Macy’s has a potentially costly plan to turn around some stores

Macys Backstage

Macy’s is converting several of its department stores into discount locations and it could spell trouble for the brick and mortar retail industry.

CEO Terry Lundgren told analysts on a conference call that Macy’s “Backstage” stores will take over 15 existing retail locations this year.

Backstage offers Macy’s brands at hugely discounted prices up to 80% off. The stores are seen as the company’s attempt to copy a successful sales model setup by TJ Maxx and Nordstrom Rack.

Macy’s recently announced that it was closing 40 locations following a 4% decrease in sales in 2015.

The goal of its new test locations for Backstage is to determine if those stores will cannibalize Macy’s general sales or draw in a distinct new audience.

The move to a discounted model is part of a larger trend according to analysts at RBC Capital Markets.

“Macy’s announced store closings could have a number of implications on the overall retail landscape,” the analysts at RBC write. “We believe Macy’s decision will catalyze other specialty retailers and department stores to take a harder look at their boxes in these underperforming centers.”

Macy’s Backstage is targeted at convincing younger shoppers to visit its stores. However, there is the very real possibility that once they find cheaper prices, they may not be willing to pay full-price for brand-name clothing at traditional Macy’s locations.