The days of the local family-owned department store are long gone. Today, a few family controlled department-store chains remain (such as Dillard's and Boscov's), but the vast majority of the moderate-priced department-store segment is controlled by four giant corporations: Macy's (M 0.60%), Kohl's (KSS 1.30%), J.C. Penney (JCPN.Q), and Sears Holdings (SHLDQ).

Of those four, Kohl's and J.C. Penney both have more than 1,000 locations. Macy's and Sears also have broad store footprints, with more than 600 stores each.

The exterior of a J.C. Penney store

J.C. Penney has more than 1,000 locations today. Image source: J.C. Penney.

Once upon a time, these broad store bases may have been a strategic asset. Today, with the rapid adoption of e-commerce, it's not necessary to blanket the country with stores to sell merchandise. As a result, most department-store chains have already started to pare their store fleets -- and they should probably move even further in that direction.

Store traffic is falling

Since 2010, consumer behavior has changed dramatically, as many people have opted for the convenience of shopping online. Mall traffic, in particular, has been decimated, falling 50% between 2010 and 2013 and continuing to decline at a rapid rate. Even people who still shop in malls don't need to go as frequently, because they can do comparison shopping on the internet rather than making multiple trips to the mall to research a single purchase.

Department stores have been the most prominent victims of falling mall traffic. Sears has been hemorrhaging cash for years; J.C. Penney is barely profitable, having endured a huge sales drop a few years ago. Even Macy's is struggling with a sales slump that has weighed on profit margins.

Kohl's has fared somewhat better, because only 5% of its stores are mall-based. However, it, too, is contending with declining customer traffic. For example, store traffic fell 6% at Kohl's last year.

The exterior of a Kohl's store

Customer traffic is falling even at non-mall department stores. Image source: Kohl's.

Most department stores are shrinking

Many department-store chains are responding to these persistent declines in customer traffic by closing stores. Sears had 778 full-line stores in early 2014, but is now down to about 600, with more store closures coming in the next few months. So far, this downsizing hasn't had any meaningful impact on Sears' terrible financial performance.

Meanwhile, Macy's closed about 40 full-line stores in 2016 and began a multiyear program to close another 100 stores earlier this year. J.C. Penney was more resistant to closing stores, but it's finally biting the bullet and closing almost 140 stores in the next few weeks. Only Kohl's is still committed to keeping its full national footprint of more than 1,000 stores.

Despite all of the store closures that have already occurred, there are still too many malls and too many department stores fighting for a shrinking slice of consumer spending. This suggests that department stores may need to become more aggressive about closing stores in order to revitalize their businesses.

A new way forward

At this point, it doesn't seem like there is any way to save Sears from its current death spiral. Closing more stores wouldn't stave off bankruptcy for very long. By contrast, Macy's, Kohl's, and J.C. Penney could all potentially benefit from closing more stores in the coming years.

The main arguments against store closures are that it's hard to recapture more than 30%-40% of sales from a closed store in nearby locations, and that e-commerce sales decline when a retailer becomes less "top-of-mind." That said, the status quo of declining store traffic, falling sales, and weak profitability clearly isn't sustainable.

Instead, Macy's, Kohl's, and J.C. Penney might be better off focusing on their best few stores in each individual metropolitan area, while closing the others. With smaller store fleets, these companies could afford to invest more money in each individual store to create a vibrant shopping experience that would be more of an attraction for consumers.

The Macy's flagship store in Manhattan

Macy's may need to retrench to its best stores. Image source: Macy's.

To put it a different way, department stores traditionally sought to win market share by having locations conveniently positioned within a short drive of most of the U.S. population. Yet even a broad store footprint can't match the convenience of e-commerce. A better strategy might be to operate significantly fewer stores, but give consumers a reason to travel to them.

Given the rapid decline of mall traffic, pulling back from low-quality malls seems like a no-brainer for Macy's and J.C. Penney. By contrast, the best malls continue to thrive and will become even stronger as other malls close their doors.

Kohl's stores are smaller and often more conveniently located in strip malls, so there's more of a justification for maintaining a big store fleet. Yet even Kohl's will need to consider closing stores if it can't stabilize sales in the near future.