Macy’s plan to cut 100 stores signals shift
Retailer is expected to emphasize online marketing in reflection of change in consumer tastes
The decision by Macy’s to close 100 stores by early 2017 is a concrete step that struggling department stores can take when competing against e-commerce giants like Amazon.com, analysts said Thursday.
In reducing square footage, they said, these retailers can focus on their better-performing locations while freeing up money to invest in digital and mobile channels.
“This is an age of radical transformation for retailers,” said Kelli Hollinger, director of the Center for Retailing Studies at the Texas A&M University Mays Business School.
Retailers saw an uptick in stock prices Thursday, but analysts warned they are not in the clear.
Macy’s stock, up 17 percent for the day, is still down more than 40 percent from 12 months ago. In its latest quarter, it reported $11 million in profit or 3 cents a share compared with $217 million, or 65 cents a share, in the same period last year.
“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,” President Jeff Gennette said in a statement announcing it will shutter about 15 percent of its stores following continued poor sales performance and another closure announcement earlier this year.
Gennette will succeed Terry Lundgren as CEO in the first quarter of 2017.
Downsizing sounds like a smart move to Ed Wulfe, chairman and CEO of Wulfe and Co. a Houston-based retail development and brokerage firm. He said Macy’s, which has a strong presence in Houston’s major shopping malls, has a lot of valuable real estate and should be able to redeploy those resources effectively.
Analysts recommend that Macy’s and other retailers beef up the e-commerce side of their businesses as they trim their underperforming brick-and-mortar stores.
On Black Friday last year, more consumers purchased goods online than in physical stores, said Tom Caporaso, CEO of Clarus Commerce, which creates subscription websites for companies. Online stores offer a variety of products with much lower overhead.
Macy’s, which didn’t specify which stores it will close, already has invested “hundreds of millions of dollars” in its digital and mobile strategies, company spokesman Jim Sluzewski said in an email.
Retailers should also create opportunities for shoppers to make memories while shopping in their physical stores, Hollinger said.
People increasingly prefer to spend money on experience, such as dining out or taking trips, rather than simply adding inventory to their closets, she said.
Hollinger cited Starbucks cafes inside Target stores, for example. They allow customers to meet friends for coffee and get their shopping done all in one location.
Jason Baker, principal at Baker Katz, said retailers also can stay competitive with discount-heavy, off-brand outlets like Nordstrom Rack. Over the last few years he’s seen samestore sales increase by 0.3 or 1 percent in full-line department stores, while places like Nordstrom Rack have seen doubledigit increases.
Of the 18 or more locations Nordstrom is projected to open this year, most of them will be Nordstrom Rack.
As major retailers continue to find ways to better compete with players like Amazon — which is bringing in a new fulfillment center locally in addition to its existing Prime Now facility in Humble — analysts don’t see a quick turnaround by the holiday shopping season.
Eyes will be on Macy’s in particular to lead the charge.
“Macy’s is a large retailer, and any company that has a 150-year history is going to be watched on how it evolves as more customers are interested in online shopping,” Hollinger said.