Macy's Inc. said it would close 100 stores, admitting that some
locations were worth more as real estate than retail outlets as
shoppers continue to spend more online and at discount chains.
The decision to shrink its footprint by 14% came as Macy's and
rival Kohl's Corp. reported falling sales and lower shopper visits
for the June quarter. Kohl's also cut its profit target for the
year.
But the results were better than feared, and investors,
encouraged that some of the overcapacity is starting to exit the
department store space, pushed the shares of major chains
higher.
Macy's shares jumped 17% to $39.83 in Thursday afternoon
trading, while Kohl's shares climbed 16% to $43.88. The stocks had
lost half and a third of their value, respectively, in the previous
12 months. J.C. Penney Co., which reports results Friday, gained 9%
to $9.94.
"We believe there is too much retail square footage in the
department store space," Macy's President Jeff Gennette, who will
take over as CEO next year, said in an interview.
The retailer has been evaluating its real estate since it came
under attack by activist investor Starboard Value last year. Macy's
executives said they haven't finalized 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.
"Most of these stores are underperformers or in weak locations"
but the company will also close a few stores because "desirability
as a redevelopment opportunity exceeds their value to us as a
retail store," Macy's finance chief, Karen Hoguet, told analysts
Thursday.
The closures will free up $1 billion in sales that will be up
for grabs by Macy's competitors, though Macy's executives said they
would seek to recapture some of that business at neighboring
locations or through its digital operations.
"Although this is partly a reaction to being in a tough
competitive position within the landscape, they are being more
offensive than most," wrote Paul Lejuez, a Citi analyst in a note
to clients. "It is not only good for [Macy's] but also for the
industry."
Real-estate research firm Green Street Advisors estimates that
department stores need to close roughly 800 locations, or about a
fifth of all mall anchor space, to regain the sales productivity
they had a decade ago.
While chains including Macy's, Kohl's and Penney have closed
hundreds of stores in recent years, the culling hasn't been fast
enough to offset persistent sales declines. Others have also moved
to shrink, with chains such as Office Depot Inc., Sports Authority
Inc. and Wal-Mart Stores Inc. announcing hundreds of closures this
year.
Kohl's executives said Thursday they have no plans to close
additional stores beyond the 18 locations closed in the latest
quarter, which left it with a store count of 1,150.
"Fewer stores generally are not going to be a ticket to success
in our mind," Kevin Mansell, Kohl's chairman and CEO, told analysts
on a conference call. "We monitor stores all the time, but there
are no stores that we would anticipate closing next year right
now."
Mr. Mansell said having a broad network of brick-and-mortar
locations is "a big advantage" that can help drive online sales and
serve as shipping locations. He said 21% of e-commerce sales in the
June quarter came from customers who ordered online and picked up
at a physical store.
Mr. Mansell said his company hasn't seen much benefit from
recent closures by Macy's, which shut 41 stores earlier this year.
"I would think the mall-based retailers would see more of that," he
said.
After the 100 closures, Macy's would have about 628 locations
and Macy's CEO Terry Lundgren said he doesn't foresee the chain,
which was built over the years by combining local brands such as
Bullock's, Stern's and Marshall Field's, getting much smaller.
The closures as well as other asset sales such as the potential
divestiture of its men's store in the Union Square section of San
Francisco will free up capital that Macy's plans to invest in its
remaining stores by upgrading the merchandise, adding sales staff
and improving technology.
Some loyal Macy's shoppers were upset at the news that the
company was closing more stores, but said they weren't
surprised.
"They really need to bring us in here and use us as
consultants," said Ella Eskridge, who works at a jewelry store and
was shopping at a Macy's in Atlanta.
One of the biggest complaints was the clutter. The store at
Lenox Square mall has expansive sale sections that both lure and
frustrate bargain hunters. "There's no rhyme or reason," Ms.
Eskridge said, as she thumbed through a rack of clothing that had
intermixed sizes, colors and styles.
Macy's sales fell 3.9% to $5.87 billion in the three months to
July 30. Sales at existing stores including licensed departments
fell 2%. Ms. Hoguet, however, said she was encouraged by improved
apparel sales, a strong start to the back-to-school shopping season
and a moderation in the falloff in spending by tourists.
Net income fell to $11 million, compared with $217 million a
year earlier. The company took a $249 million charge in the current
period for the store closures.
At Kohl's, sales fell 2% to $4.18 billion in the same period.
Sales at existing stores were down 1.8%. Net income edged up to
$140 million from $130 million a year earlier.
Mr. Mansell, the Kohl's CEO, said Amazon.com Inc. and off-price
retailers such as TJ Maxx and Marshalls were continuing to gain
share.
"We are really focused on making changes to our business model
that will allow us to compete more effectively," he said, noting
that rolling out more smaller stores could be an option down the
road. "We all feel like stores are a really important part of our
future and we just have to make them work harder for us."
--Imani Moise contributed to this article.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 11, 2016 15:15 ET (19:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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