Now Trending: Closing Time

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When Walmart announced in January that it planned to close 269 stores this year (154 locations in the U.S.), there was a good deal of chatter out there comparing the planned closures to a Macy’s announcement just over a week earlier revealing the upcoming closure of 40 stores and a restructuring plan that would eliminate more than 4,500 jobs.



Two iconic American retail brands both announcing significant closures within 10 days of each other resulted in more than a few media outlets wrapping the closures into a single narrative on the state of bricks and mortar retail in America. But is that narrative correct?



When we dig a little deeper to see what the announced Macy’s closures and the upcoming Walmart closures have in common, we find that what they have in common other the words “store closure” is … NOTHING! That’s right, they have nothing in common–nothing of substance, anyway. These are two wholly different retailers headed in very different directions, closing stores for very different reasons.



Let’s break it down.



In its release announcing the closures, Walmart stated that the decision to close these stores came about as the result of an “active review of the portfolio” taken “to ensure assets were aligned with strategy.” Doug McMillon, president and CEO of Wal-Mart Stores, Inc. was quoted saying that “Actively managing our portfolio of assets is essential to maintaining a healthy business” and “Closing stores is . . . necessary to keep . . . positioned for the future”. While those are the kinds of things that any retailer says whenever store closings are announced, it’s worth noting that the numbers more than back up Walmart’s claims:



• Those 269 store closures pale in comparison to a global portfolio of around 11,600 Walmart locations (4,655 in the U.S. alone).



• Walmart is actually also planning to open more than 300 stores in 2016.



• When Walmart says these closures are part of a strategy to focus more on its supercenters and e-commerce business, the numbers back that up: the 154 planned U.S. closures are primarily made up of smaller-format Walmart locations, including 102 Walmart Express stores and 23 Neighborhood Markets. The small number of full size stores slated for closure is a mere rounding error when converted to a percentage of Walmart’s annual sales.



• After the closures, Walmart will still sell more than half a trillion dollars of goods each year, maintaining its status as the largest and most efficient retailer in the world.



When you evaluate Walmart’s planned closures in the context of the retailer’s overall portfolio, it is clear that this is a mature, highly successful chain tweaking its portfolio as part of a healthy review process and an ongoing strategy adjustment. Walmart has been proactively experimenting with different store types, analyzing performance results and making adjustments accordingly. And, as Walmart points out in its release announcing the closures, the stores slated to be closed “represent less than 1 percent of both global square footage and revenue.”



In contrast with the world’s greatest commodity goods retailer adjusting its strategy and experimenting with growth models, Macy’s is a struggling brand trying desperately to keep an outdated retail model afloat after literally decades of falling sales and market share losses.



Macy’s announcement, that the department store retailer will be closing 40 stores and eliminating thousands of jobs across the organization, comes on the heels of an extremely disappointing holiday shopping season, with same-store sales down 5.2% in November and December (excluding licensed departments). Not only do those 40 store closures represent a significant proportion of Macy’s portfolio of 770+ locations, but the reasons behind the closures have more to do with painfully weak sales in these stores with no hope in sight of changing the pattern of losses.



Ever since full line departments stores began to see their “departments” commoditized in the form of big box discount stores, literally “killing” those categories, Macy’s (including the many predecessors it inherited in mergers and acquisitions) has been clinging for far too long to a retail model that is all but literally a dinosaur in today’s retail environment. The average sales-per-square-foot in the stores that Macy’s will be closing is under $100. This isn’t a subtle refinement to the portfolio; this is more like desperately cutting a few of the many layers of dead weight the retailer continues to carry.



I have discussed some of the underlying structural problems that Macy’s and other large department stores are facing (competitive pressures from discount stores and low-price fashion retailers, the increase in outlets, and a decreased diversity of inventory) in other columns, but a large part of the problem for Macy’s is that it, like most other department stores, has been far too slow to respond to these changes. Macy’s loss of market share is not a new phenomenon: it’s been underway for almost a quarter of a century. Only in recent years, as that trend has accelerated, has Macy’s begun to realize that the innovation and experimentation that might have slowed the process or opened up new opportunities should have begun in earnest decades ago.



While Walmart, the world’s strongest retailer, has experimented with alternate commodity retail formats to reach new customers, Macy’s is quite literally stuck in the same oversized, inflexible boxes that once housed department after department selling things people needed every day.



Along with store closures, Macy’s has recently announced its latest big idea to turn the ship around — discount Backstage outlets — which apparently will be going into existing Macy’s locations in a 20,000-to-30,000-sq.-ft. store-within-a-store concept that will roll out with 10 pilot locations this year. While Macy’s Backstage is clearly intended to follow in the footsteps of successful discount brands like Nordstrom Rack, it will not have the brand power of the Nordstrom name and reputation to leverage, and like J.C. Penny before it, is likely to confuse core customers who will find a discount selling strategy within existing Macy’s full price stores. The best part of the new strategy, however, is that unlike J.C. Penney before it, Macy’s will test the idea in a small pilot program first.



While some have speculated that Internet sales pressures may have played a role in weakening sales and prompting these store closures, the numbers behind that theory are weak. Online retail accounted for just 7.0% of overall retail sales at the beginning of 2015, and, with the rate of growth slowing, there is little reason to think that virtual transactions will have a dramatic negative impact on brick-and-mortar portfolios. Recall that as of January 2015, Walmart had annual sales of around $500 billion — well more than 25 years after its debut; online giant Amazon has reached just $70 billion in yearly sales.



While some may be tempted to weave the Walmart and Macy’s store closings into a single storyline, closer inspection reveals that not only should they not be in the same chapter, they are two different stories — that should n