Declaring 2020 a "transition year," Macy's on Tuesday released a plan "designed to stabilize profitability and position the company for growth" that includes shuttering 125 underperforming stores over the next three years (29 of which had already been announced for 2020).
Some 2,000 employees will lose their jobs in the process, as the company reduces its "corporate and support function headcount" by 9%, according to a company press release. All told the moves should generate annual gross savings of about $1.5 billion, fully realized by year-end 2022. Costs of executing the changes will be about $450 million to $490 million, most recorded in 2019.
The strategy also entails abandoning Macy's Cincinnati headquarters and maintaining a sole head office in New York City, home to its Herald Square flagship. Its Macys.com e-commerce office in San Francisco will also close and shift to New York, with much of its tech operations moving to an expanded presence in Atlanta. Customer service hubs and other facilities will also close and be consolidated, the company said.
Macy's is embarking on a project that goes well beyond the 100-store reduction to its fleet that for a while seemed like it would be its most dramatic slim-down.
What hasn't changed much is the retailer's slipping sales. Its dismal third quarter gave way to a tepid holiday quarter. On Tuesday the company updated its fourth-quarter results, saying that store comps fell 0.6%, and fell 0.8% for the year ending Feb. 1.
As the department store wrapped up those earlier closures, which it previously said were finished in early 2019, it also unveiled a "store segmentation" strategy that split stores into three basic categories, flagships (like those in New York and San Francisco), "Growth150" stores (which were remodeled and represent half of its revenue), and "neighborhood stores." Its Backstage off-price effort has been mostly forged within Macy's stores.
But Macy's on Tuesday said that is now getting an overhaul, too. Plans for the neighborhood stores that do remain open are to shift to non-mall shopping centers, after testing the first such location in Texas. Backstage will expand, with plans this year to open 50 more store-within-store spaces and seven off-mall standalone stores.
The company isn't as bad off as rivals burdened with debt. A "conservative financial policy" that has entailed debt reduction of more than $2.7 billion in the past three years "has provided support to its credit profile in the face of weakening operating performance," Christina Boni, vice president and Moody's lead analyst for Macy's, said in emailed comments.
"Macy's is taking major steps to stabilize its operating performance through sizeable cost reduction efforts as well as earmarking 125 of its least productive stores for closure over the next three years. Macy's, like its major department store competitors, is working to accelerate change after a weak 2019," she also said.
But more than doubling the store closure count of a few years ago may not be dramatic enough, according to Nick Egelanian, founder and president of the retail real estate consulting firm SiteWorks. He called 125 closures "a pretty good downpayment" toward what he believes will eventually be as many as 500 to 600.
"Their future is on the coasts, in the flagship stores, and in the 150 or 100 stores that they themselves say gives them 50% of their sales and by the way probably 75% of their profits," he told Retail Dive in an interview. "They should be remerchandising and updating those stores, reinventing the core Macy's stores in A malls on the coasts, and not competing head to head with TJX or Kohl's."