Macy's on Tuesday announced a major restructuring of its strategy and retail footprint, closing about 150 Macy's stores over the next three years while expanding its luxury chains Bloomingdale's and Blue Mercury.
The move gives the company's new chief executive, Tony Spring, a stamp of approval on his efforts to keep America's largest department store operator profitable and block a pending takeover bid.
This is the second major downsizing for the Macy's chain since 2020, leaving the company with 350 stores, slightly more than half its pre-pandemic number.
Spring, who took over this month, said in a statement that the review is aimed at “accelerating the company's path to market share gains, sustainable and profitable growth, and value creation for shareholders.”
Macy's said it plans to close “unproductive stores,” noting that they account for 25% of the company's total square footage but only 10% of its sales. The company said it expects to generate between $600 million and $750 million in proceeds from selling those stores and rationalizing some of its warehouses.
The company announced it will begin notifying employees at stores scheduled to close starting Tuesday. The company plans to close about 50 stores this fiscal year and the rest by the end of 2026.
While Macy's stores are closing, the company plans to add 15 Bloomingdale's stores. The company's beauty chain, Bluemercury, will add 30 stores and renovate others. As of November, there were 58 Bloomingdale's stores and 158 Blue Mercury stores.
“There's less competition, but the problem is it's not clear whether luxury department stores really have a great future,” said David Swartz, a retail analyst at financial services firm Morningstar. “A lot of luxury brands have their own direct sales,” he said, noting that luxury chain Nordstrom has closed stores in recent years.
Spring said on a conference call with analysts that the company will open Bloomingdale's small-format stores and outlet stores, known as Bloomies, in 15 markets over the next three years.
In recent years, the company has opened smaller stores in outdoor strip malls rather than indoor malls, where the number of shoppers has declined.
“The whole market is heading there,” Swartz said. “It makes sense for Macy's to open stores in these small locations, but is it too late? Other companies are already doing the same thing, but Macy's really stands out, with 150 stores… Will we be able to make up for the revenue lost due to closures?”
The decision to cut the mid-market Macy's chain while increasing the presence of the high-end chain is a move by Spring to reposition the company's overall image so that consumers perceive the company as a luxury destination. It is an expression of what you want to do.
The company said customer research showed people are looking for a better shopping experience at Macy's, including improved visual merchandising and more support from store associates. The cost savings the company expects from this strategy, including the sale of some assets, could help support these improvements.
Mr. Spring, who spent 40 years at Bloomingdale's, took the reins at a difficult time. In December, a group of investors submitted a bid to take Macy's private for $5.8 billion. Investors Arkhouse Management and Brigade Capital Management told shareholders they may accept the offer as long as the retailer doesn't start sharing nonpublic information.
Macy's sales are declining as it struggles to attract the next generation of shoppers and compete in an increasingly e-commerce-oriented world.
Mr. Spring was already beginning to make a name for himself. In a January memo to employees, he and outgoing CEO Jeff Gennette said the company would better align resources with customer behavior and make decisions faster. The company also said it plans to close several stores.
Macy's last major restructuring was in February 2020, when the company announced it would close 125 stores and cut 2,000 jobs. Then the pandemic left many stores dark for weeks, leaving retailers to improve their websites and e-commerce offerings and figure out how to lure people back into stores once they reopen.
Macy's is facing a sales slump after initially boosting sales as consumers spent more on all kinds of goods in the early days of the pandemic.
On Tuesday, the company also announced fourth-quarter earnings, which include the holiday season. Net sales were $8.1 billion, in line with analyst expectations. Sales at both Macy's and Bloomingdale's stores were down compared to the same period last year, but Bluemercury's sales rose 2.3%. This is a sign that shoppers are gravitating toward the beauty and skincare categories.