Macy’s to close 150 more stores in 3 years

Dive Brief:

As part of a transformation plan unveiled Tuesday, Macy’s said it will shutter 150 underperforming locations over the next three years, with 50 closing this year alone. At the same time, Macy’s Inc. will open 15 Bloomingdale’s stores, at least 30 Bluemercury stores and 30 small-format, off-mall stores.
Executives in October hinted that more full-line Macy’s stores would close as the company set out to triple its small-format fleet, but the extent of the closures took some analysts by surprise.
Macy’s Inc. also reported a Q4 net sales decline of 1.7% year over year to $8.1 billion, with store comps (including concessions) down 4.2% year over year. By banner, Macy’s comps fell 4.7%, Bloomingdale’s fell 1.6% and Bluemercury rose 2.3%. Gross margin expanded to 37.5% from 34.1% a year ago, with merchandise margin up 260 basis points, mostly due to lower clearance markdowns. The company swung into the red with a $71 million net loss, from $508 million in net income a year ago.

Dive Insight:

While the department store sector in general struggled to maintain its elevated role as a holiday shopping destination, Macy’s managed what Evercore ISI analysts billed as a “well-balanced quarter,” with better-than-expected margins and “solid” control of both costs and inventory.

But factoring out the extra sales week in the fourth quarter, Macy’s sales decline was likely closer to 8%, which “represents a massive loss of market share” in its core categories of apparel, home and beauty, according to GlobalData research.

However, the company’s Q4 performance was overshadowed by its announcement of “A Bold New Chapter,” centered on a core Macy’s fleet of 350 stores, the growth of smaller formats at both Macy’s and Bloomingdale’s, and a private-label refreshment at Macy’s. A planned expansion of Bloomingdale’s and Bluemercury represents a bet on luxury, a departure from a previous focus on expanding the Macy’s Backstage off-price operation.

Even Macy’s stores that are cash-positive will be closed if they are underperforming, CEO Tony Spring told analysts Tuesday.

“The bar has now been raised,” he said.

The new strategy comes on the heels of Macy’s rejection of a $5.8 billion take-private bid, widely seen as a push to monetize its extensive real estate holdings. Would-be suitors Arkhouse Management and Brigade Capital have since set up a proxy fight.

“Given Macy’s CEO transition and tough traffic losses over the past two years, we expected closures, but not quite the magnitude announced today,” Evercore analysts led by Michael Binetti said in a client note.

Macy’s now operates 12 small formats and plans 30 more in the next two years, including 12 this year, Spring told analysts. All investments except required maintenance have stopped in the stores that are slated to close, and some of that capital will go toward the stores staying open. Over the next three years, the company expects store-monetization proceeds of about $500 million to $650 million and asset sale gains of about $250 million to $350 million, according to Spring.

“Here the business will ‘modernize’ the shopping experience, which we hope means that stores will be given a full refurbishment and proper staffing levels to provide a level of service and visual appearance that is appropriate for a mid-tier department store,” GlobalData Managing Director Neil Saunders said in emailed comments. “This is the critical area where Macy’s has constantly fallen short, so we wait with bated breath to see if this is the correction that has long been needed.”

As with Macy’s previous turnaround, owned labels are in focus. On a conference call with analysts, Spring noted that private label brands now represent about 15% of Macy’s sales, down from 16% in 2022, as its ongoing revamp has entailed shuttering labels like Alfani and Karen Scott. Macy’s will finish sunsetting other legacy private labels this year, and, longer term, expects “private brand volumes to grow as we reimagine existing brands and introduce others, including our latest, State of Day,” he said.

Despite the scope of the closures and plans to expand Macy’s off-mall presence, the retailer is “going to remain a majority mall-based, freestanding store company, with the right complement of off-mall stores to make Macy's and Bloomingdale's more convenient,” Spring also said.

That may be a mistake, according to Nick Egelanian, president of retail development firm SiteWorks, who has long said that Macy’s would fare best running 200 full-line stores at most, and remains skeptical of the small-format and off-price strategy. That would mean closing another 150 full-line stores or more.

“They need to get down to 150 to 200 stores, primarily on the coasts,” he said by phone. “And they need to rethink and retool the stores that remain. The model they are working under, as well as the small experimental stores they keep tinkering with, need to go. Then they need to arrive at a store model that excites consumers in higher-end specialty retail venues. There is no other way forward for the operating company.”