CINCINNATI - How serious is Macy’s Inc. about ridding itself of surplus retail space? It is closing the boss’ favorite store.
“I had an emotional breakdown,” Chairman Terry Lundgren told analysts last week, when Macy’s top real estate executive, Doug Sesler, told him the San Francisco men’s store should be sold.
“It’s where I shop,” Lundgren said. “It’s the best men’s store in America. What are you talking about?”
But Sesler convinced Lundgren the store was just a box, acquired when Macy’s bought the Hawaiian department store chain, Liberty House, in 2001. Ultimately, Lundren agreed the men’s business could operate just as well across the street, at Macy’s 900,000-square-foot Union Square store. So, Lundgren agreed the 263,000-square-foot men’s store should be sold.
“The value of this particular box will … allow us to use that cash as we did in Brooklyn to both reinvest back into the main store, which is our primary business, but also have cash leftover as well to use to return to shareholders,” Lundgren said.
It’s a strong sign that Macy’s will not be encumbered by sentimentality as it closes 100 stores by early next year, which means there would be no preservation advantage to the six Cincinnati stores closest to Macy’s corporate headquarters.
Here’s another sign:
“All of these stores we’re closing are cash flow positive,” Lundgren said. “That again was a big decision for us. But in the end, we need to make sure these are going to be stores we’re going to invest in, we’re going to put capital into, we’re going to be proud of the shopping experience in all the remaining stores. And that’s how we thought about it. By eliminating 100, we’re going to be able to focus our talent, our investment, our inventory, our capital in a smaller base to position us to grow.”
Macy’s has yet to formally reveal which of its 100 stores will close. Announcements are expected by year-end. But veteran Cincinnati retail consultant Stan Eichelbaum expects at least one of Macy’s six stores in Cincinnati to be on the closure list.
"Considering the scale of the market and number of stores, it would seem highly unlikely Cincinnati will avoid at least one closing," he said.
Speaking at the Goldman Sachs Global Retailing Conference in New York Sept. 8, Lundgren and other Macy’s executives offered fresh insight on the store-closing process – including one way to tell which stores are not slated for closure.
Macy’s CEO Jeffrey Gennette provided the clue by revealing that the company will sell Apple Watch Series 1 and 2, along with Apple Watch Nike+, in its “top 180 stores.” Since the store-closure strategy is aimed at focusing more resources on its best stores, finding an Apple Watch Nike+ in a Macy’s store this holiday season would indicate it’s not a store slated for closure.
Macy’s Chief Financial Officer Karen Hoguet provided some additional insight on how stores made the closure list.
Macy’s “looked at the quality of the market, our density of stores in that market, demographics, psychographics, competitors, quality of the mall, quality of the co-tenants in the malls,” Hoguet said. “If we were to start Macy's over again, which stores would be strategically critical to being a national omni-channel retailer?”
After that strategic review came a financial analysis that measured “where are the stores growing less rapidly or shrinking, and what's the financial performance?”
Finally, Macy’s analyzed how much revenue it can retain after closing each store. The company has estimated that it will lose $1 billion from the closure of 100 stores, but retain another $400 million in sales from shoppers that continue to buy at surviving stores and online.
“Literally we have analyzed each store first with where do the customers shop in that store and where else do they shop?” Hoguet said. “We've analyzed the trade area demand, meaning, what happens on macys.com in the same trading area. So, for example, if we close a store in a single-store market, not only will we lose most of the sales in that store, but often we lose Internet sales also. So, we have taken that into consideration.”
Macy’s has developed new marketing strategies to keep shoppers loyal after store closures, a strategy that developed with more than 40 closures in the last three years.
“In a multi-store market, we've now been able not to lose macys.com sales, and that's new,” she said. “It's because we've marketed better. We've targeted those customers before we made the decision to close the store.”