New York, NY – Macy’s, the iconic American department store chain, announced a major business restructuring plan this week that will involve shuttering 150 of its locations while expanding its upscale Bloomingdale’s and Bluemercury brands. This strategic shift aims to reposition Macy’s as a more high-end retail destination in the face of changing consumer preferences and competitive pressures.
The closures, representing over 25% of Macy’s current footprint, will occur over the next three years. Affected stores tend to be in declining malls and account for only around 10% of the company’s sales. Meanwhile, Macy’s plans to open 15 new Bloomingdale’s locations and 30 additional Bluemercury beauty stores. There are currently 58 Bloomingdale’s and 158 Bluemercury shops across the country.
“Our strategy is focused on the customer,” said Macy’s CEO Tony Spring in an interview with the New York Times. “We are looking to give her improved service and experience in stores that meet her needs, whether that’s luxury shopping at Bloomingdale’s or beauty offerings at Bluemercury.”
Shifting Focus to Upscale Offerings
The restructuring plan represents a strategic bet by Spring, a 40-year Bloomingdale’s veteran who recently took over leadership of the parent company, that Macy’s future lies in courting higher-end shoppers. Sales and foot traffic have stagnated at mid-market department store chains like Macy’s in recent years, as consumers increasingly favor off-price chains like T.J. Maxx or e-commerce players like Amazon.
However, the luxury segment has remained resilient. Brands like Nordstrom and Saks Fifth Avenue cater to affluent shoppers seeking personalized service and unique brands. Macy’s aims to capture a piece of this market by emphasizing Bloomingdale’s, known for its fashion-forward merchandise and upscale ambiance. Bluemercury offers a specialty beauty experience popular with millennials.
“The future for department stores lies in providing exceptional service and curated products to wealthy customers,” said retail analyst Claire Johns. “This strategy aligns with the strengths of Bloomingdale’s and Bluemercury. However, time will tell if it’s too little, too late as online retailers chip away at bricks-and-mortar business.”
Rightsizing the Macy’s Footprint
The 150 Macy’s closures represent the second major round of store reductions in the past four years, following the shuttering of 125 locations in early 2020. By the end of 2026, Macy’s will operate around 350 stores, down significantly from over 800 in its heyday.
Many of the soon-to-close stores are located in older malls and have struggled to drive foot traffic in recent years. However, some analysts question whether closing stores is the right long-term move given the ongoing relevance of physical retail.
“While rightsizing their footprint makes sense given market conditions, Macy’s needs to be careful not to cut too deep,” said retail consultant Rick Petry. “Many consumers still enjoy going to stores and trying on merchandise. The key is providing memorable in-store experiences, not just endlessly reducing locations.”
To that end, Macy’s plans to reinvest savings from real estate sales and other streamlining initiatives into renovating remaining stores. Changes could include improved visual merchandising, technology upgrades like self-checkout, and increased staffing for better customer service. The goal is to make shopping more experiential and enjoyable.
Fending Off Private Equity Interest
The restructuring plan comes amid activist interest in taking the retailer private. In December 2022, private equity firms Brigade Capital Management and Arkhouse Partners submitted an offer valuing Macy’s at $5.8 billion. They argue the company could optimize operations more efficiently away from short-term public market pressures.
Macy’s leadership has so far shown reluctance to cede control to private equity ownership. However, the board and management likely feel pressure to demonstrate a strong strategic plan and improved financial performance. The restructuring aims to show shareholders that Macy’s is actively transforming the business to drive growth and remain independent.
Earnings Maintain Momentum
Macy’s reported fourth quarter 2023 earnings this week alongside its restructuring announcement. Results provided some reassurance by beating Wall Street estimates, with sales coming in at $8.1 billion compared to expectations of $7.9 billion.
Bluemercury was a particular bright spot, with sales up 2.3% compared to last year. This validates Macy’s strategic focus on beauty. However, sales declined at Macy’s and Bloomingdale’s. The company faces an uphill battle to reaccelerate top line growth in its core department store brands.
Still, Macy’s quarterly numbers were strong enough to alleviate fears about the brand’s declining relevance. The company also expects to generate $600-750 million from real estate sales related to store closures, demonstrating prudent financial stewardship.
Looking Ahead with Cautious Optimism
Macy’s latest restructuring plan indicates a struggling retail giant taking bold steps to modernize its business in hopes of renewed prosperity. The focus on Bloomingdale‘s and Bluemercury plays to existing brand strengths while addressing upscale segments less impacted by e-commerce disruption.
However, successful execution remains critical as Macy’s faces entrenched consumer shifts, including the rise of Amazon and off-price players. Rightsizing its footprint should help efficiency, but Macy’s must also double down on delivering inspirational in-store experiences and omnichannel convenience to drive sales growth.
With its strong brand equity and vision for the future laid out, long-term investors should view Macy’s with cautious optimism. The pathway to regaining its perch as a premier American department store is challenging but achievable under prudent leadership focused on generating sustainable value.
