COURSE CORRECTION BLOODBATH:
Macy's Is Closing 40 Stores & Planning Off-Price Outlets Inside Existing Stores
Is it really such a big deal to close 40 stores if you have 773 of them?
Maybe not. After all, it's less than 10% of the Macy's store count, but it just goes to show that the kind of course correction that might be seen as relatively innocuous for another company becomes an event of a completely different scale when you are the 800 (or possibly 773) pound gorilla of the department store industry.
In fact, 40 stores is substantially bigger than most of the regional chains that have been absorbed over the years by what is now known as Macy's Inc. The mega-chain didn't get that big organically. It is the result of individual acquisitions like the Bamburger's chain once well expanded through the Mid-Atlantic region, but more importantly mergers with larger consolidated retailers that operated many individual nameplates. The current chain includes the remnants of former retail giants Allied Stores, Federated Department Stores and May Company which have ultimately put Macy's in every major market in America.
One could argue that despite pruning its fleet less dramatically over the years, those mergers and acquisitions have still left Macy's over-stored. In many cases acquired stores in the same mall as an existing location have been converted to separate Home or Menswear units and in at least one case, Tyson's Corner Virginia, there are two full Macy's stores literally across the street from each other in competing malls. Both of those stores are remaining open, a testament to the strength of that particular market where elsewhere it would be clearly redundant.
Three to four sales jobs will be cut from each of Macy's existing stores —which doesn't do much to respond to the recurring complaint that it is hard to find a salesperson in Macy's. That will still be a whopping loss of about 3,000 jobs. In addition only about 30% of retiring or voluntarily departing senior executives will be replaced, and about 600 back office jobs will be eliminated with 450 of those workers being laid off permanently rather than reassigned within the company. The total job loss is expected to be about 3,500 positions.
All of this is a response to a 4.7% decide in sales over the past few months which was higher than predicted. It is almost certain that the extremely unseasonably warm weather in most of the United States over the Fall season has contributed to the drop.
“In light of our disappointing 2015 sales and earnings performance, we are making adjustments to become more efficient and productive in our operations," says Macy's Chairman and CEO Terry J. Lundgren in a press release issued yesterday outlining the chain's strategy, "Moreover, we believe we can operate more effectively with an organization that is flatter and more agile so we can pursue growth and regain market share in our core Macy’s and Bloomingdale’s omnichannel businesses faster and with more intensity."
It's not all grim news, however. Three new Macy's stores and Two Bloomingdale's branches are set to open by Fall 2018, but more interestingly, the Macy's Backstage format, a budding off-price chain meant to compete with Nordstrom Rack, Saks Off-5th and the like, is set to grow with 50 new units, most of which will be opening within existing Macy's stores rather than as freestanding entities.
We remind ourselves that 50 stores is only a fraction of the 733 stores that will remain after the store culling, but it means that an off-price or clearance department will become a permanent fixture in some of the chain's full-line stores. What will this be like, and how will it affect the chain's full-price selling and its typically heavy promotional activity? Also unknown is how the chain's key vendors will feel about having to compete with discounted merchandise in the same store that normally would have been diverted to other channels after seasonal clearance sales. That will be very interesting to see unfold as, traditionally, most other chains have chosen to at least keep their outlet stores in separate buildings, though they have been losing in on their full-line mothership locations in recent years. We are reminded that Filene's Basement began literally in the basement of the flagship Filene's department store in Downtown Boston. Though it was eventually spun off into a separate company, it ultimately lasted longer than its namesake progenitor. Do we dare draw comparisons?