Years of sales and traffic declines appear to have finally taken their toll on Macy’s, which revealed plans to close 125 Macy’s and Bloomingdale’s stores over the next three years. The closures would account for nearly 20% of the company’s 680+ store footprint, including 30 closures that already had been announced in January.
In an interview with The Wall Street Journal, Macy’s CEO Jeff Gennette said the final list of locations to be closed could change based on market conditions and individual mall performances. Macy’s said the stores slated for closure generate annual revenue of $1.4 billion. Since 2018, Macy’s has refurbished 150 of its best-performing locations, and it plans to upgrade another 100 this year, Gennette said.
These moves will result in up to $480 million in restructuring charges. Macy’s expects to save $1.5 billion annually by the end of 2022, with $600 million in savings in 2020 alone. Gennette will reveal details of Macy’s three-year “Polaris” strategy in a meeting with investors on Feb. 5 in New York.
Alongside the closures, Macy’s will open smaller “The Market by Macy’s” stores in strip centers instead of malls, especially since traffic declines continue to hit malls the hardest. The appeal of the new stores will be their location in shopping centers, which offer easy access off main roads, and their smaller size (approximately 15,000 square feet), which is one-tenth the size of a typical Macy’s, according to Gennette.
Macy’s plans to open four to five of the new stores by year end, including locations in Dallas; Fort Worth, Texas; and Washington, D.C. The company also will open 50 off-price Backstage stores within Macy’s stores and seven freestanding Backstage locations this year.
On a Q3 earnings call in November, Macy’s management acknowledged that rapidly deteriorating sales trends at lower-tier malls contributed to the quarter’s weak results, and the company cut its annual profit outlook in response. Despite falling sales and profitability in these locations, Macy’s tried to keep many of these stores open to serve as convenient hubs for online order pickup and returns.
The company continues to seek additional ways to profit from its real estate, including an office tower that it plans to build on top of its Herald Square flagship in New York City. Over the past four years, Macy’s has generated $1.6 billion in proceeds from real estate transactions. The company expects real estate proceeds to total roughly $130 million this year.
Macy’s also is cutting roughly 2,000 corporate jobs, or 9% of corporate and support staff, and closing several offices. It will abandon a dual headquarters in Cincinnati and move all headquarters roles to New York. Additionally, Macy’s is shuttering its tech offices in San Francisco.
Macy’s will release its Q4 and full-year earnings report on Feb. 25, but the department store giant already indicated that it did not do well in November-December 2019: comparable store sales fell 0.6% from a year ago for the retailer’s owned plus licensed merchandise. For the year, Macy’s expects revenue to fall 1.5% to $24.5 billion, and predicts comparable store sales will drop 0.5%.
The major store closures are the latest sign that it will take a while for Macy’s and its department store rivals to engineer a significant turnaround. In 2019, Moody’s Investors Service estimated that department stores’ operating profits dropped 20% throughout the year — a number that was adjusted downward twice (first from a 10% decline, then from a 15% decline). During the holiday season, Macy’s and its department store counterparts continued to rely on steep discounts to bring people into their stores, which in turn put pressure on profit margins.