Macy’s Grapples with Declining Sales, Shutting 150 Underperforming Stores to Step Up Its Luxury Brand

By Moon Harper

Feb 28, 2024 04:33 AM EST

Macy's plans to shut down 150 underperforming stores within the next three years, with 50 locations closing by the end of this year, after reporting decreased sales for the fourth quarter.

As part of its plan, Macy's will improve its 350 remaining stores by adding more sales staff to fitting areas and shoe departments and enhancing visual displays with mannequins. Additionally, the company plans to focus more on luxury items, indicating a shift towards upscale products. It intends to open 15 Bloomingdale's stores and 30 Bluemercury cosmetics locations, which are higher-end brands.

Macy's Store Closure in San Francisco

Macy's announced that store closures represent 25% of its total space but less than 10% of its sales. San Francisco Mayor London Breed confirmed that Macy's Union Square store would be among them and is reportedly looking for a buyer despite not being included in the initial 50 closures.

Macy's plans mark the second largest store closure since February 2020, when it closed 125 unproductive stores and cut about 2,000 corporate jobs.

Macy's Planning to Improve Customer Relationships and Experiences

Macy's reported better-than-expected fourth-quarter earnings but gave a cautious outlook for the year ahead. CEO Tony Spring, former Bloomingdale's CEO who succeeded Jeff Gennette earlier this month, highlighted efforts to improve customer relationships through better shopping experiences and product offerings.

The plans come as Macy's faces pressure from Arkhouse Management, which nominated nine directors to Macy's board last week. Macy's also recently turned down a five billion eight hundred million dollars takeover bid from the hedge fund and investment manager Brigade Capital Management.

The Critical Challenges From Activists and Sales Growth

The new CEO faces challenges from activist investors and the need to boost sales. Even before the pandemic, department stores were already struggling against online competitors. Neiman Marcus and JCPenney filed for bankruptcy and downsized.

Consumers keep shopping despite inflation, but some opt for cheaper items. Spring noted that inflation has slowed along with labor and wage growth.

Macy's Looking Ahead

Macy's plans to boost sales by opening more small stores for customer convenience, aiming to add around 30 small-format locations by fall 2025, bringing about 42 locations in total. Yet, Macy's is still cutting jobs to lower costs. In January, Macy's announced plans to lay off about 3.5% of its total workforce, roughly 2,350 employees, and close five locations. CEO Spring mentioned in an interview that he did not have an estimated number of workers impacted since the closures will happen over the next three years.

Arkhouse and Brigade proposed $21 per share for the remaining Macy's shares they do not own. Macy's expressed concerns about the financing plan and offer value. Last week, Macy's requested more financing details from Arkhouse and Brigade for board discussions. Instead, Arkhouse requested a 10-day extension for director nominations.

CEO Spring reaffirmed the company's confidence in its physical stores during analyst discussions, emphasizing the focus on having the best stores instead of having the largest ones.

The plan follows a survey of 60,000 customers to understand their preferences. They desired less cluttered stores and better service. Macy's is also revamping its private brands for improved store appeal and profits. Initial changes will be tested in 50 Macy's stores, acting as "incubators," according to CEO Spring.