Strategy

Macy’s Shares Rise 17% on Store Closure Plan

"There has to be a rationalization and we're not waiting anymore," Macy's CEO says of the plan to close 100 stores.
Matthew HellerAugust 11, 2016

Macy’s shares surged more than 17% on Thursday after the struggling retail giant announced better-than-expected second-quarter results and that it would close 100 stores, representing about 15% of its locations.

Most of the stores to be closed were underperformers or in weak locations, but Macy’s said others were more desirable as a redevelopment opportunity than as a retail outlet. The retailer has been under pressure from activist investors to evaluate its real estate.

“We believe there is too much retail square footage in the department store space,” Macy’s President Jeff Gennette, who will take over as CEO next year, told The Wall Street Journal.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

For the second quarter, Macy’s sales fell 3.9% to about $5.9 billion, but beat analyst expectations for sales of $5.8 billion. Excluding one-time items, the company earned 54 cents a share, compared with estimates for 48 cents.

In trading Thursday, Macy’s stock closed at $39.81, up 17.09%. “We are encouraged by the distinct improvement in our sales and earnings trend in the second quarter,” CEO Terry Lundgren said in a news release.

Research firm Green Street Advisors has estimated that department stores need to shutter roughly 800 locations, or about a fifth of all mall anchor space, to regain the sales productivity they had a decade ago. The U.S. has 7.3 square feet of retail space per capita, compared with roughly 1.3 square feet in the United Kingdom and 1.7 square feet in France.

Macy’s and other major apparel-heavy retailers such as Kohl’s and Nordstrom are grappling with declining foot traffic at shopping malls as consumers increasingly shop online and spend less on apparel.

“I felt like we were going to reach a tipping point that would force a vicious, fundamental reset in the physical retail world and that’s what we’re seeing,” Richard Church, managing director for retail at the research firm Discern Group, told the Los Angeles Times.

Macy’s closures represent $1 billion in sales that will be up for grabs by its competitors. “There has to be a rationalization and we’re not waiting anymore,” Lundgren told CNBC.