On Tuesday, the iconic department store announced an overhaul plan that’s almost a copy-paste version of two previous ones: North Star in 2017 and Polaris in 2020, both of which failed to get the company back to annual sales growth through store closures and tech investments. With its “A Bold New Chapter” plan, the company will close 150 unprofitable stores by the end of 2026, invest in about 350 other Macy’s stores, and grow its Bloomingdale’s and Bluemercury fleets by a combined 20%. It’ll also revamp its online shopping business and modernize its merchandise, Macy’s Chief Executive Officer Tony Spring said in an earnings call on Tuesday. 

The news had Wall Street ecstatic. Macy’s shares gained as much as 7.5%, the biggest intraday rally in more than two months. All of the buzz seemed to completely eclipse the company’s set of weak earnings figures, including another year of slowing sales growth. All that mattered was the storied company had a solid plan to grow. 

But that investor excitement ignores a deeper flaw in Macy’s growth story: Amid widening income inequality, there are simply fewer people in that middle-income bracket that the retailer considers its core consumers. And that trend is unlikely to change anytime soon, with prices still biting into discretionary spending. Not only does this complicate Macy’s bet on the growth of its namesake stores, it complicates its status as a beacon of upward mobility. 

To understand Macy’s decline, it’s important to revisit its rise. The department store’s ascent as an icon of American consumerism grew in tandem with the expansion of the middle class in the mid-20th century. As a New York-based shopping center, it embodied the thrill, expanse and sophistication of the city. Its flagship Herald Square location in Manhattan offered all of the goods and services the upwardly mobile could imagine: a restaurant, a beauty salon, designer clothing, jewelry and even a pet department. In whatever state, city or town, Macy’s brought its urban sensibilities and created a place where people could discover new fashion or furniture at attainable prices. Macy’s enabled the middle class to cover their necessities and see their greatest wants within reach. It was the American Dream.  

By seemingly clinging to the assumption that most people are even remotely close to being able to achieve this socioeconomic ideal today, investors risk overvaluing a business model that has an uncertain future in today’s consumer economy.

Over the last half a century, the middle class has tumbled and taken Macy’s down with it. Decades of fiscal policy, recessions and inflation all combined to hollow out middle America. Middle-class incomes have grown at a slower pace than higher-income households, resulting in a wider wealth gap. At the same time, consumer trends splintered along economic lines. Pinched shoppers shifted their spending to off-price stores such as TJX Cos.’s T.J. Maxx, while well-off ones went higher up the value chain toward luxury brands. The introduction of online marketplaces such as Amazon.com gave both high and middle-income shoppers a way to buy directly from brands and compare prices – something they couldn’t quite do at a Macy’s store. 

For a time, Macy’s tried to keep up with its shoppers who were moving either up or down the economic ladder by trying to be everything to everyone. It rolled out a fleet of discount stores called Backstage to compete with discounters. It  renovated some stores with slightly cringeworthy new areas dedicated to young shoppers with jean customization stations and selfie walls to compete with fast fashion. All while it  continued to open massive Macy’s and Bloomingdale’s stores. Still, revenues have tanked — from $28.1 billion in 2015 to about $23 billion in 2023.

Certainly, this time around, Spring’s “A Bold New Chapter” vision for Macy’s has more focus. In the past, Macy’s would continue to run underproductive stores that weakened the parent company’s profitability but ‘the bar has now been raised,’ Spring said. The store locations set to close represented about 25% of the overall company’s gross square footage but less than 10% of its sales. However, even with those closures, it would still leave the company with about 350 Macy’s stores. With slower wage growth at the bottom and incomes growing faster among the upper echelons, it amounts to an outsized bet on the survival of the middle class.

As retailers make hard choices about whether to serve shoppers up or down the economic ladder, the middle-income consumer has become less of a target because they are fading. Macy’s, as we know it, risks fading along with it.More From Bloomberg Opinion’s Leticia Miranda:

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.

More stories like this are available on bloomberg.com/opinion

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Published: 29 Feb 2024, 12:36 AM IST