Department store giant Macy's said Thursday that it plans to close 100 stores, a dramatic step that is aimed at helping the chain get ahead of a potentially crippling problem: America, they say, has too many stores for the online shopping era.
Macy's regularly prunes its store portfolio, often moving to close several dozen underperforming stores right after the annual holiday rush. But in dropping a summertime announcement that it will close 15 percent of its 728 locations, the chain appears to be adopting a more aggressive posture than many of its retail industry counterparts about girding its fleet for the reality of a fast-changing shopping environment.
Macy's has plenty of reasons to scramble to make a change: Many of its stores are located in small, regional malls, the kind whose foot traffic has been especially hard-hit by the rise of e-commerce. 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.
These factors, along with short-term hitches such as decreased spending by international tourists and unseasonable weather, have left Macy's a rough patch that has stretched for more than a year. On Thursday, the company said it saw a 2.6 percent drop in comparable sales in the most recent quarter, a weak performance that was nonetheless an improvement over the dismal 6.1 percent year-over-year decline it recorded in the previous quarter. The retailer's revenue was $5.87 billion, down 3.9 percent from the same period last year.
Macy's said the store closures would probably cost it about $1 billion in an annual sales. And at one time, such a large batch of store closures might have been viewed as a retailer's concession of defeat. Yet the company's stock soared 17 percent on Thursday, a sign that investors view the move as a proactive measure that portends a stronger future for Macy's.
In some ways, it should not come as a surprise that Macy's is slashing stores. Terry Lundgren, the retailer's chief executive, has said before that the chain simply had too many stores. Executives have been saying for some time that they are embracing a strategy that puts particular emphasis on roughly 150 of their top-performing stores, trying to wring more sales out of those already-productive locations.
Jeff Gennette, the Macy's executive who has been appointed to replace Lundgren in 2017, said in a statement that nearly all of the stores the company plans to close are ones at which sales volume and profitability have been sliding.
"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," Gennette said in a statement.
The company said it would offer a list of the stores that will close at a later date. Macy's said it is still finalizing which stores it would shutter, and thus has not yet determined exactly how many jobs will be slashed. The retailer will not pull out entirely of any of the top markets where it currently operates stores, but will look to close stores that are in weak locations.
The move is likely unwelcome news to mall operators, who count on big tenants like Macy's to attract and retain other smaller stores in their shopping centers.
Wall Street has also been closely watching as Macy's explores potential spin-offs of its lucrative real estate portfolio. On Thursday, the chain said that it is "examining opportunities" for the real estate of four of its large flagship stores in major cities. Its second-quarter earnings report, which showed a slide in sales, nonetheless was rosier than analysts had forecast.