On Tuesday, the department store retailer announced plans to close 35 to 40 underperforming stores in early 2016 as it strives to save money and invest more in its best-performing locations. The stores to be closed represent approximately 1% of Macy's annual sales, or about $300 million. Macy's did not disclose the exact locations of the store closures, nor their bottom line performance.
Prior to this announcement, Macy's had closed 52 U.S. locations since 2010. Macy's did not respond directly to questions about how locations to be closed were chosen, or what prompted the faster pace of closings for early 2016.
"Given that we have not yet selected the stores to be closed at the end of this year, it's not really possible to talk about their characteristics," said a Macy's spokesman via email. The spokesman added, "That said, each store has a unique situation (age, location, retail competition, how retail has evolved in a particular market, local shopping patterns, etc.) -- so each decision is being made individually, not necessarily based on any pattern or commonality."
Nevertheless, the ongoing migration of Americans to cities and the rise of digital shopping are likely two contributing factors in Macy's gradual reduction in its nationwide footprint.
"Not all stores will be treated the same. Some doors may no longer be viable," explained Macy's president Jeff Gennette at a Goldman Sachs presentation on Wednesday morning.
In its first-quarter earnings call back in May, Macy's said it intends to to focus a majority of capital investment on its top 150 stores, especially what it refers to as its "30 platinum doors," which are its very best sites.
Macy's singled out these locations based on factors such as recent sales growth, external economic factors in their markets, customer service scores and profitability. The stores will receive a series of investments by Macy's to entice customers to come for a visit, including new products and shops from vendors such as Nike (NKE) and high-end blender maker Vitamix, sexier fixtures and more special events.
"We are investing a lot of capital in visual presentation," said Gennette. The new investments by Macy's in its top-performing stores will appear this holiday season.
Macy's will be complementing these initiatives with efforts to improve upon historically underperforming areas of its stores by opening shops with well-known brands. On Tuesday, Macy's announced an agreement with electronics retailer Best Buy (BBY) to test licensed consumer electronics departments in 10 stores starting in early November.
The shops will be about 300 square feet, and give Macy's a presence in a category (electronics) that its higher income shoppers are demanding and in which it has historically not been a major player. The deal was in the works for some time, Gennette said.
And Macy's may not be done inking deals in the electronics category. "I do think that electronics items are a possibility for us, too," said Macy's CEO Terry Lundgren in a December 2014 interview with TheStreet, responding to a question about whether Macy's had plans to introduce Apple (AAPL) Watch or Google (GOOG) shops. It's quite possible that other consumer tech companies will reach out to Macy's, or have done so already, since the Best Buy deal mostly features gadgets from Samsung (SSNLF).
The Best Buy shops will join will join six Build-a-Bear Workshop (BBW) shops planned to be in operation at Macy's by the holidays, and the first 17 (out of 300 planned total) Macy's tuxedo shops in partnership with Men's Wearhouse (MW) that will open this fall. Similar to the Best Buy shops, the shops from Build-a-Bear (toys) and Men's Wearhouse (tuxedos) give Macy's an enhanced presentation in areas in which it has historically not performed well.
The flurry of news from Macy's comes on the heels of lackluster year-to-date performance and a lagging stock price.
Macy's reported second-quarter earnings per share of 64 cents, falling well short of forecasts for 75 cents. Macy's pointed to weak sales at tourist locations such as New York City's Herald Square due to the strengthening of the U.S. dollar, as well as sluggish sales of fashion jewelry, watches and housewares as culprits for the disappointing quarter. Full-year same-store sales for Macy's are now seen as unchanged, compared to a prior forecast for 2% growth.
Year to date, Macy's shares have fallen about 9%, worse than the declines in the Dow Jones Industrial Average and S&P 500 of 7.2% and 4%, respectively. The stock has also trailed chief rival J.C. Penney (JCP) , which has surged 52% year to date as the company has improved its merchandise assortment and marketing.