OREANDA-NEWS. Macy’s, Inc. (NYSE:M) today outlined a series of initiatives to drive profitable growth, enhance shareholder value and strengthen Macy’s as America’s preferred omnichannel shopping destination. The company will heighten the Macy’s brand with exclusive products and an improved shopping experience. Plans also include re-creating Macy’s physical store presence as customer shopping preferences and patterns evolve, reallocating investments to highest-growth-potential store and digital businesses, and capitalizing on opportunities within the company’s real estate assets.

(Editor’s Note: Macy’s, Inc. this morning also issued a separate news release announcing second quarter 2016 sales and earnings and reaffirming full-year 2016 guidance.)

“We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy’s heritage as a preferred shopping destination for fashion, quality, value and convenience. This involves doing things differently and making tough decisions as we position ourselves to serve customers who have high expectations of their favorite stores, online sites and apps,” said Terry J. Lundgren, Macy’s, Inc. chairman and chief executive officer.

“The announcements we are making today represent an advancement in our thinking on the role of stores, the quality of the shopping experience we will deliver, and how and where we reinvest in our business for growth. In the short term, our company’s topline sales will be somewhat smaller, but the changes being made will position us to grow comparable sales more quickly and generate a level of profitability that stands out among retailers,” said Jeff Gennette, Macy’s, Inc. president, who is designated to succeed Lundgren as chief executive officer in the first quarter of 2017. “We will continue to carefully analyze consumer shopping patterns and trends, and use data and customer insights as the basis for innovations to drive the business. You can look forward to a company that expedites decision-making, moves faster, and is bolder in its approach to the customer.”

Re-creating the Macy’s Store Portfolio

Macy’s is re-creating its physical store footprint to capitalize on Macy’s unique competitive advantage of operating in the most attractive retailing locations in America. While still maintaining a significant bricks-and-mortar presence in 49 of the top 50 U.S. markets, Macy’s will operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations. Stores will remain critical customer touchpoints for Macy’s, along with online shopping and mobile apps, as omnichannel retailing continues to evolve.

As part of this strategy, the company intends to close approximately 100 Macy’s full-line stores (out of a current portfolio of 728 Macy’s stores, including 675 full-line locations). Most of these stores will close early in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. In a number of cases, stores will be closed as the value of the real estate exceeds their value to Macy’s as a retail store. The locations of the 100 stores to be closed will be announced at a later date, once the company makes final decisions. The company will act to remain connected to customers of the stores it will be closing by supplementing merchandise assortments in surrounding locations, as well as through the company’s online site and mobile app.

“Customers nearly everywhere in America will have easy access to Macy’s stores, with the additional convenience and increased functionality of our dynamic digital offering,” Gennette said.

“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. We recognize that 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. We decided to close a larger number of stores proactively so we can invest in a winning customer experience in our most productive and highest-potential locations, as well as invest in growth sooner and more aggressively in digital and mobile,” Gennette said.

“We believe that this reduction of 100 locations in the short term will result in a more appropriate store portfolio for Macy’s in the longer term and help us to accelerate our progress in building a vibrant omnichannel brand experience. With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping,” he added.

Together, annual sales volume of the approximately 100 closed locations, net of sales expected to be retained in nearby stores and online, is expected to be roughly $1 billion. The reduction in EBITDA is expected to be offset by expense savings beyond those associated with store closings.

The company will communicate its store closing decisions directly with the associates in those locations prior to a public announcement. Macy’s is committed to treating associates affected by store closings with respect and openness. Associates displaced by store closings may be offered positions in nearby stores where possible. Eligible full-time and part-time associates who are laid off due to the store closing will be offered severance benefits.

Improving the Store and Online Shopping Experience

Macy’s will invest in improvements in ongoing stores and digital vehicles. These investments will take a range of forms.

In stores, Macy’s will be adding new vendor shops, bringing new businesses onto the sales floors through additional license agreements, increasing the size and quality of staffing through programs such as My Stylist personal shopping services, infusing new technology, accentuating high-potential businesses such as fine jewelry, and creating new in-store events and experiences.

Macy’s, Bloomingdale’s and Bluemercury also are reinvesting to maintain exceptional growth in digital sales – transactions generated from websites and apps. The company’s online business has grown at a compounded double-digit rate in each of the past 15 years, placing Macy’s, Inc. sixth on an independently published list of America’s largest-volume online retailers.

To foster continuation of this growth, the company is investing in capacity-building on its sites and apps, improvement in natural language search, faster page loading and simpler procedures for placing and fulfilling orders. Macy’s and Bloomingdale’s successful Buy Online Pickup in Store offering, introduced in 2013, is being refined to improve speed and convenience of the customer experience.

Moving Forward on Real Estate

The company continues to pursue opportunities to generate value from its real estate portfolio, consistent with our commitment to stores as a critical element of our long-term omnichannel strategy and balance sheet leverage objectives.

The company has been examining opportunities for four of Macy’s large downtown flagship stores in various cities. We are in negotiations to sell the Macy’s Men’s Store on Union Square in San Francisco for redevelopment. Details of that transaction will be made available if and when a deal is finalized. If a transaction is finalized, the Union Square Men’s Store likely will be closed after a comprehensive and compelling men’s shopping experience is built within the main Union Square store, which is located across the street. In that scenario, the Men’s Store will remain open until the new shopping environment in the main store is completed.

In addition to the flagship stores, the company continues to work on plans for optimizing its real estate portfolio in the context of our overall strategy, and it intends to continue to capitalize on situations where the development or redevelopment of all or a portion of a real estate holding exceeds the value of its existing use. This will occur through sales of assets or portions thereof (some of which are included in the 100 stores to be closed) and exploration of possible joint ventures or strategic alliances with development partners. We are in early-stage joint venture/strategic alliance discussions with various potential partners.