Analyst: Macy's Inc. might have to close 100 more stores

Credit Suisse predicts 320 closures industry-wide
Posted at 10:59 AM, Mar 14, 2018
and last updated 2018-03-14 18:54:24-04

CINCINNATI - Are there more store closings in Macy’s future?

A new report by Credit Suisse suggests the Cincinnati-based chain would have to close 100 more department stores to get back to pre-recession levels for sales productivity.

“The industry isn’t closing stores fast enough,” said the report, which praises Macy’s for trying new strategies but adds they’ve only produced “modest results” so far.

Macy’s did not respond specifically to the analysis, which estimates 320 department stores will have to close before the industry gets back to sustainable levels. But the company did release a statement, which reads in part:

"We feel good about our store portfolio. A health store base combined with robust digital capabilities is Macy's recipe for success ... While we're not planning any new Macy's stores, in 2018 we are making investments to improve our in-store customer experience. These include store pickup initiatives like mobile checkout and the expansion of At Your Service."

Credit Suisse says 18 percent of Macy’s department stores are at “high risk” for closure while J.C. Penney, Sears and Dillard’s are all above 25 percent.

Macy’s announced plans to close 100 stores in August 2016. So far, it has announced 81 of the planned closures, including its Fountain Place store Downtown.

At the same time, Macy’s has opened dozens of smaller stores for its Bluemercury cosmetics chain and Backstage, a discount format launched in 2015.

Credit Suisse analyzed a half-dozen department store chains, which generated an average of $182 in sales per square foot in the 10 years prior to the 2008 recession. That number fell below $160 after 2009, prompting a wave of department store closures in recent years.

The pace of closures slowed in recent months, but Credit Suisse argues they aren’t over. While sales per square foot has improved, pre-tax profit per square foot “has continued to deteriorate,” it argues, “meaning the industry isn’t closing stores fast enough to offset increased investments and fixed-cost deleverage.”

While it suggests more closures for Macy’s department stores, Credit Suisse says the Backstage concept could increase its sales per square foot and is likely “the best use of capital” for Macy’s.

Credit Suisse placed a neutral rating on the stock with a price target of $31 per share, which is 5 percent higher than yesterday’s closing price of $29.44.