Macy’s is set to shutter 35-40 underperforming stores in early 2016. The chain of retail stores has yet to identify which locations will close. Expected number of stores closing account for 5% of all Macy’s department stores.
Macy’s stores have been closing at an increasingly faster rate. In the last five years alone, the company shut 52 locations. They currently operate 770 department stores in 45 states, 12 of which have opened in recent years.
Sales for closing location total approximately $300 million, which the company stated was 1% of Annual Sales Volume.
CEO Terry Lundgren mentioned changing consumer habits as reasons for closing underperforming locations. Consumers are progressively opting for eCommerce and online retailers to purchase merchandise. Nonetheless, he expects Macy’s will remain a major store operator.
The retail chain places emphasis on changing consumer patterns as online shopping gains traction and while brick-and-motar locations are “absolutely vital,” Macy’s will need to enhance the store experience to withstand innovation.
Macy’s is owned by Macy’s Inc., which also operates luxury retailers Bloomingdales and Saks Fifth Avenue.
Although shuttering locations may seem severe, Motley Fool analysts suggest closing locations is a brilliant move for Macy’s. Competitors have also been shedding stores but unlike Macy’s, it comes in part of poor operating results. Macy’s did pretty well during the recession and continues to maintain high returns for shareholders until recent quarters.
Consumer’s enjoy the convenience online retailers offer; thus weakening the hold brick-and-motar locations once had. The unabated rise of mall vacancy indicates a decline of American Malls.
Macy’s is gearing up to show competitors how to remain relevant in the modern world through “omnichannel.” The department store’s Form 10-K financial filing specifies:
The Company’s omnichannel strategy allows customers to shop seamlessly in stores and online, via computers or mobile devices. A pivotal part of the omnichannel strategy is the Company’s ability to allow associates in any store to sell a product that may be unavailable locally by shipping merchandise from other stores or customer fulfillment centers to the customer’s door. Likewise, the Company’s customer fulfillment centers can draw on store inventories nationwide to fill orders that originate online, via computers or mobile devices. Since May 2014, nearly all Macy’s and Bloomingdale’s stores have been fulfilling orders from other stores and/or online for shipment, compared to 500 Macy’s stores as of February 1, 2014. Since August 2014, nearly all Macy’s and Bloomingdale’s stores have been fulfilling orders for store pick-up related to online purchases. Starting November 1, 2014, same-day delivery pilots were tested in eight Macy’s markets and four Bloomingdale’s markets and in 2015 same-day delivery will be expanded to additional markets.
Following Amazon’s model, Macy’s began building impressive $170 million dollar/1.3 million square feet distribution centers to facilitate same-day delivery. The retailers warehouses mirror Amazon’s in magnitude. Macy’s will retain traditional stores while implementing distribution centers and mobile devices as the spearhead of their operation.
All the while Macy’s continues expanding reach in various markets. Partnering with Hong-Kong based Fung Retailing Limited, Macy’s is working on a solely ecommerce venture.
During the holiday season, Macy’s will collaborate with best buy to house in-store pop-up shops selling electronics at ten undisclosed department store locations.
As for physical store developments, the retail chain will open six a spinoff, “Macy’s Backstage,” locations that sell discounted items.
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