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Macy’s to Cut 10,000 Jobs, Close Stores Amid Brick-and-Mortar Woes

The make-or-break fourth quarter wasn’t kind to a couple of large retailers. Both Macy’s and Kohl’s were definite losers in a holiday season that is on track to be a winner overall.

Sluggish store traffic has placed significant pressure on Macy’s, which posted a 2.1% decline in comparable store sales compared to November and December of the previous year.

And while online is faring better, it represents a fraction of the retailer’s total sales.

“We are pleased with the performance of our digital business, with double-digit gains at both and; however, store sales continued to be impacted by changing customer behavior,” Macy’s, Inc. chairman and chief executive officer Terry Lundgren, said.

Lundgren pointed to apparel as a stronger performer with activewear and cold weather goods as bright spots. Accessories like handbags and watches, on the other hand, fared poorly.

In light of these results, Macy’s is continuing the cost-cutting strategy, which the company embarked on early last year. Macy’s stock was down by 13.8% by mid-day Thursday, after the news was announced.

Sixty-eight stores are on the chopping block, with three gone already, 63 scheduled for early spring and another two planned for mid-year. The move will affect 3,900 associates.

The store closures, part of the 100 announced in August, are one element of a three-pronged approach to boost profits, focus on omnichannel and improve customer experience, according to a statement on Wednesday.

The second part of the company’s plan involves cutting another 6,200 employees, as it looks to streamline its management structure, cut costs and overhaul store operations.

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Finally, Macy’s is shrinking its real estate portfolio with the sale of stores in San Francisco. Portland, Oregon and Minneapolis.

What’s the Industry Impact?

Macy’s isn’t the only chain facing holiday woes.

On Wednesday, Kohl’s posted a year-on-year comp store sales decrease of 2.1% for November and December. The company lowered its guidance for 2016 to $2.92 to $2.97 per earnings share from $3.12 to $3.32, citing low sales and the promotional environment.

Kohl’s stock dropped 10 percent to $41.71 by mid-day Thursday.

“Sales were volatile throughout the holiday season. Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December,” said Kevin Mansell, Kohl’s chairman, chief executive officer and president.

Though Kohl’s didn’t specify how brick-and-mortar performed compared to its online business, it’s no secret that physical store traffic is waning across the board. In its most recent report, analytics firm RetailNext found that traffic was down 10.2% in November compared to 2015. This is just the latest—and biggest—drop for a year marked by monthly decreases when compared to the previous period.

And as shoppers disappear, so do the stores. Closure announcements have become a familiar refrain of late. In addition to Macy’s, J.C. Penney, Kohl’s and Sears all announced closures in 2016.

“We expect the shift of purchases to alternative channels such as online and the off-price channel to continue in 2017. Lean inventories entering fourth quarter were not enough to support profitability targets at either Macy’s or Kohl’s given the disappointing sales performance,” said Moody’s vice president and senior analyst Christina Boni.

Moody’s predicts the off-price sector will grow to 10 percent of apparel sales by 2018, up from 8.8% in 2015. And Moody’s said the success in this channel serves as a harbinger for the beleaguered department store because it at least proves consumers are willing to shop physical locations—if they can get the product mix right.

Though most majors have an off-price banner as well as a focus on building online and mobile sales, these transactions can’t make up the shortfall of their full-line locations.

As a result, there’s bound to be a ripple effect down the supply chain as these retailers purchase fewer goods thanks to fewer doors and a tightening grip on stock levels.