Macy's Is Closing 150 Stores, Reveals New Strategy Amidst Retail Evolution

Macy’s is undergoing a transformation aimed at revitalizing the struggling retailer and ensuring its longevity in a rapidly evolving retail landscape. The iconic brand is embracing a new strategy that involves a shift towards smaller yet more luxurious stores to better meet the changing preferences of shoppers.

To achieve this, Macy’s is downsizing. The company plans to close 150 underperforming stores, with 50 closures slated by the end of 2024 and the remaining 100 over the subsequent years. By 2026, Macy’s store count will be reduced to 350, marking a substantial reduction from its current footprint, as announced by the company.

In addition to downsizing, Macy’s is doubling down on its successful Bloomingdale’s and Bluemercury brands. These luxury-oriented stores have demonstrated stronger performance compared to the flagship Macy’s brand. Consequently, the company intends to expand its presence in this segment by opening more compact versions of Bloomingdale’s and Bluemercury stores in the coming years.

Macy’s strategic transformation mirrors the changing landscape of retail and the evolving preferences of American consumers.

With the decline of the middle class over the past few decades, the retail market has undergone a noticeable divergence. On one end, budget-conscious shoppers have gravitated towards discount retailers like Walmart, drawn by their emphasis on affordability. Conversely, luxury brands have thrived as affluent consumers continue to sustain their purchasing power, even amidst higher price points.

So Macy’s is shifting its focus towards attracting wealthier clientele by expanding its luxury brands like Bloomingdale’s and Bluemercury, while scaling back on its larger department stores that traditionally catered to middle-class shoppers.

In response to changing consumer preferences, Macy’s also plans to construct 30 smaller-scale stores in non-mall locations within the next two years. This move aligns with a broader trend of consumers favoring smaller retail outlets situated outside of enclosed shopping malls. Additionally, these smaller stores are expected to yield higher profitability for Macy’s due to lower operational costs stemming from reduced staffing and inventory.

A Battle For The Future

Engaged in a battle for its future, Macy’s has devised this strategy aimed at appeasing activist investors and reviving the company’s stagnant stock price and sales figures.

In recent years, Macy’s, along with the entire department store sector, has faced relentless challenges from multiple fronts. The ascent of Amazon, the growing dominance of discount retailers like TJ Maxx, and the emergence of online brands have collectively disrupted the traditional department store model.

Macy’s stock price has plummeted by 75% since reaching its peak of $73 per share in 2015. Despite shuttering nearly 300 stores—equivalent to approximately one-third of its total locations—the company still operates around 700 stores across its various brands.

Last month, Macy’s announced it was laying off approximately 3.5% of its workforce, or roughly 2,350 individuals.

The company’s struggles have not gone unnoticed by activist investors. Macy’s recently rebuffed an unsolicited $6 billion bid from an activist investor aiming to privatize the renowned department store. Undeterred, the activist group has initiated a proxy battle in a renewed effort to seize control of Macy’s board of directors.

Macy’s (M) stock experienced a slight decline during premarket trading.

“We believe paring down the Macy’s store base to a more manageable (and profitable) size is prudent given the general structural shift towards online spending” and the shift away from department stores,” Dana Telsey, a retail analyst, said in a note to clients.

Macy's New Look

Macy’s is set to embark on a transformative journey under the leadership of new CEO Tony Spring, who described it as a "bold new chapter" fully endorsed by the company’s board. This strategic overhaul, informed by extensive market research, aims to breathe new life into the Macy’s brand.

Central to the revamped approach is a commitment to enhancing Macy’s digital storefront and streamlining its product offerings. CEO Tony Spring emphasized in a statement, “We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value.”

Spring outlined plans to refine the shopping experience by prioritizing brands and products based on customer preferences. Macy’s, traditionally positioned as a higher-end brand, is refocusing on delivering "compelling value" to customers, a crucial move amid recent price surges.

Foreseeing sustained profit growth, Spring highlighted the company's strategic focus on expanding its luxury brands while concurrently closing select Macy’s locations. The expansion plans include opening 15 new Bloomingdale’s stores and 30 new Bluemercury outlets over the next three years, along with remodeling 30 existing Bluemercury stores.

Analyst Neil Saunders from GlobalData Retail expressed optimism about the Bloomingdale’s expansion, citing untapped opportunities in several robust luxury markets where the brand is not currently represented.