Will Target benefit as Macy's closes 150 stores in the next few years?

As Macy's closes 150 stores over the next few years and puts more focus on luxury brands, Target could benefit, at least in the short term.

In many ways, this middle market has been in turmoil with department stores such as Sears all but disappearing and mall chain stores dwindling. At the same time, shoppers are either selectively choosing to save money or buy an item of high quality they think is worth the price. While Macy's has different price points, its downsizing means one less option.

And if any store has been comfortable in the middle, it's Target, analysts said.

"This is probably positive for Target in the short, medium term," said Neil Saunders, managing director of the retail division of consulting company GlobalData. "One hundred fifty stores are a lot to take out. … There are not many alternatives. Other stores like J.C. Penney have closed many locations."

Macy's has yet to announce which locations will close, but the exodus of 30% of its stores could help Minneapolis-based Target, which boasts more than 1,900 stores across the United States, to grab valuable market share as former Macy's customers with fewer brick-and-mortar options are pushed to find alternatives.

There are 11 Macy's stores in Minnesota with most located in the Twin Cities metro.

While Macy's and Target are not direct competitors like Von Maur and Macy's, for example, the stores have become more similar in recent years. Macy's has tried to appeal to bargain shoppers through its off-price Backstage concept and Target has brought in more brand names such as Levi's and higher-end beauty products through in-store Ulta shops.

"Anytime a major competitor downsizes, it presents opportunities to grab more business," said Carol Spieckerman, who leads Spieckerman Retail consultancy. "Over the years, Macy's has gradually shifted down from the upper-middle of retail. Even though Target has focused more on the 'pay less' side of its brand promise lately, the brand still enjoys enviable loyalty among higher-income shoppers. As such, it's not a stretch to say that Target could benefit more than others."

The middle, though, has been a dangerous place for retailers to be.

"We have been on this path of bifurcation for 20 years," said Toopan Bagchi, founder and managing director of retail consultancy Starship Advisors. "People are very choiceful about when I'm OK with a discount option, when am I going to splurge."

But as an upscale discount store, Target made a name for itself as it has developed cheaper private-label alternatives to traditional department store finds like swimwear and accessible celebrity designer collaborations and brand partnerships in everything from home décor to children's clothing.

Over the last year, Target has been even more intentional to market its affordability as it faced a sales slowdown from the rapid growth it saw during the pandemic.

Target also has over the past decade concentrated on improving the in-store experience, a priority for Macy's in the next few years.

On Tuesday, Macy's reported to investors its same-store sales dipped more than 5% in its last financial quarter, continuing a pattern of decline that drove executives to announce "a bold new chapter" to turn around the retail giant. The new strategy includes shuttering about 150 "underproductive locations" through 2026 with about 50 expected to close by the end of this fiscal year.

As part of its revitalization strategy, Macy's plans to focus on portions of its better-performing luxury portfolio by opening about 50 Bloomingdale's and Bluemercury cosmetic stores.

Macy's is also working to improve its shopping experience across all its channels and expand its small-format stores, strategies Target and other retailers have already invested in.

That's not to say Target still shouldn't keep an eye on Macy's developments, Saunders said. Target, which is scheduled to report its fourth quarter and full-year earnings next week, has also experienced a sales slump that company leaders have attributed partly to consumers being more budget-conscious and slower to spend.