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This is Wall Street Week. I'm David Weston bringing you stories of capitalism. The race to an AI future takes us through the obscure land of open source code, and one of those leading the charge, Lisa Sue of AMD, explains what is at stake plus, however we get there, that AI future will require a whole lot more electricity, which we'll have to include a whole lot more nuclear
power than we have ever seen before. And as the holiday season approaches, we take you on a trip down memory lane to the department stores of yesterday and the efforts of one of the remaining icons, Macy's, to transform itself for the future. But we start with the FED decision this week. What we learned about where the FED is going if it knows with Glenn Hubbard of the Columbia Business School, who headed the Council of Economic Advisors under President George W.
Bush Well, the decision itself isn't a surprise. David, Why though, is a good question. I don't see really an argument for cutting the fund's rate, particularly given the Fed's own macroeconomic forecasts that would have real GDP growth now higher. Next year, not lower. There are reasonable minds on both sides who are debating the employment tradeoff and the inflation tradeoff were interestingly going forward, what could the Fed do?
I don't see rate cuts. If you look at the FED funds rate now, it's roughly in the range of where it should be given views about what the real Federal funds rate is and the inflation forecast the Fed itself has put out. So I don't see much more room to cut.
If you believe the Fed's projections next year. In twenty twenty six, they took up the GDP growth by half a percent.
That's big.
How do you cut rates into a growing economy?
Well, I think they would have to argue that it's about employment, not just output, but that seems very tortured as an argument. They still have time to react to labor pressures should they worsen. Remember, the Fed also lowered the unemployment rate for next year as well. That doesn't look like an economy heading toward recession. I'm not saying that will come to pass, but that is the Fed's view.
Artificial intelligence is all the talk of the town, including with the chair Pale in his decision this week. How can the FED understand AI well enough to know what that will do, for example, productivity, which the chair talked about.
Well, I don't think any of us, if we're honest, No, and I talk to business people in California. They're extremely optimistic. Every CEO is optimistic. Some others are more dour among economists, honestly, I think there's every reason to believe generative AI could be a big productivity boom. But there lies the rub for the FED. If you think AI is the future of productivity, that's a story for higher, not lower interest rates. The real interest rate will go up and inflation is
still stuck at a higher level. If we're wrong about AI, then we've got many things to worry about because we have a lot of cap X going into AI data centers and things like that. But I don't think the AI productivity story gets the FED to low rates. This is not a replay of green Span in the nineteen nineties.
What sorts of pressures could AI in success with increased productivity increase investment, as you say, put on the dual mandate, because you could have on the one said growth economic growth increased productivity radically with lower employment, so you could be on both sides of that mandate.
You well could.
At the moment, I'm not so sure. So we have seen obviously a weakening labor market, but I'm not sure AI is associated with it. When you look at all of the sectors that are weakening, to me, it looks more like an unwind of excess hiring during COVID. So we don't yet know, and we don't know going forward. Is AI going to be more of a compliment to you, me and everybody else in terms of the skills we
have or a substitute. But if it were the case that AI displaced a lot of jobs, to me, that's less of a federal reserve challenge and more of a government challenge that the government needs to do something, have a policy to prepare people better than we did in previous waves of technological change.
One of the things that Cherpeal addressed was tariff's When he was asked about the elevated well above the two percent number and inflation, he said, well, that's really a tariff thing, and we think that will dissipate. Is he right about that?
In principle, yes, a tariff is if you had a once in four all tariff that should raise prices, not inflation. It only raises inflation for a period of time. The problem is we've seen tariffs come, tariffs go, rates go up, rates go down, so it becomes a little harder. My worry about the tariffs is less about inflation somewhat for the reasons Chair Powell has suggested, but more for their long run corrosive effect on the economy in productivity, in
supply chains. You know again, America's imports are more than half of them, or intermediate goods. We're shooting ourselves in the foot whenever we do large across the board tariffs.
What do you make of the fact we're now up to three descents, two going one way, one going the other way. We went for a long time actually with essentially no dessence in the FED. Is this a good thing, a bad thing, or something in between?
I think it's It could be any of you bobs. So it's a good thing in the sense that in a healthy organization, if you and I don't have the same view, we should speak it. If we're not going to be reconciled. That said, you've got to ultimately govern the FED. We're about to have a new FED chair. The President will tell us who it is sometime in the near future, and that gentleman or lady is going to have to bring together a group of people with
disparate opinions. That's where the challenge seems to hold. Your Powell has done a very good job, I think, in managing through a situation where people could reasonably hold different views about the economy and obvious political cross currents. He's been able to get through that. The new FED chair, whoever it is, will face that challenge.
It's one thing to have disagreements over policy, over theory, even over what the data are telling. You don't think they have political disagreements. We tend to think that the FED should stay away from political disagreements and disagree over the merits.
As it Well, that's absolutely right. You can make a case right now in the economy for different points of view about the path of interest rates. The fact that I have one point of view does not mean, for example, that Governor Waller's wrong because he is a different point of view. This is a different way of looking at the world. I respect that if your argument is based on politics, then that's not a technocratic argument for the FED.
Political arguments are fine when you're talking about fiscal policy or things that the Congress does. But the FED was set up to provide independent judgment about monetary policy, and that's what it should do.
To provide independent judgments and to be perceived as providing independent judgments.
It's critical, David, because if people don't believe that you're independent, even if you yourself think you are, that doesn't work, and you have to ask yourself why does it not work. The bond market and capital markets depend on the perception that the FED is an independent agency.
One of the things that came up more than once in the news conference, although Cherpal really refused to address it, is the question in Governor Cook's case depending before the Supreme Court, if you had to choose which is more important who the FED chair is or how the Supreme Court rules.
Well, I'm going to give you a non lawyer's answer because I honestly I don't know. But to me, the Cook case is very important, and not just because it's about Governor Cook. Per sees call it about X. Whoever X is if the President can fire a member of the Federal Reserve Board for what doesn't appear to be caused, at least as an outsider. Then that speaks volumes about the Fed's independent So I think that case is one
to watch. You know, I'm not a lawyer. I don't know what the outcome will be, but I wish the Supreme more well in deciding.
It looking forward into twenty twenty six, which is very, very difficult obviously. Do you think there's more risks to the upside or the downside in the economy?
You know, I see risks in both directions. The AI boom that we spoke about is clearly an upside risk to me. The resilience of the economy is also an upside risk. If we were having this conversation a year ago and you had told me about Liberation Day, I alone got to know that. I would have then thought the macroeconomy would do worse than it did. I would have predicted market effects, which did happen, but not the
mac for economic effects. And I think part of that is the overwhelming resilience of the American economy combined with the productivity book. I think those are real upsides. The downsides I would worry about is that the labor market could weaken gradually and suddenly, and we already have a credit cycle that looks relatively mature to me, and so I would start to worry about credit accidents which could affect the bod market, So that would worry me as
a downside. And then of course there are always geopolitical risks that I'm certainly not an expert in and are hard to predict. So I think there are risks on both sides. It's going to be a very interesting year for the Fed for fiscal policy, and obviously because it's an election year, a highly charged.
Year coming up.
Getting to an AI future, it's not just a matter of how much money is spent, it's also what the basic structure of the system looks like. AMD Lisa Sue on the critical bets being made on open source versus proprietary code. This is a story about frontemies, when to try and beat your competition, and when to share with those competitors to build a bigger overall business and compete
in other ways. The competition to develop AI models could not be more fierce, with big tech companies investing record amounts of money on chips and data centers.
These companies investing trillions of dollars in CAPEX.
Trillions of dollars in the raise to build artificial intelligence support systems.
Trillions of dollars of our tech companies investing in building data centers in America.
How far AI will take us and how fast may depend in part on a basic choice about the overall approach to sharing for withholding information, a choice often mentioned in passing, but one that investors may not have identified as key.
I want to see AI everywhere. You know we were such so early in the real usage of the technology.
Lisa Sue is chair and CEO of a m D, the chip maker with hundreds of billions of dollars at stake in the development of AI. When it comes to the software that runs on their products, she and her company have made their choice in favor of open source technology sharing where they can.
The difference with an open source or open standards is the idea that you set out a set of standards that people can follow, and then different companies can choose to implement in a different way. And you know, the whole idea is to provide platforms that the entire ecosystem, lots and lots of developers can develop, and that that you can be able to interchange sort of the best of breed from different sources.
Why is there so much passion around open I mean, is it a matter of business or is there a matter of philosophy?
The philosophy is, you know, do you believe that there's any one company or any one group that will have all of the best ideas in the world, or do you believe that if you have an open ecosystem where different researchers and different groups can contribute, that you will end up with a better product overall? And philosophically, I think,
you know, from an am D standpoint. You know, actually, if I think about throughout my career, I look at, you know, sort of the different inflection points on technology. Things often start new ideas often start in a closed environment. But when you actually think about when they get big and when you know a lot of people adopt, you like to be an open environment. And you know that's philosophically. Now,
let's talk about the business aspects of it. You know, the business aspects of it are you know, we all have to make choices of where we invest and do you want to trust you know, all of your crown jewels and all of your data in a closed ecosystem that you know, may or may not be the most competitive at any given time, or you know, may have you know, a flaw or any of those things. Whereas you know, in an open ecosystem, you have choices. You can decide who is the best at any given time.
You can decide if I have my data in a cloud environment, I can easily move it to another environment. If I have my applications that are built on one chip, if there's a better chip, you know, a few years later, you can move you know, quickly. That's that's kind of the idea of both.
What broadly speaking of the advantages of open and let me throw all out For example, in a new technology, is it more likely, all of the things being equal, that the technology will develop more quickly if it's open.
I would say that the main advantage of an open ecosystem is that you can get many, many more developers on that ecosystem, and they will contribute, you know, sort of in their you know, special way. So you know, an example I can give you is, you know, when we think about supercomputing, like the largest supercomputers in the world, we usually like to develop them on open software stacks, so that researchers from all different labs can actually contribute
to those applications and those learnings. We see that a lot in open ecosystems, which is the notion that we want more developers. Like Linux is a great example, right. Linux is one of the examples where with an open operating system, you can see that it's now really become the standard for a lot of computing going forward.
For all the advantages of the open source approach to AI, many of the most important players, including most recently Meta with a new model expected to debut next year, have gone the other way, keeping much of their generative AI tech proprietary. And there are some advantages to that approach, including preventing bad actors from having access to source code that they can manipulate. That's something Sue believes can be remedied by community.
I think there is a definite view that there's a place for open and then there's a place for proprietary. And when I say that, I mean, look, there are amazing groups of researchers that are working on the largest foundational models. When you think about you know, what's happening at open AI and what's happening at Google and what's happening at Anthropic, what's happening at Meta. These are phenomenal labs that are doing a tremendous research in AI. There
are also a number of open models. You know open Ai has an open model, you know Meta, their Lama series as have had open models. And what you find when those models are open is there are more researchers that are able to build on top of that, and
I think there's significant advantages there. So you know, our thought process in how this evolves over time is you're going to have both in the ecosystem And just like my very early example of sort of the Apple iOS ecosystem and the Google Android ecosystem, it's not like you're going to have all of one takeover all of the other takeover. But what you do see is there's value in richness in having let's call it a little bit
of competition between the ecosystems. And most importantly, what we want is what's best for the consumer is to get the best overall product experience and the best overall capabilities.
And you do that when you.
Allow a playing field that allows good competition across the board.
The debate between open source and proprietary is not a new one. This IBM seven oh five. The computer industry had to confront a similar choice long before the current rush to artificial intelligence models. Sam Palmasana was the CEO of IBM from two thousand and three through twenty eleven.
How this whole thing began was basically in the late nineties and there were two different model There were proprietary models that exist at IVM and the main framed Microsoft Client Server, et cetera. They're all proprietary, and we believed that IBM that a better model was one that would drive more innovation work growth if it was open source so everybody could participate. So that led to this Linux Initiative, which was the open source in this institute that was
created by the industry, which we were part of. And obviously what happened over time.
Now we put a lot behind it.
We made a billion dollar bet that Linux would become commercial and that in the future Linux in the patche would be kind of the operating the.
Environment of the Internet.
It worked out, but it could have been a mistake, but it worked out, so that gave it a lot of momentum. But the whole point was open innovation is going to win over single company proprietary approaches because they have a limited amount of resource and unlimited market. Even if they have a large share position, it's still a smaller market than the entire industry.
When you made the decision to go open source with Linux, was there controversy about it? The pluses and the minuses of that decision.
Huge internal debate. Think about this stuff, IBM inventative. With the history of the industry, it was all proprietary, whether that was not just in mainframe or storage and database and all those things were all invented by IBM. So there's the camp that said, hey, you guys, this is crazy. We have this proprietary model. It's very profitable. Slower growth, but it's very profitable, and it's from a business perspective.
The alternative was that, no, if we can open up the opportunity and then participate in a bigger opportunity than the one we're participated in, IBM will be better off long term, and that was the decision.
The IBM moved to open source for operating systems twenty five years ago helped spur what became a software revolution as firms adopted the system and built their own proprietary applications on top of it. Looking back on it now, it's hard not to conclude that it was good for the business overall and ultimately good for companies like IBM. But is history likely to repeat itself this time as the world experien ements with various generative AI approaches said, the.
Chip is actually quite small. What you really we want to present a framework where we're going to get the best ideas coming out of this, and from an AMD standpoint, we'd love you to run on our chips, but more importantly, we want you to run on an open ecosystem so you can decide, you know, two years from now or four years from now, if you made a choice of AMD, that doesn't mean you're locked into our chips for the
next five years. It means that you have an open ecosystem where you can benefit from all of the competitive capabilities that come on board over the next five to ten.
Years, which sounds like it should be good for the business long term overall the business. Is it also good for AMD in the sense that in that world where you can switch and you don't have to be committed, you'll sell more chips over the long term.
I believe we will because we are giving people the opportunity to choose, and look, we always have to be best in class, right, there's no question that it's there's
so many innovations to come on board. But the idea that if you develop on AMD, you have choice and you also have the ability to work closely with us in terms of, you know, how we develop this ecosystem together, that this is a case where one plus one is going to be greater than three because you know, we're getting the smartest people from all of the ecosystem versus just you know, we're going to figure out everything on our own.
And it's not just the big US tech companies making their bets on open versus a proprietary. China is casting its vote as well and perhaps ironically siding with the open approach.
Where we started, it was mostly proprietary, and the winners at that point in time were Meta, Google, Open Ai, Microsoft, you know, et cetera.
They were the winners.
And we're growing like crazy with these large language models. Then all of a sudden, this thing happens in China. And there's two things that happen in China that are open sourced and they're based on this view that innovation will scale faster if we have an open source approach. Deep Seek it's got a lot of press, a lot of coverage. The other one's called huggy Face, which you
hardly hear about. But if you look at the numbers compared to the growth before twenty twenty four, it was heavily dominated by the three companies, the hyperscalers I talked about, and then since then it's been these other companies and the China approach. So since twenty twenty four, China actually is out growing the proprietary models, but it's the open source innovation and they've gone from nothing to millions of people now using these capabilities.
To your point, Sam, there's this chart that we were provided actually by you're folks out out at Stanford, which actually illustrates the competitive nature of the large amount languge models in China for the United States over time.
Correct you look at at the point I was making up until twenty twenty four, it was clearly a blue curve led by the United States, the companies, but led by the United States. It flipped in twenty twenty four. I went vertical, and it's almost caught up to the United states now this thing is rocketing.
As happens so often, it ultimately comes down to business, albeit business with profound ramifications well beyond the specific companies involved. Amd Su has little doubt that what works best for AI development overall will also be the best way forward for her company.
The ability to collaborate actually helps us go faster because you only have to differentiate on the things that are let's call it the most secret sauce. And if we can come up with standards so that we're not doing the same work multiple times at different companies, you know, that's actually a good thing.
And the secret sauce for you is in the chip.
Yes, the secret sauce is in the chip. It's in how we marry the chip to what will eventually be the application. And in our world, David, what I find the most interesting is the idea that every application that we see going forward, every device that you see, is going to have AI as part of its essential element, and we want to be as much as we can
the provider of that essential AI capability. From the hardware side, we've seen, you know, sort of the advent of chat GPT now turn into you know, is there a AI bubble and I say that we're just starting to see the real utility of AI. Yes, the investments are high, but why are we all so so confident that there's a payoff at the end. The way AI has been improving over the last you know, let's call it a couple of years, has been faster than any other technology
that I've seen. The adoption rates have been faster than any other technology. The potential is faster than any other technology. But what I'm here to tell you is that it's nowhere near its peak capability.
Up next going nuclear. However, we build the AI systems, can we run them without nuclear power? Nuclear power than we have ever seen before. This is a story about betting on the come when we have a lot on the line and really need it to work, But the outcome is far from certain. The United States and the world are facing an impending power shortage.
What we know now is that the nation, the country is short of electrons and we need to build more generation.
We do have an incredible demand increasing demand for energy.
We are seeing fundamental growth in the demand for electricity. Why do we suddenly need so much more electricity? Well, we've all heard about AI data centers, hungry for energy that would satisfy medium sized cities. But it turns out that's only part of the story.
AI data centers appear to be the sort of fastest coming and largest new source. Over the long term, reshoring of manufacturing will be incredibly important as well.
Joseph Mikett is director of the Energy Security and Climate Change Program at CSIS and author of paper on Energy strategy for the Aspen Economic Strategy Group.
When we look at the onshuring of manufacturing, there's a couple different sources of new demand that are going to really come to bear in the next few years. One is semiconductor manufacturing. As the US has tried to secure that supply chain. The government is making investments in public private partnerships in building leading fabrication facilities here in the US. The US for the previous decades had had very little
growth in its use of electricity. We now foresee growth between twenty and one hundred percent over the next fifteen years.
So where are all these electrons going to come from? If we're going to double our energy supply we're even just lifted by twenty percent over the next fifteen years. One of the sources will have to be nuclear.
Nuclear is going to be a contributing factor for sure. I think we need to continually apply the right technologies where the right resources exist.
Scott Strazik is president and CEO of ge Vernova, whose business includes power solutions from nuclear, natural gas, and wind.
In the US, as an example, we do have very inexpensive gas. Because of that, we do want to leverage that resource. At the same time, we have a lot of good land that has good fuel in the form of wind and solar. Where those resources exist, we should use them. Where nuclear plays a really important role is where those natural resources aren't readily available, and it's especially important in places where we need what we call power
dense solutions. And what I mean by that is places that need electrons that don't have a lot of space, because we can build nuclear in a fairly small amount of space, yet it creates a lot of electrons.
If nuclear is going to be an important part of meeting our energy demands, it has a long way to go. The US has had commercial nuclear power plants since the late nineteen fifties, but only two have come online in the last thirty years. Today, only about twenty percent of electricity comes from nuclear generation, a number that hasn't increased for.
Decades historically when we've been building nuclear plants, because they require a lot of infrastructure, they require a lot of security apparatus. We would build one plant that would be directionally a gigawot in size, and that's a lot, that's a million homes that it's powering directionally. Today, what we're working on is a small modular reactor, which is a three hundred megawa application.
Historically, the US has built very large light water nuclear reactors, and while that supply chain has atrophied, we have partners who can supply that technology. It is licensed and ready to be built when it can achieve financing. Those are law large grid scale reactors. Reactors of another size of other designs still have to make it through the regulatory process, but they hold great promise both as grid serving entities,
maybe running smaller microgrids, working for industrial facilities. I don't think the right question is to say which of these is going to win, but rather how do we build an ecosystem that can support both, because both will provide solid services to US consumers as well as export opportunities for the United States.
One of the challenges in the nuclear industry is when we were building them at a gigwat size, each one was a little different, and with each one being a little bit bespoke and unique, the cost was always higher
than desirable. By scaling to a smaller product that we can fit into many more applications, we have a much higher degree confidence that we can come down the cost curve because ultimately affordability matters, and nuclear is very attractive because it's a zero carbon electron, but early it's going to be more expensive, and we need to give the industry and our end customers confidence that we can come down the cost curve as we gain more volume, which I'm highly confident we can do.
What about the fuel source? Is the fuel the same for the big gigawatt as it is for the three hundred megaway.
It is, and we'll create the fuel in the same location, and we'll meet to North Carolina for our small modular reactors that continues to feed the sixty gigawatts of existing install base we have in the country.
Is fuel supply a potential limiting factor as we build out nuclear?
As nuclear grows, for sure, we're going to need more uranium supply. I think this is an area for growth in the US. We certainly are dependent on other countries today for more of our uranium than we are as an example with things like gas, where we can extract all of it out of the ground ourselves here. So that is going to be priority, and I think that's something that you're seeing a lot of companies lean into today.
As promising as small modular reactors may be, the need for energy won't peak. US power demand is expected to outstrip peak supply by twenty twenty eight, and the fact remains that as of today, there are no small modular reactors actually up and working in the United States or anywhere outside of China and Russia, though ge Vernova hopes to change that by twenty thirty. Nicole Holmes is the company's chief commercial officer and the nuclear engineer.
This is very important.
If you don't remember anything else, it's that this is real and it's happening right now. A lot of people ask me when will nuclear happen? When will there be new nuclear And the answer is going on today in the Ontario province in Canada, we are building the BWX three hundred and with our partner OPG, the small modular reactor will be online by the end of this decade.
So if you start today in the US, for example, we have a construction permit application with our partner, the Tennessee Valley Authority, the utility that would own and operate that reactor, in front of the Nuclear Regulatory Commission, with the timeline to get that construction permit at the end of twenty twenty six and potentially began construction as early
as twenty twenty seven. In this kind of timeframe, we could have small modular reactors operating in the early twenty thirties in the United States.
The time is now. The reality is after Fukushima in most of the western world, there has not been new build now. We also were living during a period of time in which electric demand growth was reasonably flat.
We're past that.
We're at an inflection point where we need a lot more incremental electrons for national security, for economic growth, to frankly keep the lights on, as many parts of many industries are electrifying, so when you don't have an ultimate demand, it's hard to innovate. We're now into a phase where we have a substantial amount of growth, so it's the
right time for nuclear to re emerge. It's also a time where it can play an incrementally important role in the decarbon is ation the existing system in the US. A lot of the decarbonization that has happened in the US to date was really coal to gas switching because gas is two thirds less carbon intense than coal, but
there's still a carbon element. The beauty of nuclear is at zero carbon, and as customers want to lower the carbon intensity of their total solutions think hyperscalers as an example, they'll pay to add nuclear into their power generation mix to meet their sustainability commitments.
The increased demand for electricity is one reason the move to nuclear may accelerate. Another is government support.
US government plays an incredibly important role. It starts with the Nuclear Regulatory Commission approving our ability to start construction on projects. We do expect that by the summer of twenty six. Beyond that, funding certainly is a relevant dynamic. We have a project with TVA Tennessee Valley Authority that just received four hundred million dollars dollars of funding support
from the Department of Energy. We also signed one hundred billion dollar MoU with the US government earlier this quarter in October to industrialize small modular actors in the US. When President Trump and a number of business leaders were in Japan earlier in the year. That could materially move the nuclear industry sooner if we gain access to a
lot of that funding right now, it's a MoU. We're working really hard right now on site selection, on terms and conditions to translate that MoU into a definitive agreement. And if we can get something done with the US government in that regard at scale, that could be a real catalyst. So Secretary Rights Secretary Lutnik are both playing very visionary leadership roles as I see it, to try to move this nuclear industry, and we're working with them every day and every week to make that a reality.
Business has all sorts of uncertainties. International relations go to a degree beyond that. Yes, how confident are you in that money from Japan specifically that was talked about in the commitment for investment in the United States for Nuclear Vernova specifically.
Well, in our case, one of the benefits we have is we do have a Japanese partner in our nuclear business. So it's g E Vernova Hitachi together. I mean, Hatachi is a minority partner, but a very important partner for US. So if the Japanese government is going to fund projects in the US associated of that trade deal, it certainly makes sense for it to be in arrangements where there's Japanese companies also involved, and that's one of the benefits
we have. Ultimately, opining on whether the transaction happens or not with the Japanese government is probably beyond my pay grade. I'll tell you though, that when I was in Japan with the US government and many of my business peers, I found the interactions highly motivating.
Nuclear energy has had a long and not always smooth path in the United States, but the coming together of much higher demand for electricity, not least because of AI data centers with bipartisan support in Washington, may mean that this time truly is different, that nuclear power will provide the card that completes that inside straight we need to pay off for us.
All you know.
On the topic of nuclear I think the good news right now is that's generally a topic that's agreed to on both sides of the aisle, So there's some consensus there, maybe more so than some other power generation sources. So I'm not concerned about future administrations per se when it comes to nuclear, So we needed a kickstart, and with President Trump's vision, the country has it right now on nuclear. So we do inside the company every day talk to
ourselves about meeting this moment in serving that vision. Twenty twenty six is an incredibly important year for nuclear in the US, but I think we're going to get a lot.
Done coming up shopping for the holidays, we look at the future of department stores and what they need to figure out to have a future. This is a story about holding on to the past. There was a day when department stores were at the very center of the American middle class experience, from the elaborate display windows to the main four cosmetics counters, all the way up the escalators, through floor after floor of everything you needed for your
wardrobe and for your home. Our colleague Romaine Bostik reports on one iconic retailer with ambitious plans to make its department stores fit the new age of the American shopper.
The holiday season, that time of year when the city that Never sleeps takes a moment to reflect lights twinkle up and down to avenues of New York City from the posh storefronts down and soho to the ornate window displays up along fith Avenue to the epicenter in between the miracle and magic of Macy's on thirty fourth Street.
Christmas is in just today. It's a frame of.
Mind American retailer sees on the season, hoping to capitalize on that frame of mind, creating something that lasts beyond just the holidays. A reflection of that effort can be found about an hour's drive away from Manhattan in the Long Island suburb of Garden City, New York, where Macy's and spearheading a broader corporate transformation.
We're looking to be that neighborhood store, the place that you think of that is it really convenient, but also has special things that you can buy for the people you love.
Tony Spring took over a CEO of Macy's Inc. In twenty twenty four after more than nine years of helping to refresh the company's luxury retail arm, Bloomingdale's. Now the focus is on the Macy's brand itself, a middle market department store that has been plagued by slowing sales and
waning cultural relevancy. In his first month on the job Spring announced plans to close the third of US Macy's locations, a move that would free up seven one hundred and fifty million dollars of assets, money to be reinvested in the best performing stores, including here at the Roosevelt Field Mall.
When it opened in the nineteen fifties, the Impai design Roosevelt Field Mall was the largest in North America and today is situated in a county whose median income is significantly higher than the US average.
This is a storied retailer with incredible, rich history that we're very proud of. But we never want our rich history to get in a way of our brighter future. The optionality that the customer has that they may want to shop on their phone, they want to shop in their car, they may want to shop in the store, and we have to be able to adjust the way we work to be able to provide that convenience for the customer.
But that link between department stores and the customers they target, it's largely broken down. Department stores account for less than one percent of total US retail sales, down from about sixteen percent in the early nineteen nineties. Retail historian Michael Lisicki suggests the decline stems from losing sight of the cork.
These stores really excels when they were able to directly serve their immediate communities. They weren't just commercial destinations, they were social destinations, and that was so important in their general success.
Department stores have long been a mirror of the American consumer, but their roots they go back centuries to the Tokyo fabric shops of the sixteen hundreds, to the more modern template established in the eighteen fifties when a French husband and wife duo transformed a small Parisian novelty shop into La beau Mache, offering at the time the widest variety of goods under one roof.
They started out very modest, usually as dry goods stores, and then slowly graduated and became bigger.
It really was the focal center of so many communities.
What happened America race to the suburbs, and new families were not necessarily drawn to department stores. They wanted price, they wanted convenience, they wanted late hours, and though the department stores tried to chase their traditional shopper to the suburbs, the customer had changed who is the customer today?
I think that's a question that these remaining department stores need to ask themselves.
The middle is exactly where macy still sees promise.
Let's think of the middle as the center, the center of it all, which the center gives you the opportunity to serve up and to serve down. And I think from backstage to luxury, we have the opportunity across this retail portfolio to satisfy what customers are looking for today.
The customer has choices.
They're not handcuffed to any mall or any downtown.
They can shop literally.
Anywhere, literally anywhere, and they love the freedom that they can give it.
Mark Cohen is a retail veteran who worked as an executive for some of the most iconic and now defunct department stores at the golden era, Bradley's, Lord and Taylor and Sears.
A store has to be neat, clean and friendly. That's sort of step one. That's old style store management, and it got lost at Macy's twenty five thirty years ago.
It seems like it would be a lot easier to do that if you were a single brand store or a more curated, smaller footprint.
It's easy if your Apple and you only have a handful of products to sell, and your devotion is to those products, and your store presentation is deliberately, completely simple and straightforward.
It's all about the merchandise.
To make matters more complicated, the divide between the haves and have nots is widening economic uncertainty, forcing middle income households to pull back.
When you look at where we are in twenty twenty five heading into twenty twenty six, is there a middle market retail business model?
There's a market. It's not the market that there once was. It's a market that's under tremendous pressure and challenge, but it's viable if it represents things customers really want to buy, and it treats customers well enough for customers to remain loyal.
One of the ways Macy's attempted to capture the shrinking middle was through deep discounts. Tony Spring is changing that precedent.
I think closing a sale with value is compelling. People do it in many walks of life, whether it's the hotel, life stay at, or the restaurant that I visit. And we're in many different loyalty programs but we shouldn't start with the value. The value should be what helps close the sale, not what helps open the sale. Let's talk about leather, Let's talk about cashmere, Let's talk about lab grown diamonds, Let's talk about fragrance. Let's talk about the
things that people actually attracted to. And then if value is a way to close the sale, so be it.
It's a testament to a power shift from the old days where department stores and their fashion buyers where the taste makers, to today where the customer is firmly in charge. So how does a department store meet shoppers on their terms?
I mean, in America, it's not like we really need to purchase apparel or accessories. This is something you do if you have a kid and they outgrow it. But today's customer wants to be excited about buying something, and I think that's what's missing.
Sean grain Carter is a branding expert and associate professor at the Fashion Institute of Technology, and was once the e commerce director for Macy's, helping launch its online strategy in the late nineteen nineties.
It's the magic of wanting to shop, not having it as drudgery. It's something you have to do because of the holiday is coming up and therefore you have to give a gift. It's the excitement of finding something new, finding something that you think is sexy or interesting, or just plain you know what you want.
These days, that excitement comes just as easily through a few clicks, as e commerce offers customers and online version of the everything store that department stores once were.
You could go to Macy's, you could go to Marshall Fields, Garfinkel's, you know, Wannamakers, I'm Magnet, and feel that what you bought was special because these stores made you feel special and that experience made you feel special. Today it's almost as if there's no excitement in shopping, and that's the magic that's missing. I mean, we know Macy's with it Thanksgiving Day parade and that's great, but customers don't want to feel that you don't want them.
People love to be taken care of, and I think with our environment, you know, to have a beauty advisor tell you that that foundation doesn't really work on your skin. To be able to mix different brands in beauty to create what is your makeup regimen? That only happens when you're working with people who will tell you the truth that looks good on you, that doesn't look good on you.
And I think we learned a long time ago in kind of retail sales one oh one to tell somebody somebody looks good in something just to make a sale only means you lose a customer for life. So you're better to give them the honest opinion and find something that works for them. I kind of come back to multi brand, multi category and multiprisers. It is really an effective advantage in this environment where people really aren't sure what brand is right for them.
Online shopping in the US topped one point three trillion dollars last year, but in store shopping is still the preferred method for most Americans, with almost six trillion dollars in sales, according to a report from Capital One. Bloomingdale CEO Olivia A. Braun interprets these trends as complimentary.
Of course, digital will keep growing. It's a fast green channel for US, and it's been the case for many years. I think we have seen more and more transactions happening online. But for me, the best way to actually invest online is keep investing in the stores. The best branding investment we can make as a department stores is investing in the store.
Bloomingdale seems to have cracked the code under the Macy's ink umbrella. The department store has leaned into its high income consumer base.
Bloomingdale's emerged from the MRK of a middle ground, non differentiated store on Third Avenue in the shadow of the Third Avenue l I'm Sure showing you My age, and became a real destination by virtue of the assortments that it presented, the ambiance that created the mojo that it delivered.
Tony Spring is widely credited with restoring Bloomingdale's success, serving as CEO from twenty fourteen to twenty twenty three. He's now looking to bring that same feeling to Macy's.
The wonder of blooming Dale's is that you kind of come in and a lot of eye candy, You see great brands. There's the real careful precision and the curation and the editing of what you see and how it all comes to life.
He did a great job as the CEO of Bloomingdale's. He's now got this enormous task of recreating, creating some form of magic that exists for real at Macy's.
It's a different customer.
Though at Macy's it's a different customer, but it's the same challenge. It's the same challenge. You've got to be special.
So when the holiday lights come down, the Thanksgiving Day parade, loans go back into Sorge, and the New York rush resumes, Macy's is still faced with the reality of a shrinking middle class. Who is the Macy's customer today?
So working woman, family, people who enjoy, I think, the nicer things in life, but also like value. And I think the balance of us as retailer is not determining this is on sale or this is not on sale, or that everything you buy is on sale, or that everything you buy is at regular price. We like to have a menu, and I think it allows you to indulge in the people that you love. We have the capacity to show retail, to show the consumer Macy's at
its best. It's opposed to just trying to survive. And I think there's a fine line that you move from surviving to getting into the game, to playing to win, to making sure you're showing the customer the very best that you're capable of.
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