Macy's to close 150 stores, or about 30% of its locations

Macy's on Tuesday said it plans to close roughly 150 underperforming stores over the next three years, the struggling retailer's latest effort to energize its business as it seeks to fend off a proposed takeover by activist investors. 

The department store chain said it plans to focus on expanding its luxury brands, Bloomingdale's and Bluemercury. Macy's will shutter 50 stores over the next year. Overall, the restructuring plan will leave Macy's with 350
outlets. In an email to CBS MoneyWatch, Macy's said it isn't disclosing the locations that will be closed.

The announcement of the store closures comes after Macy's last month rejected a $5.8 billion takeover offer from investing firm Arkhouse Management and its partner Brigade Capital Management. Financial firms have eyed Macy's partly for its multibillion-dollar real estate portfolio, which some say is undervalued in the stock market.

With this new plan coming just weeks after Macy's rebuffed the offer, the overhaul is designed to offer "a positive narrative" that "is desperately needed to reassure investors," noted Neil Saunders, an analyst at GlobalData, in a research note. 

Macy's CEO Tony Spring, who stepped into the role this month after leading Bloomingdale's for nine years, said the plan to close the underperforming stores will eventually help Macy's to stabilize its sales, with a focus on customer service and updated product lines.

The problems facing Macy's are "similar to what I first encountered at Bloomingdales — it's going back to basics and balancing the art and science of retail," Spring said in a Tuesday conference call with investors. 

The stores that will be closed represent about a quarter of Macy's square footage but account for about 10% of sales. 

"Our threshold to keep a store open has become more stringent," he said. "In the past we may have continued to operate a store that was cash flow positive. Now the bar has been raised."

Macy's didn't disclose the stores it plans to wind down. But one notable location set for the chop is the retailer's flagship in San Francisco's once bustling Union Square shopping district, according to the San Francisco Business Times. The store is one of Macy's largest and oldest locations, with the building dating to 1929 when the company operated under the name O'Connor, Moffat & Co., CBS News Bay Area reports.

"Historical neglect"

Focusing on the retailer's 350 better-performing stores could pay off for Macy's, which has been plagued by declining sales amid a "historical neglect of the business," Saunders added.

"Here the business will 'modernize' the shopping experience, which we hope means that stores will be given a full refurbishment and proper staffing levels to provide a level of service and visual appearance that is appropriate for mid-tier department store," Saunders said.

He added, "This is the critical area where Macy's has constantly fallen short, so we wait with bated breath to see if this is the correction that has long been needed."

Sales slump

Like other brick-and-mortar retailers, Macy's is battling an industrywide sales slump brought on by rising competition from online retailers. The company on Tuesday said its fourth-quarter net sales slipped 1.7% to $8.1 billion. Same-store sales at Macy's declined 6% in the fourth quarter.

Spring signaled that Macy's may face some tough near-term headwinds, given the economic struggles of some U.S. shoppers, despite an improving economy. 

"The likelihood of a recession is now lower than it was a year ago. Inflation has slowed, but so has labor and wage growth," he said on the call. "As such, we expect our consumer to remain under pressure."

At the same time as it's planning on closing some locations, Macy's plans to shore up sales by expanding its small-format stores, which it thinks can provide more convenience to customers. It announced plans in October to add up to 30 small-format locations through the fall of 2025, bringing the total number to roughly 42. The next round of expansion starts in the fall.

Before the planned store closures, Macy's had been cutting jobs to bring down its costs. In January, Macy's said it would trim 3.5% of its total workforce, or roughly 2,350 employees, and shut five stores. Those previously announced store closures are in Arlington, Virginia; San Leandro, California; Lihue, Hawaii; Simi Valley, California; and Tallahassee, Florida, according to CNBC.

Macy's has been closing underperforming stores for years, with the retailer operating about 640 stores across the U.S. in 2018, according to company data. By closing 150 stores over the next three years, Macy's expects to book asset sale gains of as much as $350 million, Spring said on the call. 

Macy's shares rose 5.7% in morning trade to $20.40, valuing the company at $5.6 billion.

—With reporting by the Associated Press.