(CBS)– Macy’s (M) plan to shutter nearly 14 percent of its stores is the latest illustration of the gut-wrenching changes facing traditional retailers losing ever more ground to online rivals.
“Closing stores is not something we take lightly, but we do believe it will enable us to focus more on our better stores and on our digital business,” Karen Hoguet, Macy’s chief financial officer, told an investors in a conference call Thursday.
Most of the 100 impacted stores will close early in 2017, with the remainder ceasing operations as leases and operating covenants expire, are amended or waived, according to the company. In some locations, Macy’s concluded that selling the real estate was more lucrative than operating an existing store.
Still, the chain isn’t abandoning the bricks-and-mortar retailing business that it started before the Civil War, with Macy’s planning to maintain a presence in 49 of the top 50 U.S. markets.
“Nearly all of the stores to be closed are cash flow positive today, but their volume and profitability in most cases have been declining steadily in recent years,” Macy’s President Jeff Gennette, who will succeed Terry Lundgren as chief executive officer next year, said in a news release. “These locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy’s brand.”
Macy’s estimates that the 100 locations generated about $1 billion in revenue, a figure it hopes to make up through increased online sales. The chain hasn’t determined how many of its 157,000 or so employees will lose their jobs as the result of the planned closures.
Among the issues still to be addressed is the future of Macy’s four flagship stores, including its landmark building in New York’s Herald Square, one of the city’s top tourist attractions, along with others in Chicago and Minneapolis. The retailer is currently in negotiations to sell the Macy’s Men’s Store in San Francisco’s Union Square for redevelopment. If a deal is reached, the location will be moved across the street, Macy’s said in its statement.
The company, which has reportedly been trying to unload its flagship stores for months, did not return a request for comment.
Shares of Macy’s, which have fallen more than 40 percent over the past year, surged more than 15 percent Thursday after the announcement, which came with better-than-expected quarterly earnings.
Macy’s problems, which have been years in the making, aren’t unique. Many other retailers that once were cornerstones of local malls have withered amid intensifying competition from online retailers including Amazon.com (AMZN). And, the trend favoring online shopping shows no signs of slowing. Forrester Research expects web-based retail spending to hit $500 billion in 2020, up from $373 billion this year.
Not surprisingly, retailers such as Sears Holdings (SHLD), Gap (GPS) and Aeropostale (AROPQ) have looked to store closings to boost their bottom lines. Macy’s, for instance, has already closed about 90 stores over the past six years. Office Depot (ODP) said earlier this month that it would close an additional 300 locations in coming years after already shuttering 400 stores.
More closures seem to be inevitable.
‘We’re the most over-stored country on the planet,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment bank.
Mall owners, who have been experiencing a decline in customer traffic, are also in a bind. Many specialty retailers have conditions in their leases that require owners of the retail space to have a specified number of department store anchor tenants.
“There is no growth in the department store business, so other department stores are unlikely to move into those spaces,” Davidowitz said. “Malls have a gigantic problem. Many of them will be disappearing, and they will be a blight on their communities.”