Expert: Macy's may eventually close 'hundreds' of stores

Shift to online retail still evolving
Posted at 7:46 AM, Jan 17, 2017
and last updated 2017-01-17 07:47:14-05

CINCINNATI - Macy’s Inc. fired the person in charge of in-store growth initiatives last week, prompting one retail expert to predict “hundreds” more store closures could be in the company’s future.

“We’re in the second inning,” said Howard Davidowitz, a New York-based retail consultant. “The fastest growing area of their business is online. What do you do with all these stores?”

Macy’s did not respond to questions raised by Davidowitz, a former Ernst & Young principal whose firm advises retailers on real estate and growth strategies.

Macy's Chief Financial Officer Karen Hoguet wouldn't rule out additional store closures in a November conference call with analysts.

“We think closing 100 stores roughly will get us to the optimal fleet size," she said. "Things happen all the time in terms of real estate, malls and locations that I can't predict. So, are we 100 percent sure that it's just 100 stores? No, of course not.”

Macy's fired Chief Growth Officer Peter Sachse on Jan. 9, according to a filing with the Securities and Exchange Commission. No explanation was offered for the “involuntary separation.” Sachse will receive a lump sum payment of $2.7 million and will not compete against Macy’s for three years, the filing stated.

The firing comes just a few weeks after Macy’s announced disappointing holiday results. Comparable store sales declined 2.7 percent. Online sales grew by double digits.

Macy’s said it will eliminate more than 10,000 jobs and identified 68 of the roughly 100 stores it expects to close in the next few years. Those moves will save about $550 million, of which $250 million will be invested in growth initiatives, starting with digital marketing.

“Our omnichannel strategies continue to evolve based on the changes in our customers' shopping behaviors, including a focus on buy online, pickup in store and mobile-enabled shopping,” CEO Terry Lundgren said in Jan. 4 press release. “We have invested in and enlarged our customer data and analytics team, which will help drive our new marketing strategies for 2017.”

Sachse was in charge of international sales and new-store formats, including the discount retail concept Macy's Backstage and Bluemercury, a cosmetics retailer that Macy’s is adding to its full-line department stores. Davidowitz said Macy’s increasing focus on its online business may have made Sachse the odd man out.

“Either the company was unhappy with his ideas or he was unhappy with the company,” Davidowitz said. “They’re doing 18 percent of their business online. They’re going to have to close a lot more stores.”

Davidowitz praised Macy’s for pursuing multiple strategies at once, including its new emphasis on discounting and the pursuit of real estate deals for up to 50 stores that could be redeveloped through sales or joint ventures. He also thinks Macy’s has done a good job of competing against online portals like Amazon Inc.

However, Davidowitz points to the Staples Inc. as an example of what’s inevitable for brick-and-mortar retailers. The office-products retailer has arguably done the best job courting online customers. estimatesStaples e-commerce revenue reached $10.7 billion in 2015, nearly half of its $22.5 billion total.

And yet Staples has closed 345 stores since 2011, or 18 percent of its total fleet. CEO Shira Goodman promised “continued rightsizing” in a November call with analysts, adding that the company has more than 200 leases expiring in each of the next three years.

Obviously, there are big differences between Macy's and Staples, which has 1,600 U.S. stores and a huge online business. Macy's has 888 stores -- including 675 full-line department stores -- many of which are 10 times bigger than a typical Staples store. But both suffer from the same ailment as the rest of the retail industry.

“We overbuilt,” Davidowitz said. “We had a free lunch and now we’re buying dinner.”