then is how and where people shop.

Source: U.S. Census Bureau, Colliers International As of 2016Q2

Meanwhile, all retail sales (ex-auto) have climbed more than a third so far in this cycle, but have also cooled since the initial pop coming out of the recession. Overall, however, they've had a solid rebound, in line with the average gains in the past two economic cycles, where retail sales growth averaged closer to 4.5% per year between 1993–2000 and 2002–2007. Those were very different cycles: Economic growth soared in the early Internet age and simultaneously benefitted from the peace dividend; in the last cycle, it was driven by housing-fueled spending. Today, households continue to deleverage. While Millennials are strapped by student debt, many also appear to be focusing more of their spending on experiences than on tangible goods.

E-commerce has surged an incredible 175% since the end of the recession, with torrid growth of nearly 16% over the past 12 months alone. However, the need for bricks-and-mortar retail still exists: Shoppers like to see, touch, and experience retail goods. Successful retailers have found a way to balance their physical and online venues to the benefit of the consumer. They’re also getting smarter and better at managing their retail portfolios by rightsizing their footprints.

And as always, location is paramount. That’s why the greater Boston area has generally been less impacted by these strategic store closures—generally, Western Massachusetts stores have borne the brunt of closings. The metro’s high incomes and density make for a compelling retail story. Take Macy’s: Of the stores it operates in the state, the vast majority are inside 128, limiting the risk that Massachusetts stores will headline the closures once they’re formally announced.

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