Macy’s is closing 150 stores in the next few years and The RealReal reached profitability by cutting costs, reflecting a trend in fashion where reining in costs becomes the clearest path to profits. Don’t forget to subscribe to the Glossy Podcast for interviews with fashion industry leaders and Week in Review episodes and the Glossy Beauty Podcast for interviews from the beauty industry. –Danny Parisi, sr. fashion reporter
The fashion industry tightens its belt
Macy’s is the latest major fashion company to announce a significant downsizing. Last week, the company laid out a plan to close 150 stores over the next few years, starting with 50 stores closing this year. According to Macy’s, these stores were underperforming, accounting for 25% of the company’s retail footprint but only 10% of sales.
The freed-up resources will instead go to revamping the remaining stores, hiring more talent and renovating their interiors to be more luxurious. In the same time period, it will open 15 Bloomingdale’s stores and 30 Bluemercury stores — both retailers offer more expensive goods than Macy’s mainline stores.
It’s clear that, for Macy’s, the future does not lie in off-price clothes. Macy’s is one of many retailers in a strange position, caught between the ultrafast, ultracheap offerings of Shein on one side and the polished, expensive products offered by Nordstrom and Saks Fifth Avenue on the other. Between the two, Macy’s is opting to go higher and compete in the upscale retail space, rather than race to the bottom against affordable fast fashion brands.
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But, currently, the luxury space doesn’t seem very welcoming to newcomers. Compared to the highs of 2021 and 2022, luxury brands and retailers have seen slowing sales. For its part, Saks is reportedly having trouble paying its vendors. While that could signal an opportunity for Macy’s to take some market share from Saks, the more likely outcome is that all luxury retailers will face a tough road throughout 2024.
On the Glossy Week in Review Podcast last week, editor-in-chief Jill Manoff and I answered questions from listeners, including one about whether we’ll see more bankruptcies this year in retail. I think the answer is yes, given the increased costs of doing business both for acquiring customers and paying rent on expensive stores.
But we will also likely see more brands like Macy’s cutting back on their stores and/or their employee base. There’s already been round after round of layoffs in the last year across tech, retail and fashion. In the last two months, we’ve seen layoffs at REI, Nike and Express, among other brands, as companies downsize and try to do more with less.
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All this cost-cutting does have benefits. The RealReal, which has been aggressive in cutting back costs on expensive storefronts and unprofitable categories like furniture, announced last week that it has finally achieved profitability. The RealReal hasn’t been profitable since it was founded over a decade ago, but in the last year, the company has kicked efforts to reach profitability into overdrive. It’s noteworthy that the company became profitable despite seeing a 10% dip in revenue from the year before. It’s not necessarily that it earned more money, but instead, it cut its costs so much that they finally in came under revenue.
I expect we’ll see more companies taking this route. As profitability becomes a more urgent goal for many companies just as spending is flattening, cutting costs, including closing stores and laying off employees, is the easiest way to make more than they spend.
