Macy's to close more stores
Macy's on Thursday announced the closure of 11 more stores, four of which had been previously disclosed. With those closures, the department store will have completed 81 of the approximately 100 planned store closures announced in August 2016, according to a company press release.
The company also said that it intends to close another 19 or so stores as leases or operating covenants expire or as sale transactions are completed. "These closures are part of a multi-year effort by the company to ensure the optimal mix of brick-and-mortar stores and digital footprint," according to the release. Including the stores announced Thursday, Macy's has shuttered 124 stores since 2015.
The company also said that same-store sales on an owned basis rose 1% percent in November and December. On an owned plus licensed basis, same-store sales rose 1.1% over the same period last year. The improved holiday sales were across the company's banners, including Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet and Bluemercury, the company said, with strong sales in exclusive gifts. Strong categories were active apparel, shoes, dresses, coats, fine jewelry, men's tailored clothing, children's, home and beauty.
The announcement of further Macy's closings will surprise few, though it remains a dramatic downsizing of the world's largest department store and a major correction of its massive expansion two decades ago.
The closure announcements come amid an emphasis on cost-cutting that will also include staffing adjustments across the stores organization, with reductions in some stores and increases in others, and further streamlining in some non-store functions, the company also said. As a result, the company expects annual expense savings of $300 million beginning in fiscal-year 2018, which it intends to reinvest in the business.
"Macy's had a solid holiday shopping season, and we are pleased that our November/December performance resulted in positive comp sales for the period, setting us up for a positive fourth quarter," CEO Jeff Gennette said in a statement. " ... We saw improved sales trends in our stores and continued to see double-digit growth on our digital platforms. Customers also responded well to our new loyalty program. We intend to close the fourth quarter in a good position and head into 2018 with momentum."
Momentum is a must, but it's not enough, according to GlobalData Retail Managing Director Neil Saunders. "We recognize that changes have been made and are starting to have a slight positive impact on performance. However, these results are simply not strong enough to suggest that Macy's has transformed the business nor that future success is guaranteed," he said in an email to Retail Dive. "Indeed, the company's announcements of further store closures and more cost-streaming underscore the need for more surgery to restore the business to health."
The cost cuts are necessary, Saunders also said, but the "focus should be on growing the top-line through improvements to stores, ranges and the general proposition." And when it comes to store closures, the momentum hardly matters, considering that the contraction in Macy's footprint is inevitable, some observers say.
“No matter how Macy's did in the holiday season, it has a lot of stores it should close,” Erik Gordon, professor at the University of Michigan Ross School of Business, told Retail Dive in an email. “Large stores in tired malls are expensive to operate every day of the week. When margins were higher and store traffic was high, it made sense to have as many doors as you could build. With thin margins and changing shopping habits, it makes sense to operate the smaller number of stores that put up good numbers. It's a reality exacerbated by weak selling seasons but not reversed by strong seasons.”
Macy's isn't the only department store struggling with shifts in retail, although it's the one with the biggest physical footprint. Hudson's Bay, like Macy's before it, is under pressure to unload real estate and recently sold its Manhattan Lord & Taylor flagship, not to mention that Sears stores have been falling like dominoes.
While Moody's Investors Service sees a fairly bright year ahead for retail overall, and department store woes easing, the sector will continue to face longer odds than other models. Department stores' operating income will ease its decline to 3% in 2018 (excluding Sears), according to a Moody's report emailed to Retail Dive.
Follow Daphne Howland on Twitter