Macy’s details store closings, restructuring amid poor holiday sales
Macy’s gave more information about its previously announced store closing plans as it unveiled a series of actions to streamline its store portfolio, intensify cost efficiency efforts and execute its real estate strategy.
The actions, which involve eliminating layers of management and a headcount reduction of approximately 6,200, came as the retailer posted a 2.1% drop in same-store sales for November and December, which was at the low end of its previous guidance. Macy’s said its apparel business, fine jewelry, furniture and bedding performed well, but ongoing weakness in handbags and watches negatively impacted its results.
“We believe that our performance during the holiday season reflects the broader challenges facing much of the retail industry,” said Macy’s chairman and CEO Terry Lundgren. “We are pleased with the performance of our digital business, with double-digit gains at both macys.com and bloomingdales.com; however, store sales continued to be impacted by changing customer behavior.
Macy’s said it expects its streamlining initiatives to generate annual expense savings of approximately $550 million, beginning in 2017, enabling the company to invest an additional $250 million in growing the digital business, store-related growth strategies, Bluemercury, Macy’s Backstage and China. These savings, combined with savings from initiatives implemented in early 2016, exceed the $500 million goal communicated in fall of 2015, one year earlier than expected.
STORE CLOSINGS
Macy’s said it will close 68 stores (out of a current total of 730 Macy’s stores), with three closed mid-year, 63 to be closed in early spring 2017 and two be closed in mid-2017. Three other locations were sold, or are to be sold, and are being leased back. The store closures are part of the approximately 100 closings Macy’s announced in August 2016. (For a list of the store closings, click here.)
The retailer said it intends to opportunistically close approximately 30 additional stores over the next few years as leases or operating covenants expire or sale transactions are completed.
As a result of closing 63 Macy’s stores in early 2017, along with the three closed mid-year 2016, the company’s 2017 sales are expected to be negatively impacted by approximately $575 million. Macy’s said this reflects the company’s ability to retain sales at nearby stores and on macys.com through targeted marketing and merchandising efforts.
“As we’ve noted, it is essential that we maintain a healthy portfolio of the right stores in the right places,” said Lundgren. “Our plan to close approximately 100 stores over the next few years is an important part of our strategy to help us right-size our physical footprint as we expand our digital reach. We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape, as well as monetizing locations with highly valued real estate.”
Macy’s added that four new Macy’s and Bloomingdale’s stores are currently planned and/or under construction, as previously announced.
In addition, new Macy’s and Bloomingdale’s stores are planned to open in Abu Dhabi, and one Bloomingdale’s store is planned to open in Kuwait, all under license agreements with Al Tayer Group. The retailer also plans to continue its expansion of Macy’s Backstage (within Macy’s stores) and Bluemercury (freestanding and within Macy’s stores).
RESTRUCTURING
Macy’s announced a “significant “restructuring of its operations to focus resources on strategic priorities, improve organizational agility and reduce expenses. The company is restructuring its central organization with a focus on eliminating layers of management to reduce costs while improving decision making and agility. In addition, it is intensifying efforts to reduce non-payroll costs companywide, making changes to the way stores are operated and reducing field infrastructure to reflect “reduced store sales and evolving customer behavior.”
Together, these actions will result in a headcount reduction of approximately 6,200.
REAL ESTATE
Since the end of the third quarter, Macy’s has completed two real estate transactions that, in total, resulted in the receipt of approximately $95 million of cash proceeds and gain recognition of approximately $56 million. The transactions involve its Stonestown Galleria store in San Francisco, which it sold to General Growth Properties and plans to lease back, along with the sale of its downtown store in Portland, Oregon.
In addition, Macy’s is closing its downtown Minneapolis location in March. The retailer is selling the store for more than $40 million to the 601W Companies, the StarTribune reported.