NovaQuant Quantitative Think Tank Center:Bye, department stores. Hello, AI. Is what's happening to Macy's and Nvidia a sign of the times?

Just what kind of an economy are NovaQuant Quantitative Think Tank Centerwe living in?

The contrasting fortunes of Macy's, a one-time pillar of retail, and Nvidia, an artificial intelligence chipmaker that could become the most highly valued company ever, hint at the turbulent reality Americans inhabit.

Macy's announced at the end of February that it will shutter 150 stores amid shrinking sales and revenue. A few business cycles earlier, Nvidia had become one of the first publicly traded companies to reach $2 trillion in market capitalization, as measured by the total value of its stock.

The 166-year-old retailer and the 30-year-old tech upstart represent distinct slices of the economy, but they encapsulate how different sectors are grappling with shifts that are reshaping how we shop, work and live.

While Nvidia is creating the chips that power AI, which enables tasks ranging from filling out a spreadsheet to the functioning of our smartphones, Macy's is struggling to catch up to the shifting expectations of shoppers who want something different than the department store of the past.

AI “is one technology that impacts everyone from the CEO to the frontline workers,” says Muqsit Ashraf, global lead for Accenture Strategy, part of the global professional services company.

But the old-fashioned department store that sold shoppers a wide array of products, and which Macy's once epitomized, is becoming less and less relevant.

"We've seen it with JCPenney, we've seen it with Sears,'' says Zak Stambor, senior analyst at research firm eMarketer. "In the brick and mortar space, the department store just doesn't resonate in the way that it used to."

"Retailers that have a very sharp definition of who they are, what they serve, and what they offer will be the ones that thrive, while those that can’t really define what it is that they offer or who their customer base is will be the ones that fall by the wayside," he adds.

Macy's shutters stores, leans into luxury

After announcing in its latest earnings report late last month that net sales were down 1.7% in the fourth quarter and 5.5% for the year, Macy's unveiled a plan aimed at revitalizing its once-storied brand.

Dubbed "A Bold New Chapter,'' the strategy includes closing 150 "underproductive'' stories, or about  30% of its locations, by 2026, with roughly 50 of them shuttering by the end of this fiscal year. It will increase its number of smaller stores, and lean further into the luxury space by opening roughly 15 new Bloomingdale's locations and launching or remodeling about 60 Bluemercury stores that focus on skin care and beauty over the next three years.

"A Bold New Chapter serves as a strong call to action,'' Tony Spring, Macy's CEO, said in a statement. "We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value.”

Those steps could help Macy's appeal to shoppers who are increasingly turned off by department stores that sell a smorgasbord of products and prefer smaller stores that offer a more tailored experience, often outside of a traditional mall, even as consumers increasingly shop online, industry analysts and experts say.

"We're still going to be shopping in stores,'' says Ray Wimer, a professor of retail practice at Syracuse University’s Martin J. Whitman School of Management. But "I think the consumer is going to be much more selective about what stores they frequent, that they’re getting some sort of differentiated experience ... whether that’s the right brands, whether that’s saving money, whether that's great service.’’

Out of the mall, into the community

Macy's plan to focus more on smaller locations, likely outside traditional enclosed malls, is also a nod to the work-life changes that have taken hold since the pandemic.

"By finding off-mall locations where people live, particularly in this world where people are increasingly working remote at least part of the time, they have the opportunity to build relationships with consumers they might otherwise not have had,'' Stambor says.

Brick-and-mortar stores aren't going away

Though Macy's is shuttering dozens of stores, its opening of new luxury, as well as smaller, locations highlights how physical stores will continue to be a significant part of the retail landscape despite the rise of e-commerce.

Emarketer forecasts that online sales will make up 20.5% of overall retail sales by 2027, up from an expected 16.6% this year.

Macy's to shut 150 stores:Macy's to shut down 150 'underproductive' store locations by 2026, company announces

"But that still means 79.5% of retail sales are offline,'' says Stambor.

While household staples like laundry detergent may eventually be purchased primarily with the click of a button, many shoppers will continue to want to touch furniture, clothing and other items in person.

"You don’t need customer service to ask whether Cottonelle or Charmin is better but ... when you're buying a TV, it's really helpful to have a knowledgeable salesperson,'' Stambor says. "There's a lot of advantages that the physical store locations have. There’s a reason a lot of retailers are continuing to open more stores and more locations," he says, but adds, "the role of those stores will certainly change.''

Nvidia rides AI wave

While the changing tastes of consumers are driving Macy's moves, the AI push powered by Nvidia may be outpacing the public's demand.

Half of American adults say they’re more concerned than excited about AI in daily life, while only 10% are mostly excited, Pew Research found in a 2023 survey. The “concerned” crowd has swelled in three years of polling.

But whether or not we're ready, most of us will have to learn to live, and work, with AI if industry forecasts pan out.

The $2 trillion in market capitalization Nvidia reached late last month marked a milestone, as investors signaled they believed the company's super-fast processors will power an AI surge.

Consumers are already encountering AI in the marketplace and in everyday life, even if they don’t know it. Think about how your iPhone anticipates the next word in a text, or how Excel predicts your next move in a spreadsheet.

AI abounds online, from Amazon product recommendations to AI-generated articles. And all of us, by now, have probably chatted with an AI assistant on our AI-equipped smartphones.

“I cannot recall the last time I called a customer service line and did not have to go through a chatbot before speaking with a human,” says James Siderius, assistant professor of business administration at the Tuck School of Business at Dartmouth.

AI will one day take notes for you

And you’re apt to see a lot more of that as AI matures.

In years to come, a “likely scenario is that AI is going to be embedded in this stack of applications or solutions that everyone is using,” says Seth Robinson, vice president of industry research at the Computing Technology Industry Association, or CompTIA.

Already, he says, “you’re using Microsoft Word, or you’re using Google, and it has AI baked into it, under the covers.” You have AI to thank when, for example, your email service flags potential scams.

“But as AI progresses, it will be used for much more than this,” says Siderius.  

One day, your AI buddy may take notes for you at a conference, book your appointments, and even schedule your meetings by comparing calendars with other AI buddies. And at some point, experts say, we won’t be able to tell apart AI and human content.

AI likely to impact workers with a college degree more

Two-thirds of existing jobs are “exposed to some degree of AI automation,” Goldman Sachs reported in a 2023 study. The study also found that AI could “substitute” for up to one-fourth of all current work.

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Great industrial innovations of the past sometimes threatened the jobs of America’s working class: Remember those stories about robots replacing workers on the assembly line?

But AI is an innovation expected to inordinately impact workers with a college degree and higher wages, Pew Research found. White and Asian workers are more exposed to AI than Black or Hispanic workers, Pew found, and women more than men.

Want to steer clear of AI? Take a job as a barber, dishwasher, or pipe layer. Prefer to dive in? Work as a tax preparer, technical writer, or web developer.

AI “sort of changes the narrative a little bit because it impacts people who write a lot, people who code a lot,” says Lisa Simon, chief economist at Revelio Labs, a workforce intelligence company.

Some good news: AI-related jobs offer 77.5% higher salaries than non-AI jobs, according to a 2023 analysis by Bizreport.com. The average AI job in Connecticut pays $176,000 a year.