Macy’s Store Closings 2017: Department Store Initiates Cost-Cutting Measures as Store Traffic Falls

Macy's Store Closings January 2017
iStock.com/Maria_Ermolova

Macy’s Inc. (NYSE:M) continues to have a difficult 2017, having announced 100 store closures and thousands of layoffs as the company grapples with the “retail apocalypse.” Macy’s, along with a slew of other retailers and big department store chains, including Nordstrom, Inc. (NYSE:JWN), has been plagued by falling sales and store closures, which can be attributed, in large part, to falling foot traffic.

Where have the shoppers gone? The Internet and online retail giants like Amazon.com, Inc (NASDAQ:AMZN) continue to chip away at brick-and-mortar sales. On top of that, the U.S. retail landscape saturated with millions and millions of square feet of retail space. U.S. consumers have less money to spend and inflation is cutting into discretionary spending, which fuels U.S. economic growth.

Those that do have extra income tend to prefer shopping online than in-store. The Amazon effect has trickled down traditional retailers, resulting in a massive number of retail stores closing in 2017.

Retailers hoping that foot traffic will return to shopping malls across America might be disappointed. There is a real possibility that higher store traffic will never return. And it will become more and more difficult to turn those in-store consumers into repeat customers.

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Macy’s Store Closings January 2017: 68 Announced Store Closures as Sales and Foot Traffic Tumbles

The writing had been on the wall for months. After disappointing 2016 holiday sales, Macy’s announced plans in January to streamline its store portfolio (read: closures), intensify its cost efficiency efforts (read layoffs), and execute a real estate strategy.

To that end, the department store announced it was closing 68 stores nationwide and reorganizing the remaining stores. Most of the stores were scheduled to close in the early part of 2017.

These are part of the approximately 100 store closures that Macy’s announced in August 2016. The closures represented around 15% of all Macy’s department stores.

In all, the closings resulted in the loss of 10,000 jobs. As part of the announcement, Macy’s said it was eliminating management positions, and reduce other non-payroll costs. The actions would cut the company’s workforce by 6,200. Another 3,900 employees would be affected by the store closures.

Of the 68 announced closures, three closed in 2016, 63 closed in early spring 2017, and two closed in mid-2017.

Because of plunging sales and traffic, it was thought that Macy’s might need to close even more locations to revive its sagging business.

Macy’s Store Closings February 2017: 34 Stores Shuttered as Part of Cost-Cutting

In February, Macy’s forged ahead with plans to close a total of 100 stores. The company said it will close an additional 34 locations in the coming years, but did not say which locations would be shuttered.

Again, the store closures come amidst falling revenue and earnings. In the fourth quarter, the struggling department store chain announced that revenue fell four percent year-over-year to $8.51 billion. Fourth-quarter net income came in at $475.0 million, or $1.54 per share, a 12.7% decrease over the $544.0 million, or $1.73 per share, recorded in the same prior-year period.

Sales in fiscal 2016 were down 4.8% year-over-year at $27.77 billion. Full-year net income tumbled 43% year-over-year to $611.0 million, or $1.99 per share. In fiscal 2016, Macy’s closed 66 stores.

“While 2016 was not the year we expected, we made significant progress on key initiatives that are starting to bear fruit,” said Terry J. Lundgren, Macy’s chairman and chief executive officer. “We took a big step forward in rightsizing our physical footprint and restructuring our entire organization. The combination of these initiatives will help us gain market share, return to growth and drive enhanced value for our shareholders over time.”

Macy’s Store Closings May 2017: May Need To Close An Additional 100 Locations

It’s possible that Macy’s decision to shutter 100 stores won’t be enough to turn the company’s fortunes around.

The market “probably wants to see another 100 Macy’s stores close,” said  Jan Kniffen, CEO of consulting firm Worldwide Enterprises.

Analyst Oliver Chen echoed that sentiment, stating, “We fear that Macy’s may need to close more stores than previously announced, and share losses vs. both off-price (TJ Maxx and Ross Stores) and Amazon will continue in the foreseeable future.”

On a May 11 conference call with analysts, Jeff Gennette, Macy’s CEO, conceded that the department store chain may need to close additional stores.

“I’m not going to say we’re not going to close more stores,” he said. “We do have to stabilize our brick-and-mortar business… That’s where a majority of our business is still done.”

Macy’s is just one of more than a dozen major brands to close stores this year. J C Penney Company Inc (NYSE:JCP) has announced 138 store closures, Sears Holdings Corp (NASDAQ:SHLD) and Kmart 358, Payless Shoesource 700, rue21, Inc. 400, RadioShack Corp 1,470, and Ascena Retail Group Inc (NASDAQ:ASNA) 400.

Overall, U.S. retailers have announced a record number of closures in 2017. Since January, more than 6,700 stores have closed; a year-over-year increase of 235%. Meanwhile, many retailers have filed for bankruptcy, including Toys ‘R’ Us Inc, L Brands Inc (NYSE:B), hhgregg, Inc. (OTC:HGGGQ), RadioShack, Payless, rue21, and True Religion Apparel Inc.

 

Sources

Macy’s, Inc. Announces Actions to Streamline Store Portfolio, Intensify Cost Efficiency Efforts and Execute Real Estate Strategy,” Macy’s Inc., January 4, 2017.

Macy’s, Inc. Outlines Moves to Drive Profitable Growth and Enhance Shareholder Value,” Macy’s Inc., August 11, 2016.

Macy’s, Inc. Reports Fourth Quarter and FY2016 Results,” Macy’s Inc., February 21, 2017.

Weekly Store Openings and Closures Tracker #33,” Fung Global Retail & Tech, November 17, 2017.

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