Macy’s decision to close another 100 stores because they are worth more as real estate than as retail outlets drew a crowd of interested buyers yesterday. Its shares rose as much 17%, its biggest intraday gain since December 2008. It had been down 2.8% on the year, Bloomberg reports.
“We believe there is too much retail square footage in the department store space,” Macy’s president Jeffrey Gennette, who will take over as CEO next year, tells the Wall Street Journal’s Suzanne Kapner in an interview.
“The retailer has been evaluating its real estate since it came under attack by activist investor Starboard Value LP last year. Macy’s executives said they haven’t completed which of the company’s 728 locations they will close; and they will continue to operate most of the stores through the end of the fiscal year,” Kapner reports.
“The company said it was also ‘examining opportunities’ involving its real estate holdings at four of its downtown flagship stores in the United States,” writes Megan Woolhouse for the Boston Globe — Herald Square in New York, Union Square in San Francisco, State Street in Chicago, and a site in downtown Minneapolis.
“Most of these stores are under-performers or in weak locations,” said CFO Karen M. Hoguet in an earnings call transcribed by Seeking Alpha. She maintained that Macy’s would be able to “retain some of the sales” of all the closed outlets in other nearby stores as well as on macys.com.
Amazon and its .com brethren have a lot to do with rendering those locations “weak,” of course.
“The shift in e-commerce, and the increase in online spending, is definitely pushing this move,” Tom Caporaso, CEO of Clarus Commerce, which offers a free shipping service for Macy’s and other retailers available to consumers who pay a subscription fee, tells Woolhouse. He also say shoppers who turned to bargain stores such as TJ Maxx and HomeGoods during the recession have never returned.
In the New York Times, Rachel Abrams and Sapna Maheshwari couple Macy’s plans to shutter its underperforming stores with Wal-Mart’s announcement Monday that it had reached an agreement to purchase Jet.com for $3 billion.
“The decisions by … two towering figures in the industry have sent a clear message: The pressure to keep up with customers is at a boiling point,” they write.
“These legacy players are having a terrible time navigating through that shift successfully,” Mark A. Cohen, the director of retail studies at Columbia Business School, tells them.
“They’re finally moving in the right direction,” Poonam Goyal, an analyst at Bloomberg Intelligence, tells Bloomberg’s Lindsey Rupp about Macy’s decision. “This just shows you online is taking over. It’s really about taking their destiny into their own hands.”
CNNMoney’s Matt Egan reminds us that Wal-Mart announced plans in January to shut down 269 stores this year and that Sports Authority’s filing for bankruptcy will close 450 stores. Target, JC Penney, Kmart, Sears and Kohl's also shuttered hundreds of stores in recent months.
“It's a grim picture for retail store workers — there have been around 44,000 retail layoffs announced so far this year alone, according to Challenger, Gray & Christmas data. Wal-Mart's closures alone impacted 16,000 workers,” he writes.
But, as the NYT’s Abrams and Maheshwari point out in their lede, “the great American consumer is very much alive,” with household spending rising at an annualized rate of 4.2% this spring. “But more and more, they now want bargains and convenience — in stores and online — and know how to find them.”
The overabundance of options is certainly hiding in plain sight.
“We have five and a half times the number of retail physical locations in America per capita than any other country in the world,” Macy’s retiring CEO Terry Lundgren tells CNBC in an interview. “So there has to be a rationalization and we’re not waiting any longer.” He also asserts that macys.com is “only behind Wal-Mart and Amazon” in the categories that it sells online.
As for Gennette’s comment about there being too much square footage in retail, one imagines Wells Fargo’s CEO saying something similar about horses in the stable circa 1900. It, and fellow legacy stagecoach company American Express, are doing just fine today. Others who didn’t adapt? Not so much.