Where will it all go?
This story first appeared in the January 11, 2017 issue of WWD. Subscribe Today.
In an evolutionary fast-forward, Macy’s Inc. is shuttering 63 doors this spring in a broader streamlining that will cut more than 10,000 employees from its payrolls.
The idea is to trim stores that are less profitable or have valuable real estate to become leaner and meaner, better able to compete against the off-pricers, Amazon, the e-commerce hordes and everyone else scraping for market share.
It’s a move that nearly everyone, outside that 10,000, sees as necessary, if not overdue in an uber-competitive retail world where shoppers have access to more options than ever and are looking for better experiences when they do hit stores.
Lost in the mix of the closings: About $575 million in sales — enough revenue to make a venture capitalist cry for joy and fuel at least three tech start-ups to billion-dollar valuations.
The truth is, outright sales don’t mean so much in retail today. Macy’s logged sales of $26.1 billion in the last four quarters and has a market capitalization of just $9.4 billion. Better to have a smaller, hot brand that’s got more potential to grow than a empire that needs to be turned into…what next?
While Macy’s grapples with this, it’s not like any one player is going to swoop in and grab that $575 million, which is distributed across the country, from Bangor, Maine, to San Diego.
Everyone who wants a piece is going to have to fight for it because fashion retailers are mostly selling want-to-have, not have-to-have items. And that’s a big problem. People need to be motivated to spend.
“Any store in the market, whether it’s a good store or not, has to work really hard with local marketing, local public relations and local events to drive traffic,” said consultant Mortimer Singer, chief executive officer of Marvin Traub Associates. “The J.C. Penneys and Lord & Taylors in the vicinity, might be they get a small lift, potentially, but I wouldn’t call it a meaningful one.”
Macy’s isn’t just spending to drive traffic, but effectively spending to cut prices on goods to give shoppers that extra nudge once they’re in the stores.
Singer said such promotions were “a huge driver.” Retailers have to drive consumers to want to spend.
“Once that goes away [with store closings], if anything, you could argue that there’s less competition in the market and it softens the competitive nature of the market,” he said.
Some of the have-to-have purchases in that $575 million will go to other retailers. And the market share winners today will be different than they would have been 15 years ago.
“The biggest gainers have rotated from Wal-Mart, Target and Kohl’s earlier, to the last 10 years, it’s been T.J. [Maxx], most importantly and then Ross and then Burlington,” said Craig Johnson, president of Customer Growth Partners.
E-commerce has also been a factor and e-commerce means Amazon, Johnson said.
“They probably should have been more aggressive in pruning in the years ever since the May acquisition,” Johnson said, referring to the 2005 deal that brought May Co. and Federated Department Stores together and built the modern Macy’s.
“They still have a great brand name,” Johnson said. “It will be a much healthier, somewhat smaller company.”
Still, more than half-a-billion dollars in business is being cast away. The question is: Can anyone else make something of it?