Are store closings a positive sign for Macy’s?
Macy’s, Inc. announced yesterday that it plans to close 100 of its 728 department stores. The company has positioned the move as a necessary step to drive profitable growth and provide the types of returns its investors expect.
The store closings are part of the company’s plan to shutter under-performing locations with the goal of driving more business to those that remain. Macy’s, which operates in 49 of the top 50 markets in the U.S., has emphasized the value it places on its physical locations as part of the company’s evolving omnichannel strategy.
“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,” said Jeff Gennette, Macy’s, Inc. president and CEO designee for 2017.
While acknowledging the closings would hurt total sales, Mr. Genrette said the decision would ultimately boost same-store performance.
“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. You can look forward to a company that expedites decision-making, moves faster, and is bolder in its approach to the customer,” he added.
Macy’s and sister sites for Bloomingdale’s and Blue Mercury are making investments in their digital operations, including their websites and mobile apps. The company listed faster page loading, improvements in natural language search, and a simpler process for ordering and fulfilling orders as among the areas where it has directed resources. Macy’s and Bloomingdale’s Buy Online Pickup in Store program is also being tweaked for faster and more convenient customer experiences.
Macy’s is also exploring ways to monetize its real estate holdings. Macy’s listed its Men’s Store on Union Square in San Francisco as a property it is looking to sell.
Investors reacted positively to Macy’s announcement, sending the company’s share price 17 percent higher at one point, the biggest single day gain for the company since 2008, according to a Wall Street Journal report.
Discussion Questions
DISCUSSION QUESTIONS: Do you see Macy’s latest announcements as a positive or negative sign for the company’s prospects? Do you agree with the rationale that closing underperforming locations — many profitable, according to the company — will drive more business to those units that remain?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Adrian Weidmann
Managing Director, StoreStream Metrics, LLC
Whether Macy’s stops cannibalizing its own sales depends on where it closes stores. It seems clear that after a long period of acquisition (especially the May Company locations) that it is finally owning up to an unsustainable real estate portfolio. It’s also clear — from a random sampling of Macy’s visited around the country over the past year — that the company has not been prepared to make the necessary capital investments to keep some of its stores fresh and shoppable.
But painting this move as part of an omnichannel-driven “reinvention” is not the whole picture. The fact remains that Macy’s has plenty of work to do on over-assortment, on low levels of customer service and on a stale marketing program. Closing 100 stores may peel off Macy’s least profitable locations, but will the move address some of the company’s underlying issues?
Shrinking its overall footprint is a positive for Macy’s. They have to find a better balance between brick-and-mortar and m-/e-commerce if they want to avoid losing further market share.
While it may not drive more business to remaining locations, if Macy’s is strategic, they can leverage the closings as a way to drive more digital sales. And they definitely need to be strategic or they will hand over customers to Amazon.
In the case of physical retail, the old adage is still true: Location, location, location. The downfall of Circuit City and other major chains was clinging to 30-year-old lease locations because of lower rent. Population demographics can change rapidly in cities. The most popular shopping areas can decline as people move and traffic patterns change. Shedding unpopular or poorly performing stores is a “natural act” of brick-and-mortar retailers.
However, as stores are closed, retailers have historically built or leased new ones in the up-and-coming areas. That is much more difficult today with omnichannel customers increasingly shopping online. The new critical metrics for Macy’s and other department stores are whether they can also be successful online and leverage online to drive store traffic via click-and-collect.
John Lewis in the UK is a proven case study that omnichannel customers purchase more and are more profitable. So the bottom line for Macy’s is not the old metric of same-store sales, but the new metrics related to omnichannel driving overall sales, growth and profit. The whole is greater than the sum of the parts. If Macy’s sells stores, how they invest the capital will be a telling sign of their strategy to come.
Terry has talked about this in the past. This is a re-balancing of the regions. Due to the many stores Macy’s acquired they knew there would come a time that they would have to close some. They are also making use of other real estate that they own but do not maximize. It is a smart move as they enhance remaining stores and bring in new technology to the stores, like AI for fashion selection.
I get a kick out people that STILL do not like Macy’s because of the change to the Marshall Fields store in Chicago. I estimate these shoppers still like Kmart because the name was not changed to Sears. Names do not make a retailer — their knowledge of their shoppers and the strength of their merchants and ops teams are what make a great retailer.
Anytime a company starts out saying “We will continue to carefully analyze … ” the bad news double-talk follows. I think these stores are so far apart that it will not drive much business to the other stores. When supermarkets are one or two miles apart and one closes, the nearest store can expect a boost. Regional malls tend to be placed further apart and the sister store boost is minimal. What Macy’s will experience a big boost in sales per square foot because they will no longer have their worst stores dragging them down. Closing 100 of 728 stores sounds very severe and Kmart-esque. From my experience they probably want to close a lot more than 100 and we will be revisiting these store closing stories again next year.
While I applaud Macy’s for closing under-performing stores, which should drive consumers to the remaining stores, I wonder if the day of the big department store has passed. I also question Macy’s marketing strategy of constant sales and promotions. The company needs to reconsider why it exists and explain that core story to consumers. Presently, Macy’s seems to exist for sales, making a consumer feel dumb if s/he has to pay full retail price for any item in the store.
I saw a tweet about this yesterday, “Rearranging the deck chairs” implying what someone does on a doomed ocean liner. I would suggest that unless and until someone owns the customer experience in a new way, these store closings are the tip of the iceberg. Their stale marketing ads filled with disclaimers and coupons-on-steroids daily deals have stopped working and partners they lean on to be relevant like Coach and Michael Kors are obviously not happy with them.
This is one way to deal with massive amounts of “parked” capital. (See: The Problem: “Parked” Capital.) But it is ultimately a losing game, UNLESS the sales they are shutting down will simply divert to another of their locations, OR they move to their own online site.
Both possibilities are highly suspect. First, shutting down their local reach to brick-and-mortar shoppers will likely lose most of that local shopping. If the shopper has to find an alternate brick-and-mortar outlet, the non-Macy’s options are manifold. Second, closing brick-and-mortar long-tail space should only be done AFTER that long-tail merchandising has moved to their own online store, not as a means of driving them to it. See chapter one of my second edition of Inside the Mind of the Shopper.
I doubt that either of these conditions have been met, and this is just the first of a long line of liquidations that ultimately lead to closing the business. I hope they have a “Lampert” real estate expert in charge of re-purposing all that real estate. Note that it took A&P 50+ years and a series of bankruptcies before the “lights out” liquidation.
Trying to rationalize Macy’s move to close locations may be a case of reading too much overarching strategy into the tea leaves. Retailers (Lowe’s and Target) make these moves all the time. These decisions are typically based on one fundamental factor — money. If the numbers don’t meet expectations in the boardroom, the result is usually terminal. Once these decisions are made, it becomes the job for the PR department to place the appropriate “strategy” spin on the public communication. Shoppers will buy from the location and channel that offers them the best shopping experience. Experience being defined as the entire portfolio of shopping components — price, selection, ease, seamless, fun, rewarding, etc. Any retailer or brand that doesn’t focus on creating an exceptional shopping experience in their brick-and-mortar environments will join Macy’s in closing them.
This comes as a surprise to no one. Macy’s in some ways is the victim of it’s own past acquisitions. But that is yesterday’s news coming back to haunt them, along with most big box retailers. There is a mall not far from where I live. At one time it was THE place to go to shop in the area. Now, not so much. Smartly some big box retailers moved out when the lease ended. Not so smartly, Macy’s picked up one of the locations, giving them two anchors in the same mall. One deals primarily with women’s fashions. The other with men. There has hardly been a time in the past few years (the exception being the holiday season) when you can say either store’s traffic was better than fair. These stores are a strong indicator of the reason for the store closing decision. A good one.
Companies historically have a problem with “sustainability,” meaning longevity. In the last 100 years over 90 percent of the “best” companies no longer exist. The problem is always the same. They do not change. They do not recognize that the markets and customers and technologies are changing. I should amend that — they often do recognize the changes but they refuse to change. They get locked into their assets, even if they are under-performing.
Apparently Macy’s is recognizing this now (oh, it has taken so long). But they are probably ahead of their competitors. While the chance of the customers of the closed stores going to the remaining ones is slim (but nice PR), they will be a more profitable company in the short-term.
The real question is, what should they look like in the long-term? What are their REAL assets and how do they deploy them? Do they really have any?
I don’t see how having 100 stores, almost 14 percent of your total count, that are under-performing enough to warrant closing them can be seen as a positive. If you are in that position and are smart enough to make the tough decision to close those stores and reinvest where the growth is, then that is called doing your job as a retail executive.
Macy’s and other department stores are caught in a death spiral. The positive reaction of investors unfortunately is probably due to management’s signal that it is willing to salvage the capital of under-performing stores rather than squander it.
For each dollar of online markets’ growth about a dollar is detracted from traditional markets. Physical stores need to adopt a service-based revenue model to replace the current defunct one. If they do not move fast, fine. Amazon would invent the “next Macy’s” after the death of the original.
The news of store closings at Macy’s is sad. Macy’s is an iconic retailer with a long history of success and one of many victims of Amazon’s success. In the same week that Jeff Bezos pockets roughly $800 million personal dollars, Macy’s is forced to suffer a tremendous physical retail loss.
The marketplace momentum of Amazon and eBay is undeniable. You either believe there is a world where many retailers exist, or you believe there’s increasingly only Amazon.com. I believe in a world where such a dominant position does not exist, and iconic retailers not only survive, but thrive. To do this, they need to embrace the marketplace model.
Closing poor performing stores is a strategy that retailers have practiced over the years and is essential to minimizing losses and maximizing profits. That said, with the new role physical stores play in influencing and/or fulfilling online orders, the decision to close stores becomes more complicated.
We are seeing more consumers show-rooming and web-rooming in stores to try on clothing or test products before they ultimately buy online or in-store. There is also a growing trend of retailers using store inventory as a distribution center to ship online orders or enable consumers to buy online and pick-up in the store or ship to their home.
When evaluating the real value and contribution to profits, retailers need to attribute value to the store’s role in consumers’ cross-channel purchase and fulfillment journey. Macy’s does over $6 billion in sales on the web which I believe is lost in the noise. They are #7 among the top online retailers. As their online sales grow, they will definitely need to close more stores, but I’m sure they will look at where the online and offline sales occur and close only those locations that fall below the combined geo-sales numbers.
PS: The stock rose 5.5%+ yesterday, the highest jump in over 13 years. The street likes the move!
Retail ain’t for sissies.
We’ve been around the future of department stores in many discussions and from myriad perspectives. Fundamentally, the market is no longer growing at a sustainable rate, regardless of channel.
Macy’s shares the industry challenges and has many itself that are self made. As I’ve said, JCP was blessed that Johnson right-sized its revenues. It can now delight the street by comping top line, as ridiculous as it sounds.
Macy’s has to do the same thing, just differently. The store portfolio is full of redundant and unprofitable locations, those in B, C and D malls are a start. The behemoth urban ones are next. So shutting stores is the only decision for the brand if they want to be around for another Holiday. Comping the bottom line.
Gennette is the new Johnson. Once the portfolio is right sized, the hurdle of solving for a 21st C department store remains. Next will be the assortment. What belongs and what must go? Johnson culled the herd, only to have the glue factory replenished. Some of what returned was right and a lot isn’t.
Gennette will need to understand what his “white goods” will be. He needs to sort for what role Macy’s will play in the customer’s life — the ultimate moving target. Hopefully he will be released from being restricted to “mid-tier” price points and compete with his sibling, Bloomies. Many of the acquired chains offered luxury brands. It’s hard to sell luxury center core when the balance of store is meh. Window shopping, the aspiration fix of shopping was eliminated; its relevance was reduced. The brand experience was hamstrung. Brand management be damned; sell stuff that she will buy!
Which mall anchor will wake up and wield the razor? Retail ain’t for sissies!
One look at the photograph above says it all. What’s inviting about that? Compare that to some of the amazing Target exteriors, just for starters.
Closing stores, especially ones you’ve counted on for so long, is only a good sign if you’re moving right down the street — like Apple in SF. Otherwise, it’s a telltale sign of deeper problems. I’m sure the Macy’s customers will appreciate having to drive further to another store — adding fuel to the reasons they’d just sit at home and shop the 900 pound gorilla (AMZ).
The writing’s on the wall — physically, on the wall: “Closed”.
Is uncovering the lifeboats a “positive thing”? It’s better than drowning, but…
Macy’s has two big problems. First, most of its business is still in physical locations, which are losing business, some slowly, some I suspect very rapidly (hence the endless parade of “store closings” press releases). Where is the business going? Some simply goes to macys.com: fine. But much of it is going to competitors, both both online and off: not fine at all. And why is that? One has only to read the comments after any of yesterday’s articles: it’s amazing that a company can generate so much hostility simply by its day-to-day operations.
Many of the comments, of course, were nonsensical blather, but those about poor selection, service and (lack of) maintenance are not. As for mathematics of the closings: yes, you can always improve “average performance” by closing “below average” locations — at least until you only have one location left.
Well, it’s probably good for Macy’s shareholders as they don’t worry about events much past the end of the year. Retail over time is all about reinvention. Selling online instead of in-store (for those communities that will no longer be served by a store nearby) will be a net revenue and share reduction.
Profitable? Maybe in the short term (go shareholders). But Macy’s has a whole lot of cost and overhead to spread across a diminished revenue number. The question for Macy’s and other department stores is really how they serve the non AAA markets profitably. Obviously, it’s not the big box, full-line department store model, but it’s not zero footprint either.
This is definitely a positive move for Macy’s. It’s much better for them to make these decisions strategically rather than end up with a “Sears” situation on their hands. Retailers focus way too much on increasing the number of store locations from year to year rather than focusing on the locations that they already have and on managing them better. They’re wasting talent and financial resources on opening new stores and maintaining underperforming stores. Meanwhile, the stores that have proven to be better performers for the retailer suffer.
Investing in these locations that already have a proven track record just makes sense. If managed properly, these locations will become stronger and more profitable which will make Macy’s a stronger and more profitable company. Maybe then Macy’s can think about adding some new locations.
When management is fighting a “Death Spiral” there is little time spent on pursuing new markets, getting new business and moving “forward” especially when the compass is in a tail spin also.
While closing underperforming locations could drive more business to the remaining units (especially if they invest in upgrading the remaining locations’ customer experience), I think the value will be found more in using the savings to invest in ecommerce and strengthen their presence there.