Dive Brief:

• Macy’s will open as many as 30 off-mall stores nationwide in the next 18 months, accelerating its small-format strategy, the department store said Tuesday.

• Openings of the locations, which are about one-fifth the size of its full-line stores, will begin next year and continue through fall of 2025, according to a company press release.

• The new plan could triple its number of small off-mall stores, the company said. By the end of this year, Macy’s will be running 12 at its namesake banner and three Bloomingdale’s “Bloomies” stores.

Dive Insight:

On his way out the door, Macy’s CEO Jeff Gennette is following through on an idea that surfaced earlier this year — accelerating the retailer’s off-mall strategy, based on promising results. Chief Stores Officer Marc Mastronardi has previously called the smaller format stores “exciting brand extensions,” and in a video released Tuesday he called them “a growth vector for Macy's Inc.”

“They helped us optimize our physical store footprint, bringing the company closer to existing and desired customers, while encouraging more frequent visits,” he said. “Small format stores play several roles in the company's omnichannel market strategy, by either expanding our presence in a market, maintaining a market presence by replacing an underperforming location, or entering new markets where Macy's today doesn't have a presence.”

Customers have provided positive feedback about these locations’ physical environment, ease of checkout, and helpful and friendly staff, according to Mastronardi. In Q2 this year, Macy’s small-format stores had positive comp growth and “really high” customer experience scores, with “limited to no cannibalization in the existing markets,” he also said. 

The plan makes sense for those reasons, according to GlobalData Managing Director Neil Saunders. 

”There are many large strip malls and outdoor malls where Macy’s isn’t present and so doesn’t currently get a slice of the action,” he said by email. “Shopping patterns and habits have changed and Macy’s is right to adjust to that. After years of dabbling with the smaller format strategy, it is good to see Macy’s finally committing with a promise to open a larger number of stores.”

How many sales they take from legacy Macy’s or Bloomingdale’s stores will depend greatly on location, Saunders also said. 

“Macy’s will hope that it takes sales from other off-mall players like Kohl’s, TJX or Target rather than cannibalize sales from its existing stores,” he said. “In reality, I think there will be some cannibalization but Macy’s probably stands to gain more than it loses.”

Gennette in March said that, with many underperforming anchors at weak malls shuttered in recent years, “roughly 99% of our mall base is profitable on a four-wall basis.” But further closures seem “inevitable,” Saunders said.

“Macy’s just isn’t making an effort at many of its locations and seems to have no intention to invest,” he said. “Some stores are in a spiral of decline which Macy’s does not seem to want to arrest. On top of this, with continued shifts in shopping patterns, more locations will be weakened and less viable over the next five years. The big problem for Macy’s is that it just doesn’t need so much space in all of the locations it operates in. Macy’s has a store footprint that was built for the past, and it is still trying to modernize it.”