Macy’s to Close 100 Stores and Look at its Real Estate Portfolio for Redevelopment

Among the 100 stores that Macy’s said it will be closing is the Macy’s Men’s store near Union Square in San Francisco.

Department-store executives said they are in negotiations to sell the San Francisco men’s store, located in a separate building from the large Macy’s on Union Square, for redevelopment.

Details of the transaction will be made public when a deal is closed, Macy’s officials said in a press release announcing that 100 Macy’s department stores across the country will be shuttering early next year. The locations that will be eliminated among the company’s 728 stores have not been announced. But Macy’s has already said it will be closing its Laurel Plaza store in North Hollywood, Calif., late this fall and its West Valley City, Utah, emporium.

The decision to exit 100 department stores comes at a time when shopping malls are seeing more consumers shift many of their purchases to online sites rather than spend time at bricks-and-mortar outposts. With this shift, retail centers are reconfiguring themselves to become less dependent on clothing stores and offering up different options for people seeking more of a Main Street experience with restaurants, cinemas, professional services and entertainment.

“Nearly all the stores to be closed are cash-flow positive today, but their volume and profitability in most cases have been declining steadily in recent years. We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand,” said Jeff Gennette, Macy’s president, who is designated to succeed Terry Lundgren as Macy’s chief executive officer in early 2017.

“We decided to close a larger number of stores proactively so we can invest in a winning customer experience in our most productive and highest-potential locations as well as invest in growth sooner and more aggressively in digital and mobile,” Gennette added.

Annual sales volume of the 100 stores that will close will be approximately $1 billion. The reduction to revenue is expected to be offset by expense savings beyond those associated with store closings and with sales shifting over to other stores.

Severance benefits will be offered to all eligible full-time and part-time employees who are laid off, Macy’s said.

From 2010 to 2016, Macy’s closed 90 stores and opened 13 new locations. Those new locations included six new Macy’s Backstage off-price stores that debuted nearly one year ago.

In fiscal 2015, Macy’s eliminated 41 stores from its portfolio.

Macy’s, which is the parent company of Bloomingdale’s, recently reported second-quarter earnings results for fiscal 2016, which showed earnings, revenue and same-store sales all dipping from last year.

For the 13-week period ending July 30, net income nosedived to $9 million on $5.9 billion in net sales. For the same period last year, net income was $217 million on $6.1 billion in net sales. In the second quarter, same-store sales on an owned basis declined 2.6 percent while on an owned plus licensed basis, they were down 2 percent. During the first half of the year, same-store sales shrunk 4.4 percent and were off by 3.8 percent on an owned plus licensed basis.

Macy’s opened seven Bluemercury stores in the second quarter alone. This is a concept that Macy’s is rapidly expanding after purchasing the high-end beauty-products chain last year for $210 million.

This fall, Macy’s is opening 10 Bluemercury locations; a Macy’s store in Kapolei, Hawaii; one Macy’s Backstage store in San Antonio, Texas; and one Bloomingdale’s Outlet in Orange, Calif.

Lundgren, who has been Macy’s CEO since 2003, said the company has put in place a number of revenue-producing initiatives that include additional investment in store staffing and visual presentation, the rollout of a better fine-jewelry department, more athletic and activewear merchandise, home-store improvements, and a more aggressive clearance strategy.

Macy’s will continue to improve its physical store presence by adding new vendor shops, bringing new businesses onto the sales floors through additional licensing agreements, increasing the size and quality of staffing through programs such as “My Stylist” personal shopping experiences, adding new technology, and creating new in-store events and experiences.

On the technology side, Macy’s is investing in upgrading its sites and mobile apps, creating faster page loading and simpler procedures for placing and fulfilling orders.

On top of eliminating stores, Macy’s plans to optimize its real estate portfolio, capitalizing on situations where the development or redevelopment of a structure exceeds the value of its existing use, executives said.

That is what is happening in North Hollywood, where Macy’s sold Laurel Plaza two years ago to Merlone Geier Partners and GPI Co., which is hoping to invest $200 million to reconfigure the shopping center. The huge Macy’s store is expected to be turned into a commercial building.