Freakonomics Radio – Episode 613: "Dying Is Easy. Retail Is Hard."

Release Date: November 28, 2024

In this compelling episode of Freakonomics Radio, host Stephen Dubner delves into the tumultuous landscape of the retail industry, using Macy’s as a primary case study to explore the challenges faced by traditional department stores in the modern economy. The episode juxtaposes Macy’s struggles with the revitalizing efforts of an independent bookstore, offering a nuanced perspective on retail's evolving dynamics.

Macy’s: A Legacy Under Strain

The episode opens with a deep dive into Macy’s, a retail giant with a storied history spanning over a century. Despite its iconic status and the beloved Macy’s Thanksgiving Day Parade, the company has been grappling with significant financial challenges.

Tony Spring, CEO of Macy’s Inc.

Tony Spring, who assumed the role of Macy’s CEO in February 2024 and became chairman a few months later, emphasizes the multifaceted identity of Macy’s beyond being a mere retailer.

“We are not just a retailer. We are not just a physical store. We are a celebrator of life's moments.”
(05:02)

Spring acknowledges the precarious position of Macy’s, highlighting a market capitalization of approximately $4 billion against a real estate portfolio valued between $7 and $11 billion. This disparity underscores the company's declining stature in the retail arena.

When confronted with a takeover bid from the investment firm Arkhouse, Spring articulated Macy’s commitment to its long-term vision over immediate financial gains.

“After seven months of due diligence, the board unanimously voted to move on and focus on creating value for our shareholders.”
(10:17)

Insights from a Retail Veteran

Stephen Dubner engages in a critical discussion with Mark Cohen, a retired retail executive and former CEO of Sears Canada, providing an authoritative analysis of Macy’s predicament.

Cohen draws parallels between Macy’s decline and the downfall of other retail behemoths like Sears, attributing failures to complacency and a lack of adaptive strategies.

“Success in many cases brings complacency, hubris, success seeds failure in many enterprises as they become larger and larger and become convinced that they are the last word.”
(18:27)

He critiques Macy’s historical approach to vendor relationships, labeling it as “abusive” due to relentless demands and unilateral decision-making, which ultimately alienated valuable brand partners.

“They would be pounded for best price upfront... Macy's played the we want it all our way game for many, many years.”
(22:42)

Cohen remains skeptical about Macy’s future, questioning the sustainability of its real estate-driven valuation and the true value of assets like the Thanksgiving Day Parade.

A Tale of Two Retailers: Macy’s vs. Jeff Kinney’s Bookstore

Transitioning from the corporate giant to an independent initiative, Dubner introduces Jeff Kinney, renowned author of the Diary of a Wimpy Kid series, who has undertaken a transformative project in Plainville, Massachusetts.

Jeff Kinney, along with his family, has invested in revitalizing the town’s downtown area through the establishment of a flagship bookstore, An Unlikely Story. Despite operating at a loss, Kinney’s bookstore has become a cultural hub, attracting authors and fostering community engagement.

“We just wanted to build a building that the town could feel proud of.”
(46:24)

Kinney’s efforts mirror Macy’s own challenges, as both entities strive to create inviting spaces that resonate with consumers in an era dominated by digital commerce. Kinney emphasizes the importance of physical spaces in fostering a sense of community and connectedness.

“I think there is a chance for so much improvement. Like if we lived in Beverly Hills, we would have no interest in doing this kind of a thing.”
(58:30)

Comparative Analysis and Future Prospects

The episode juxtaposes Macy’s corporate strategies with Kinney’s grassroots approach, highlighting differing methodologies in addressing retail decline. While Macy’s focuses on divesting non-performing stores and rebranding efforts under Spring’s “bold new chapter” strategy, Kinney invests in community-centric development to revive local commerce.

Tony Spring remains optimistic about Macy’s ability to adapt and thrive, expressing admiration for Kinney’s initiatives and hinting at potential synergies.

“We are always open to evaluating different real estate opportunities for retail... I wish Jeff the best.”
(61:36)

Conversely, Mark Cohen remains cautiously pessimistic about Macy’s prospects, urging the company to move beyond mere slogans and implement tangible strategies to enhance customer experience and product assortments.

Key Takeaways and Conclusions

• Macy’s Struggles: Despite its iconic status, Macy’s faces significant financial and operational challenges, compounded by a decline in traditional department store appeal and aggressive competition from e-commerce giants like Amazon.

• Leadership Response: CEO Tony Spring is spearheading a turnaround strategy focused on divesting underperforming stores, enhancing merchandise assortments, and leveraging Macy’s real estate assets.

• Retail Insights: Mark Cohen provides a critical perspective on Macy’s historical missteps, emphasizing the need for genuine transformation beyond superficial rebranding.

• Revitalizing Communities: Jeff Kinney’s independent bookstore serves as a case study in fostering community engagement and creating experiential retail spaces that contrast with Macy’s corporate approach.

• Future Uncertainty: The episode underscores the precarious future of traditional retail giants and the necessity for innovative strategies to remain relevant in an increasingly digital marketplace.

Notable Quotes:

• Tony Spring:
  “We are not just a retailer. We are not just a physical store. We are a celebrator of life's moments.”
  (05:02)

• Mark Cohen:
  “Success in many cases brings complacency, hubris, success seeds failure in many enterprises as they become larger and larger and become convinced that they are the last word.”
  (18:27)

• Jeff Kinney:
  “We are at the intersection of Bacon street in 1A in Plainville, Massachusetts, and this is where Plainville Square is going to come to life.”
  (53:49)

This episode provides a multifaceted exploration of the retail sector’s challenges, offering listeners valuable insights into the strategic maneuvers of a declining giant and a revitalizing indie player. Whether you’re a retail enthusiast or simply curious about market dynamics, this episode sheds light on the hidden intricacies of an industry in flux.