NEW YORK CITY — Macy’s Inc. (NYSE: M) has unveiled plans to close 125 of its least productive stores over the next three years. The retailer will also close its offices in San Francisco, downtown Cincinnati and Lorain, Ohio, leaving the New York City office as the sole corporate headquarters.
The reorganization strategy also includes increasing the Macy’s digital platform, while optimizing its brick-and-mortar portfolio and lowering overhead costs. Beginning this year, Macy’s expects the strategy to generate annual gross savings of approximately $1.5 billion, to be fully realized by year-end 2022.
“We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams,” says Jeff Gennette, chairman and CEO of Macy’s. “Over the past three years, we have shown we can grow the top line; however, we have significant work to do to improve the bottom line.”
The 125 stores that Macy’s plans to close account for approximately $1.4 billion in annual sales and one-fifth of its store footprint. Thirty of the stores are in the process of closure now.
Steve Horwitz, a professor in the Miller College of Business at Ball State University in Muncie, Indiana, is not surprised retailers such as Macy’s are closing stores in 2020.
“We are living through a major transformation in the way people buy goods, and some companies haven’t figured out how to meet the way people want to shop now,” he says. Target and Costco, on the other hand, are retailers who have adjusted well to changing consumer behaviors, according to Horwitz.
Retail consultant Jeff Green, who heads up the Phoenix office of Hoffman Strategy Group, also isn’t surprised by Macy’s “inevitable” store closures. What is surprising, according to Green, is that the announcement covers three years. “That is a long time out in this volatile retail climate.”
Green goes on to say that the Macy’s troubles are a result of no longer having a point of differentiation from other department stores or discounters. “Macy’s is trying to compete on price but doesn’t have the customer volume to make that strategy work,” he says. “Plus, its stores are too large for that kind of strategy.”
Fittingly, an additional component of the latest Macy’s strategy is testing a new store format known as Market by Macy’s. The concept is smaller than an average Macy’s store and will be located in off-mall sites such as lifestyle centers. Market by Macy’s will feature a mix of Macy’s merchandise and local goods, as well as local food and beverage options. The first location is set to open in Dallas on Thursday, Feb. 6.
Macy’s is also cutting approximately 2,000 jobs or 9 percent of its corporate and support staff. John Harper, formerly chief stores officer, has assumed the role of chief operations officer.
Originally founded in 1929, Macy’s now comprises the brands Bloomingdale’s and Bluemercury. Its stock price closed at $16.48 per share Tuesday, Feb. 4, down from $25.96 one year ago. Macy’s reported net sales of $5.2 billion in third-quarter 2019, down from $5.4 billion during the same time period in 2018. Its third-quarter 2019 earnings before interest, taxes, depreciation and amortization were $300 million, down from $381 million in the third quarter of 2018.
— Kristin Hiller