Behind Macy's Plan to Chop 14% of Its Fleet

Brands Are Pulling Back From Department Stores Amid Sales Declines, Store Closures

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Credit: Macy's

The number of brick-and-mortar retail outposts is again on the wane as consumers shift their shopping online. Macy's plans to close 100, or 14%, of its 728 stores, the retailer announced Thursday during its second-quarter earnings report. The brand exceeded analyst expectations by reporting a 3.9% drop to $5.7 billion in net sales for the 13 weeks ending July 30. Results were not as grim as the disastrous first quarter, when Macy's and several brands reported sales declines following a lackluster holiday season.

The store closures, the majority of which will go dark early next year, follow the shuttering of 41 Macy's in fiscal 2015. No specific locations were announced.

"We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy's heritage as a preferred shopping destination for fashion, quality, value and convenience," said Terry Lundgren, chairman and chief executive officer of Macy's, in a statement. He noted that this means doing things differently to best serve customers. In early 2017, Mr. Lundgren will pass the CEO reins to Jeff Ginnette, current president and a 33-year Macy's veteran.

Investors recognized the need for change—in May, Macy's posted a 7.4% drop in first-quarter sales—and the struggles of Macy's and other department stores to win over consumers. Shares of Macy's skyrocketed 15% to more than $39 by late morning Thursday.

Earlier this month, brands including Coach, Michael Kors and Ralph Lauren all noted sluggish sales affecting the department store sector. Coach recently noted that it is pulling back on wholesaling to such retailers.

On a conference call, Macy's said it has improved its ability to retain sales through new targeted marketing efforts—the company this year noted a shift in marketing dollars to digital and social media.

The brand, which plans to debut work from new agency partners Figliulo & Partners and BBH New York for the coming holiday season, spent $718.8 million on measured media in the U.S. last year, according to Kantar Media. Macy's has yet to name a new CMO after the spring departure of Martine Reardon.

Also on Thursday, Kohl's reported second-quarter net sales of $4.2 billion, a 2% decline over the year-earlier period. The 1,165-unit chain, which spent $306.7 million on measured media in the U.S. last year, according to Kantar Media, noted early encouragement from back-to-school shopping, which began last month. Like Macy's, the Menomonee Falls, Wisc.-based retailer is not immune to the malaise of the sector and announced a round of store closures earlier this year. The company, which cited lower marketing costs in the recent quarter, is focusing on strengthening its loyalty program for customers and upgrading its beauty departments, as well as piloting smaller store formats.

"On the marketing side we're centered on projecting all of our loyalty components, rewards, Kohl's cash and credit offers more completely," said Kevin Mansell, chief executive, on a recent conference call.

Experts agree that there will always be a need for brick-and-mortar, yet the bloated size and fleets of decades past is now weighing down brands who need to be more nimble in a digital era.

"A lot of brick-and-mortar retailers signed leases 20 years ago for store configurations and square footage that, today, they don't need," said Michael Goldberg, chief executive of Zimmerman Advertising, in a recent interview with Ad Age. "What you really need in brick-and-mortar is an accent to what you do with your other channels."

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