No Miracle on 34th Street: Macy's Closes 10% of Stores

In its latest move to unearth the right omnichannel balance, Macy’s, Inc. announces it will close 68 stores, approximately 10% of its current 730 Macy’s department stores. The closures are part of the 100 closings announced in August 2016. 

The announcement came alongside news that Macy's comparable store sales declined by 2.1 percent in the months of November and December 2016 combined. Meanwhile, the retailer's digital business saw double digit gains at both and in its third quarter 2016.

“Our omnichannel strategies continue to evolve based on the changes in our customers' shopping behaviors, including a focus on buy online, pickup in store and mobile-enabled shopping," said Macy's chairman and CEO Terry J. Lundgren of the closures.

While big box retailers, like Walmart for example, pushed their buy online, pickup in store capabilities this holiday season, this move from Macy's seems to be counterproductive.

"When you close down a store, what most retailers forget is that you're also losing that option for your customers, and you're also losing that option to buy online and return to store," explained Brendan Witcher, Principal Analyst coving retail strategy at Forrester Research, Inc. He noted closures are not just affecting store sales, but also online stores. So many retailers are asking, "how do I beat Amazon?" and the one thing Amazon doesn't have is physical stores. The question, he said, is "how do you turn those physical locations from liabilities into assets?"

Lundgren said the company believes its performance during the holiday season "reflects the broader challenges facing much of the retail industry." While pleased with the performance of digital business, he said "store sales continued to be impacted by changing customer behavior."

"This is kind of a reflection of their issues of connecting better with the customer," said Witcher.

Macy's appears aware of this, having invested in and enlarged its customer data and analytics team, which, according to Lundgren will help drive its new marketing strategies for 2017.

Witcher expects we'll see more closings throughout 2017 from retailer's facing this challenge. The connecting points between retailers already announcing stores closings is they're all "having trouble connecting and staying relevant with today's customer," while other retailers, such as Sepora, are actually expanding their footprint. "They're doing it because they're leaders in customer engagement," he noted. 

Lundgren said the plan to close 100 stores over the next few years is an important part of Macy's strategy to "help us right-size our physical footprint as we expand our digital reach."

Of the 68 stores, three closed in 2016, 63 will close spring of this year, and two will be closed in mid-2017. Three other locations were sold, or are to be sold, and are being leased back. The company intends to close approximately 30 additional stores over the next few years.

"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,” Lundgren said.

The company estimates that 3,900 associates will be displaced as a result of these closures. Employees displaced "may be offered positions in nearby stores where possible."

"The challenge is that Macy's needs to gain more relevancy with their consumers," said Witcher. "They need to differentiate themselves more. They sort of live in the middle of retail right now and they need to find someplace where they can breakout and differentiate themselves."

Regardless of its strong online business, e-commerce is still going to be the minority of Macy's business. "Macy's isn't going to turn into that one company that does 80% of their business online," he said.

"No one should take this as a reflection that somehow physical retail is dying. The fact of the matter is physical retail is evolving. The business is shifting to players that get it, from players that just simply are having troubles right now."
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