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Department stores find their way in a new era

From Macy's to Kohl's to Saks Fifth Avenue, department stores have long been a stalwart of retail. But what's next? It depends on who you ask.

5 min read


Department stores find their way in a new era -- A Market by Macy's store


From Macy’s and Kohl’s to Nordstrom and Saks Fifth Avenue, department stores have long been a stalwart of retail. For decades, shoppers headed out to their local department stores whenever they needed almost anything — a suit for a job interview, dress shoes for an upcoming wedding, a new set of bedding, luggage for a vacation and so on.

But today, department stores face a reckoning. After two years of moving into true omnichannel retail at a break-neck speed and a pandemic that has altered the way people shop forever, it is time for department stores to evolve or risk fading out of the shopping journey.

So, what does this evolution look like? So far the answer differs, depending on which retailer you ask.

Macy’s: Off-mall, Backstage, personalization and remaining one unit

Looking at some recent moves by Macy’s makes it clear that the retailer has a lot to say about the evolution of its business as a department store retailer. Macy’s has some big changes on the docket, starting with the structure of its stores themselves.

The company has made off-mall locations a significant part of its store strategy, both within its Macy’s business and its Bloomingdale’s business. So far, the retailer operates three off-mall Market by Macy’s stores and one Bloomie’s store, with plans to open more. Both banners offer a collection of merchandise curated to local tastes in a significantly smaller format than full-line Macy’s or Bloomingdale’s stores.

“The data seems to show that those off-mall locations that are very convenient to where consumers live, shop and work are actually quite relevant and an important part of how we think about our strategy,” Macy’s Chief Financial Officer Adrian Mitchell said last month, as reported by Women’s Wear Daily. “We very much believe that Market by Macy’s, serving our Macy’s brand, and our Bloomie’s small store format serving our Bloomingdale’s brand, is critical to the growth of our stores channel, and critical to the growth of our omnichannel business.”

Its off-mall strategy is not the only change Macy’s has in store for its physical locations. The company is on track to open 37 new off-price Backstage departments inside stores between April and June, including at its New York City and Chicago flagships. The goal of the departments is to draw new shoppers to Macy’s with the departments’ discounted merchandise, and then eventually get those shoppers to buy from other parts of the stores.

The way Macy’s thinks about its evolution goes beyond physical stores. The retailer is also making major changes to its e-commerce business and the roles of its associates. Macy’s is readying to rollout an upgraded website that personalizes the shopping experience based on consumers’ purchase history and loyalty status. And furthering the company’s commitment to personalization, Macy’s will also train some employees to become personal stylists under its new “Own Your Style” program.

Macy’s moves appear to be paying off — the retailer grew new customers by 26% last year. But there is one thing the retailer has made clear about its evolution: Spinning off its e-commerce business is not in the plans.

Kohl’s: Courting buyers, teaming with Sephora and investing in small-format

So far, resisting pressure to spin off its e-commerce arm has also been the path for Kohl’s. But that hasn’t stopped potential buyers from making bids for the department store chain. Bidders include Hudson’s Bay, a consortium backed by Authentic Brands and Leonard Green & Partners, and The Vitamin Shoppe parent Franchise Group. The most recent bid valued Kohl’s at about $9 billion.

Kohl’s has focused its strategy around other aspects of its business, including a partnership with specialty beauty retailer Sephora. This year, Kohl’s will open 400 more in-store Sephora shops, in addition to the 200 shops that have already opened. The retailer’s goal is to open more than 850 Sephora shops by next year and sees them surpassing $2 billion in annual sales.

Kohl’s is also trying its hand at small-format stores. The company is testing a 35,000-square-foot concept in Seattle, with plans to expand to more than 100 small-format locations in the coming years.

Saks Fifth Avenue: Moving forward as a split business

Unlike Macy’s and Kohl’s, Saks Fifth Avenue owner Hudson’s Bay chose to spin off the luxury department store retailer’s e-commerce arm from its physical retail business. It’s been about a year since the move, and so far it seems to be working.

“It’s a new focus and it’s a new way of running the business and the customer is actually the biggest winner,” Saks Fifth Avenue CEO Marc Metrick told CNBC. “Instead of spending capital investing in your physical plants, you’re spending on marketing, investing in the future of your customers. And it’s a much better way to grow the business long term.”

Hudson’s Bay also made the decision to separate the online retail arm of its namesake stores into a separate company a few months later.


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