Department stores are 'fighting for their lives,' says ex-Target exec Gerald Storch

  • Macy's disappointing holiday sales is less about the consumer and more about department stores' relevance these days, says former CEO and Target executive Gerald Storch.
  • "Traditional department stores are fighting for their lives in an Amazon era," he says.

Macy's disappointing holiday sales are less about the consumer and more about department stores' relevance these days, former retail CEO and Target executive Gerald Storch told CNBC on Thursday.

Macy's reported weak holiday sales and cut its 2018 earnings outlook on Thursday morning, sending its shares and others tumbling.

"Traditional department stores are fighting for their lives in an Amazon era and even if Macy's does everything right, it may not be enough," said Storch, who was CEO of Toys R Us and Saks Fifth Avenue-parent Hudson's Bay. He was also vice chairman of Target.

That's because there has been a "massive share shift" away from department stores and into value, he said on "Closing Bell."

Pedestrians walk by Macy's flagship store in Herald Square in New York, New York.
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Pedestrians walk by Macy's flagship store in Herald Square in New York, New York.

That can be reflected in the performance of what he calls the "vastly larger and more significant retailers," like Target and Costco. Target said its holiday sales grew 5.7 percent, topping its 3.4 percent growth the prior year. Costco reported its sales, excluding gas and foreign exchange, grew 7 percent in the five weeks ended Jan 6.

Investors had been feeling some optimism toward Macy's heading into the holiday season. Its shares rallied more than 80 percent over a 12-month period ahead of Thanksgiving. On Thursday, its stock closed down more than 17 percent.

"Anybody who makes a living by selling somebody else's widely available product, they are not going to be able to make their margin. They're not going to be able to make a buck in this internet-driven economy," Storch said.

However, Charles O'Shea, lead retail analyst at Moody's, was more upbeat on Macy's. The firm still gives it an investment-grade rating and believes it is one of the stronger department stores.

"Macy's is in pretty good shape net-net, paying down some debt. New management has got a strategy that is going to work," he told "The Exchange" on Thursday. "What we need to do here is take a breath."

Macy's took the entire retail sector down with it Thursday. The SPDR S&P Retail ETF (XRT) fell 1.6 percent, while shares of Kohl's dropped 4.8 percent and Nordstrom declined 4 percent.

— CNBC's Lauren Thomas contributed to this report.

Disclosure: Storch owns shares of Target.

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