Macy’s said the stores that will be shut have seen profits erode in recent years.
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The 100 stores represent about $1 billion in annual sales, or almost 4% of Macy’s total annual sales in 2015. That compares with $217 million, or 64 cents per share, in the year-ago period. “With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping”, wrote Terry J. Lundgren, Macy’s chairman and chief executive officer.
“Customers almost everywhere in America will have easy access to Macy’s stores, with the additional convenience and increased functionality of our dynamic digital offering”, Macy’s President Jeff Gennette said in the press release. And the department store category has generally struggled as shoppers increasingly turn to off-price retailers such as T.J. Maxx and fast-fashion players such as H&M to buy their clothes.
But Macy’s stock surged in response to its store-closure announcement. The retailer’s revenue was $5.87 billion, down 3.9 percent from the same period past year.
It has been a tough year for retailers with a range of reasons given for their poor performance, including warm weather, excessive competition, Brexit uncertainty and the ongoing rise in e-commerce, in particular Amazon.
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Macy’s announced the future closings on Thursday and said it will identify the approximately 100 of its 728 locations that will close once that list is finalized. “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”, he added. Now, the company is rethinking the role physical stores play in an environment where fewer people see the need to shop in them, said Macy’s President Jeff Gennette. Revenue at stores open at least a year, including licensed businesses like beauty, were down 2 percent in the second quarter. “We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand”. Investors are likely positive on the store closure news and the money it will save, as well as the prospect for real estate sales that could lead to more share repurchases or a dividend hike. Excluding licensed departments, sales were down 2.6 percent.
