Macy’s Closing Stores, Department Store Struggling Against Online Retailers And Changing Consumer Patterns

Macy’s Inc. announced 100 stores will be closing in response to six quarters of dropping sales. In addition to the closures, the company plans to increase investment in its online operations as part of an overall plan to reinvent itself.

In the first quarter of this year, sales fell over 8 percent, followed by a 4 percent drop to $5.9 billion by the end of the second quarter. According to Macy’s, the store closings will involve locations with about $1 billion in annual net sales volume and have experienced a significant decline in sales and profitability.

“Nearly all of the stores to be closed are cash flow positive today, but their volume and profitability in most cases have been declining steadily in recent years,” Macy’s said in a statement. “We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand.”

Macy's forced to close low profit stores to survive.
Macy's decides to close 100 stores after several quarters of declining sales. [Photo by Joshua Lott/Getty Images]

In the second quarter of 2015, shareholders received 64 cents per share in net income, while in the most recent quarter, which on ended July 30, income plummeted to three cents per share. Roughly $255 million, or 51 cents per share, was charged in the second quarter for the upcoming store closings.

Macy’s new strategy will focus attention on the best-performing stores. The company plans to invest in these locations by increasing the size of the staff as well as training programs. Vendor shops will be added and technology updated.

“We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy’s heritage,” said Macy’s CEO Terry Lundgren. “Whenever there’s been a setback in our company, we’ve been first in the industry to take a very aggressive stance at moving us forward.”

Macy’s is also exploring ways to monetize some of its flagship stores. The company is selling its Union Square men’s store in San Francisco and is looking at potential partners for joint ventures and other alliances.

In recent years, department stores have been struggling as competition gets more fierce from both online and off-price retailers. According to a report by Reuters, the spending patterns of consumers are also changing as they shell out money for cars and electronics instead of clothes.

Shopping malls, once ruled by stores like Macy’s, J.C. Penney, and Sears, are seeing fewer visitors as consumers see them as overpriced and inconvenient. With many U.S. malls on a downward slide, some analysts predict nearly 33 percent will be closed within the next few years.

Stores like Macy's struggle as more consumers shop online.
Shopping malls across the country struggle as consumers prefer to spend buy online. [Photo by Tim Boyle/Getty Images]

In the past six years, Macy’s has closed 90 stores while opening only 13. Macy’s is not alone as other retailers continue to struggle. Young adult retailer Aeropostale filed for Chapter 11 bankruptcy protection in May. Sears has closed over 200 stores since 2014, and Kohl’s plans to close several stores this year.

The decision by Macy’s to begin investing heavily in its internet operations must be fueled by other retailers who continue to thrive online. Amazon stock has skyrocketed 30 percent since February and profits keep rising, especially after promotional events like Amazon Prime Day.

Amazon has been quietly putting pressure on retailers that specialize in apparel and fashion as it pushes into the market once dominated by brick-and-mortar stores. Some industry experts believe the online giant will own almost 20 percent of the U.S. clothing market in four years.

Many shoppers are not seeing the purpose of going to all-inclusive stores like Macy’s, especially when Amazon or H&M have better options and an easier shopping experience. Unless Macy’s separates from its mall anchor persona, the company is likely to continue its drift into oblivion.

Representing about 14 percent of total stores, Macy’s has not disclosed the 100 locations that will be closing, but they are to take place in the first quarter of 2017. Employees affected by the store closing will be relocated to nearby stores. Others, who cannot be positioned elsewhere, will be laid off and given severance packages.

[Photo by Spencer Platt/Getty Images]