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Macy's Store Closings Should Be Just the Beginning: Gadfly

Macy's Store Closings Should Be Just the Beginning: Gadfly

(Bloomberg Gadfly)—Macy's incoming CEO is starting off strong. He'll need to get stronger.

The department store on Thursday said it would close 100 stores, or 14 percent of the 728 stores it currently operates. (Not included in the closings are the 100 or so Bloomingdales and Blue Mercury stores it also owns.) This announcement marks a sizable acceleration in store closings -- more than the total amount of stores Macy's closed over the past six years combined.

The long-hoped-for but unexpected move prompted Macy's shares to rise 16 percent in the first 10 minutes of stock market trading on Thursday, pushing its year-to-date performance into positive territory. Previously, its stock had been down 3 percent through August, and down 50 percent in the past year.

Incoming CEO Jeff Gennette called Macy's moves "an advancement in our thinking on the role of stores," explaining the closings will zap revenue in the short term but let Macy's focus on its better-performing stores in top locations. Executives on its earnings call said they are trying to "set the company up for a comeback."

Interestingly enough, Macy's said closing 14 percent of its stores would only cause revenue to decline by 3 percent, or about $1 billion. It explained that nearly all the stores were making money, but their volume and profitability were in steady decline, and it wanted to be proactive about thinning the herd.

Of course, Macy's has been urged to close more stores for years now, and the meager revenue hit it's forecasting shows how unnecessary these targeted stores had become. Macy's reckons some of the sales from the closed fleet will shift over to its website or remaining brick-and-mortar stores.

Macy's still has not told investors what it will do with its $21 billion worth of real estate. The company said it was in negotiations to sell its men's store in San Francisco's Union Square, but otherwise hasn't closed deals on its other assets. It said it has identified plenty of other real estate worth selling, but is only in "early stage" discussions about that.

The company has been working on doing something with its real estate for more than a year now. If Gennette really wants to see the stock price jump, then he's going to have to deliver a better plan on this front.

He's also going to have to find a way to better soothe brands such as Coach, Ralph Lauren, and Michael Kors, which this week announced plans to pull back from department stores.

And Macy's certainly needs a better response to Amazon. Macy's was an early mover into online retailing and is now the second-largest seller of apparel online after Amazon, according to trade publication Internet Retailer. But Macy's 15 percent online sales growth in 2015 pales in comparison to Amazon's 48 percent sales growth last year, according to Internet Retailer data. During that time, Amazon increased the number of apparel products on its website by 87 percent, helping push apparel sales to $16.3 billion, the trade publication said.

On Thursday, Macy's didn't offer much of a plan to boost e-commerce sales, besides sprucing up its website's search function and refining the ability to buy stuff online and pick it up in stores, a scheme it started in 2013.

It's a good sign that Gennette -- who won't fully take the reins until the first quarter of 2017 -- has started to shake things up out of the gate. But this had better be just the beginning.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Shelly Banjo in New York at [email protected] To contact the editor responsible for this story: Mark Gongloff at [email protected]

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