• by Sarah Mahoney  @mahoney_sarah, February 27, 2024

With a potentially hostile suitor nipping at its heels, Macy’s unveiled sweeping plans for a “bold new chapter.” The moves include closing 150 Macy’s stores, leaving just 350 in place. The new initiative also involves a rapid expansion of Bloomie’s, the small-format version of Bloomingdale’s, and the company’s Blue Mercury beauty and spa chain.

Macy’s announced the initiatives along with fourth-quarter financial results, underscoring just how deep the retailer’s problems are. Net sales for the quarter dipped 1.7% to $8.1 billion, compared with $8.3 billion in 2022, with digital sales dropping 4%. Comparable sales at Macy’s sank 6% and eased 1.5% at Bloomingdale’s. Blue Mercury saw a sales increase of 2.3%.

Macy’s swung to a loss of $71 million, compared to net income of $508 million in the year-ago quarter.

Short-term, the company is not offering much hope for improvement, forecasting that sales this year will likely be in the range of a 1.5% decrease to a 1.5% gain.

“We view fiscal 2024 as a transition and investment year,” says Tony Spring, Macy’s new CEO, on a call webcast for investors. “And we expect to return to consistent sales and earnings growth beginning in 2025.”

Spring, who takes the CEO spot after spending 33 years at the company’s Bloomingdale’s banner, carefully detailed the strategy behind the store closures, which will take place over three years.

“While these stores account for 25% of our square footage, they generate less than 10% of sales,” Spring says. The closures will free Macy’s to better focus on the remaining 350 “go forward” locations. And while Macy’s has undertaken multiple “strengthen the brand” initiatives in the past, he says this effort is more consumer-centric. It’s based on seven months of research that included surveys of more than 60,000 customers.

The closures amount to roughly a third of Macy’s fleet of stores.

The company is also focusing on expanding into luxury, including opening more Bloomie’s locations beyond its bicoastal roots. “The adage that fashion trends begin in L.A., New York or Miami and then migrate no longer holds,” Spring says. “With the rapid growth of social media and recent population shifts, the fashion playing field is leveled.”

The Bloomingdale's nameplate is physically only in 14 of the top 50 markets now. Macy’s will open 15 Bloomie’s and Bloomingdale outlets in new and existing markets in the next three years.

Between Bloomingdale’s and Blue Mercury, Macy’s has a proven advantage with luxury shoppers, Spring says. Those nameplates “provide a mix of accessible and aspirational product, top-notch customer service and an elevated omnichannel shopping experience that's warm and inviting, but doesn't take itself too seriously.”

Earlier this month, the company rejected a $5.8 billion buyout bid from Arkhouse Management and Brigade Capital Management. That group thinks it can add value for shareholders by maximizing Macy’s real estate holdings.

The group then nominated nine directors for Macy’s board. On the call, Spring says the board is evaluating those nominees, adding that he would not take questions related to the unwanted bid.

However bold the new plan is, the latest numbers aren’t a good look for the department store giant. “The gloomy results leave Macy’s in a very difficult position,” writes Neil Saunders, managing director of GlobalData, in his note on Macy’s results. “It is a business with weak profit and no growth story at a time when a positive narrative is desperately needed to reassure investors.”

Saunder adds that he believes the company can execute the operational and logistical components of the new plan and is “reasonably comfortable with the push to luxury.”

However, he sees the Macy’s makeover as a much heavier lift. “It will be a long, hard slog to stop and reverse all the rot that has infected the Macy’s brand over many years.”