Macy's to open discount spinoff within stores amid slump

Last Updated Jan 21, 2016 1:14 PM EST

Legendary department store Macy's is cutting nearly 5,000 jobs and closing 40 stores across 21 states after reporting disappointing holiday sales. Sales in November and December dropped nearly 5 percent compared to 2014.

Under pressure to sell real estate, Macy's is opening branches of its discount stores, "Macy's Backstage," inside their traditional store locations in the hopes of drawing in customers.

"This is a search for relevancy and to drive foot traffic into the store," CBS News financial contributor Mellody Hobson said on "CBS This Morning" Thursday. "The idea is that they will put their Macy's Backstage brand inside of their traditional store and that value shopper who goes into the discount store will discover the traditional Macy's. ... This seems like a tall order to me. I could see the traditional Macy's customer discovering the Backstage store, but they want to see that happen in reverse. This is going to be hard."

While other department stores like Nordstrom have also branched into the bargain concept with its discount store, Hobson said Macy's strategy is different. Nordstrom has strategically set apart its discount store, Nordstrom Rack, by ensuring that 80 percent of its merchandise is exclusive. In contrast, Macy's experts say 80 percent of Backstage's offerings will be the same as the main store's.

Hobson also said Macy's would have to play "catch-up" to competitors like Nordstrom, which has been doing this for about a decade and has over 100 Rack stores. Currently, Macy's has just eight Backstage stores and is planning on developing a "handful" more.

According to Hobson, Nordstrom has also done a "really good job" of implementing other strategies to remain competitive, such as appealing to online retailers through its styling service, "Trunk Club," and building out an "omni-channel business" by being one of the first to allow purchases on the phone.

But overall, department stores have been suffering major blows due to competition from online retailers as well as shifting consumer patterns, particularly among the millennial generation. Companies such as Macy's and Dillards have seen stock prices drop more than 45 percent from their 2015 highs.

"It's just a different day. They've got the assault of online and the millennial shopper is not that into retail in terms of buying clothes. They want experiential purchases like vacation and dinner, and that's a lot to overcome," Hobson said.