Macy’s said Thursday that sales at its department stores open at least one year declined 2 percent in the second quarter, and announced plans to realign its business to cater to an omnichannel consumer that includes closing roughly 100 stores.
Most of the closures, which represent about 14 percent of the company’s total portfolio, will take place in early 2017, with the remainder shuttering as leases and certain operating covenants expire or are amended or waived.
Macy’s said in several cases, stores will be closed as the value of the real estate exceeds their value to the company as a retail space. Locations will be revealed at a later date. It’s not yet clear how many jobs will be lost in the process. Associates displaced by store closings may be offered positions in nearby locations, while eligible full- and part-time staff who are laid off will be offered severance benefits.
“Nearly all of the stores to be closed are cash flow positive today, but their volume and profitability in most cases have been declining steadily in recent years. We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand,” said Jeff Gennette, Macy’s Inc. president. “We decided to close a larger number of stores proactively so we can invest in a winning customer experience in our most productive and highest-potential locations, as well as invest in growth sooner and more aggressively in digital and mobile.”
Macy’s said the combined annual sales volume of the 100 closed locations—net of sales expected to be retained in nearby stores and online—is expected to be around $1 billion, but that the reduction in EBITDA will be offset by expense savings beyond those associated with the closings.
“We believe that this reduction of 100 locations in the short term will result in a more appropriate store portfolio for Macy’s in the longer term and help us to accelerate our progress in building a vibrant omnichannel brand experience,” Genette continued. “With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping.”
Macy’s also announced plans to improve the rest of its store fleet, both offline and online. In stores, new vendor shops will be added to the floors through additional license agreements, while increasing the size and quality of staffing through programs such as the My Stylist personal shopping service. In addition, the company will invest in its websites and apps to improve natural language search, faster page loading and more straightforward procedures for placing and fulfilling orders. Macy’s and Bloomingdale’s click-and-collect offering, first rolled out in 2013, is also being refined to improve speed and convenience.
The company revealed it’s been exploring opportunities to unlock the value of its real estate—chiefly four of Macy’s large downtown flagship stores in various cities—and it’s in talks with various potential partners about possible joint ventures or strategic alliances.
“The announcements we are making today represent an advancement in our thinking on the role of stores, the quality of the shopping experience we will deliver, and how and where we reinvest in our business for growth. In the short term, our company’s topline sales will be somewhat smaller, but the changes being made will position us to grow comparable sales more quickly and generate a level of profitability that stands out among retailers,” Gennette said. “We will continue to carefully analyze consumer shopping patterns and trends, and use data and customer insights as the basis for innovations to drive the business.”