Macy's (NYSE:M) is fighting a respectable fight in challenging circumstances. Even before the pandemic, the nation's largest department store chain (by revenue) was willing to make tough decisions like selling real estate and closing stores, even if that meant adding new rental costs and curbing revenue. Macy's has continued to leverage its real estate portfolio since the COVID-19 contagion took hold. If it can just buy enough time, it might figure out how to compete with powerful e-commerce competitors like Amazon (NASDAQ:AMZN) and overcome the pandemic's impact.

Most investors, however, seem to see the writing on the wall. Macy's as we know and love it today likely won't be around five years from now in its current form.

Already on the defensive

The company describes itself as America's department store -- and for good reason. It's been a big part of the country's culture for decades. The name itself will likely live on.

Macy's flagship store in New York City.

Image source: Macy's.

It won't live on, however, without a major reorganization that leaves it much smaller than its present size.

Things were already moving in this direction. The company currently operates 771 stores, doing business as Macy's and Bloomingdale's in addition to operating specialty stores like Bloomingdale's The Outlet, Macy's Backstage, and Bluemercury. That number is not too far below 2010's count of 810, but don't think for a minute the iconic retail chain has sidestepped the retail apocalypse. Revenue has been consistently shrinking since 2014, from $28.1 billion then to $25.3 billion last year. Income has generally fallen at an even faster clip.

Earlier this year, Macy's had plans to shutter around 125 locations within the next three years. COVID-19 seems to have exacerbated Macy's problems and accelerated its ongoing demise. Without offering much in the way of details, CEO Jeff Gennette conceded in April, "We're going to emerge out of this as a smaller company."

Simply put, time finally appears to have caught up with the aging, weakened company.

The last straw(s)

Ultimately, a combination of Macy's fiscal condition and consumer trends paint a grim picture. Sure, most of its stores that were open before COVID-19 are reopened now, and with a promising coronavirus vaccine from Pfizer, consumerism should really start to inch its way back to normal. Just bear in mind that Macy's was on the defensive even before the pandemic hit, turning only $564 million of its top line of $24.56 billion into net income. That's a thin profit margin of 2.3%, down from a net profit margin of 4.4% the year before and 6.3% the year before that.

The company also added more debt and lease obligations in the meantime, both of which are real cash expenses. Yet it's going to move forward with fewer stores to help pay those bills. As of early August, Macy's is sitting on $4.8 billion in long-term debt load. That's up from $3.6 billion a year ago. Just as problematic is Macy's lease liabilities totaling nearly $3.3 billion. That figure was a more modest $2.8 billion a year earlier, growing in part because the sale of real estate to free up cash also creates new rent obligations if the retailer wants to retain access to that space.

It remains to be seen if Macy's as it exists now can consistently operate in the black as analysts expect it to by 2022.

Macy's revenue has been under pressure for years, and won't recover at least until 2022 (if it recovers at all).

Data source: Thomson Reuters Eikon. Chart by author.

The big trend working against Macy's? Consumers falling in love with online shopping -- even for their apparel.

While some shoppers will be glad to step foot in brick-and-mortar stores again, it's unlikely shoppers as a whole will be more interested in physical retailing than they were before COVID-19. Rather, the more likely impact of the coronavirus pandemic on consumers is even greater online shopping interest. A recent poll from McKinsey suggests the number of U.S. consumers planning on doing more online apparel shopping even after the pandemic passes could have grown as much as 14% during the pandemic. Online footwear-buyer ranks could grow as much as 30%, while the number of consumers looking to buy accessories online going forward could be up to 50% higher than pre-COVID-19 levels.

Macy's has an e-commerce presence to be sure, but the worldwide web facilitates a wide array of non-Macy's shopping options.

Bottom line

The decision to start moving store locations away from malls and into suburban strip malls seems pretty savvy, and nobody's ever argued the company's real estate isn't a treasure trove of value that can be monetized as needed.

It could take years to develop a meaningful off-mall presence though, and during that time, most mall-based stores face the same pre-COVID-19 hurdles, like e-commerce alternatives. Meanwhile, net store closings and real estate sales only make it tougher to fund interest payments and pay greater rent costs.

How these problems will manifest themselves isn't yet clear. Whispers of bankruptcy were circulating just a few months back, and though circumvented by $4.5 billion worth of new financing that will keep Macy's afloat through next year, that liquidity doesn't put people in stores or turn shoppers into spenders. Barring an amazing revitalization plan, a Chapter 11 bankruptcy protection filing is still a possibility in the foreseeable future. Pre-emptive privatization is another possibility.

What is clear is that no matter what's in store, none of the plausible scenarios suggest the company will be able to add meaningful pre-COVID-19 shareholder value within the next five years. For potential investors, at best, this is a near-term rebound play.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.