Macy’s, a cornerstone of American retail, is embarking on a significant transformation that includes the closure of a substantial number of its department stores. Announced earlier this year, this strategic move involves shuttering 150 Macy’s locations over the next three years. But why is Macy’s closing so many stores, and what does this mean for the future of the iconic brand?
According to CEO Tony Spring, speaking at Shoptalk, these 150 stores, while representing a quarter of Macy’s total square footage, contribute less than 10% to overall sales. This stark statistic highlights a critical issue: Macy’s is burdened with “too many locations that were built for a different era.” In today’s evolving retail landscape, these legacy stores are no longer performing as they once did. Spring emphasized that these closures are not about shrinking the company, but about strategically improving its health and ensuring its long-term viability. He stated that Macy’s has “no choice” but to close underperforming stores to thrive in the modern market.
As of February 3rd, Macy’s Inc. operated 718 stores across its banners, including 502 Macy’s, 57 Bloomingdale’s, and 159 Bluemercury locations. The Macy’s banner alone accounted for approximately 101 million gross square feet. The decision to close 150 stores is a significant reduction in physical presence, but Macy’s insists it’s a necessary step towards a more profitable and efficient future.
The broader department store sector is facing considerable challenges. Competition is intensifying from both ends of the spectrum: off-price retailers offering discounted goods and digitally native brands capturing online market share. The traditional “weekday trips to the mall” are declining, as consumer shopping habits shift towards online convenience and quicker, more targeted shopping experiences. Spring acknowledges the need for greater investment in physical stores, but also recognizes the profound impact of “digital disruption” on the retail industry.
Despite these headwinds, Macy’s retains significant brand recognition and consumer goodwill. It remains a part of important life moments for many customers, from purchasing prom attire to creating wedding registries. This brand equity is a valuable asset as Macy’s navigates its transformation.
Tony Spring, the new CEO who previously led the successful Bloomingdale’s banner, is bringing his experience to revitalize Macy’s. His turnaround strategy for Bloomingdale’s offers a potential roadmap. This included enhancing luxury offerings, improving product assortments, decluttering store layouts, and creating more engaging in-store events and experiences. These efforts at Bloomingdale’s boosted brand equity and customer loyalty, as measured by high net promoter scores. Spring believes that “what we did at Bloomingdale’s provides a roadmap for what we can do at Macy’s.”
Another crucial component of Macy’s transformation is modernizing its supply chain and inventory management. The goal is to ensure products are efficiently allocated across all sales channels, minimizing stockouts and improving customer satisfaction. Spring highlighted the frustration of customers unable to find desired sizes and colors, emphasizing the need to “get allocation by channel right.”
This “Bold New Chapter” turnaround plan is heavily reliant on supply chain improvements, projected to deliver $100 million in cost savings this fiscal year. These changes include distribution center closures, increased automation, and other strategies aimed at enhancing inventory flow, productivity, and ultimately, sales.
Macy’s is undertaking this significant transformation amidst takeover interest from investors. While Macy’s has previously rejected takeover bids, including a recent $6.6 billion offer from Arkhouse Management and Brigade Capital Management, the investor interest underscores the belief in Macy’s underlying value and potential for improvement. The closure of 150 stores is a bold move designed to streamline operations, focus on high-performing locations, and adapt to the evolving retail landscape. It’s a strategic pivot aimed at ensuring Macy’s relevance and success in the years to come.
