3 Reasons Behind Department Store Closures — And What It Means for Your Wallet

05/05/2024

Ponce de Leon Mall — St. Augustine, Florida shutterstock_1464471839

Back in February, American department store chain Macy’s announced it would be closing 150 stores as it plans on shifting its priority toward the marketing of its luxury items. It plans to close its less successful stores and focus on better-performing outlets, such as Bloomingdale’s.

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However, Macy’s is not the only department store chain slowly fading away. American retail giants Sears and JCPenney have also closed many stores in the last few years. Large retailers like these were once major staples of American shopping malls, another concept decreasing in popularity.

There are several reasons behind these department store closures, and experts say the decline in these chains may have several effects on your wallet.

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Why Department Stores Are Closing

Department stores continue to close in 2024. According to Corelight Research, total sales by U.S. department stores were at $103 billion in 2018 and are expected to fall to $81 billion by 2026. Experts believe several reasons have caused these department store closures.

Rent Prices

Holly Habeck, CEO of equestrian apparel brand Thiandro Equestrian, said that one of the biggest reasons for department stores closing is the substantial costs they pay, including lease payments for mall or commercial space rentals.

“The confluence of these expenses, coupled with the shifting preferences of consumers towards online shopping, has rendered the traditional retail model unsustainable,” Habeck said.

Online Shopping

As Habeck stated, another primary reason for the declining success of department stores is the increased popularity of online shopping. According to a 2022 survey from research company Statista, 55% of American consumers say the biggest reason they shop online is for a “straight to your door” delivery. Statista also found that, as of early 2023, 43% of consumers in America say they prefer to shop online rather than in person.

Ultimately, the convenience and lower prices that come with online shopping have lured customers away from traditional retailers.

“This trend has been magnified by the COVID-19 pandemic, which accelerated consumer habits towards digital interfaces,” said Sarib Rehman, CEO of Flipcost, an e-commerce platform that sells cleaning, janitorial and office supplies.

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Competition With Large Retailers

A third reason for increased department store closures is the competition these stores have with large retailers such as Walmart, Target and online retail giant Amazon. Stores like these offer a wider variety of products than department stores do at lower prices, thus bringing shoppers away from department stores.

How Department Store Closures Affect Your Wallet

With the closing of these stores will come several pros and cons for consumers, communities and the economy.

More Savings and Convenience From Online Shopping

One reason online shopping brings in so many consumers is that it may cost less than shopping in person. In a study from Flipcost that compared the online and in-store promotions of electronic goods, it was found that online deals saved consumers an average of 15% more than in-store promotions offered by closing department stores.

“Online platforms offer the ability to quickly compare prices across multiple vendors, providing consumers with the best available deal at their fingertips,” Rehman said.

Drawbacks of Online Shopping

Although shopping online can save you money, fewer department stores result in less of a hands-on approach to shopping. When it comes to buying clothes, for instance, shoppers won’t be able to feel the fabric or try on the item in person.

“The absence of physical interaction with products prior to purchase presents a potential drawback, leading to increased return rates and added inconvenience for consumers,” Habeck said.

Impact on Small Businesses and Communities

Rehman noted the impact department store closings may have on local communities.

“The closure of these stores affects local economies and employment, which indirectly can influence communities and real consumer spending power,” Rehman said.

Despite many American consumers preferring to shop online, this will inevitably have an impact on both local and national communities, and it’s always beneficial to remember to support small businesses as our country sees a decline in retail giants and shopping malls.

“It’s crucial to be aware of the implications of this shift,” Rehman said. “Supporting local stores when possible maintains economic diversity and job opportunities within communities.”