by Wolf Richter, Wolf Street:
Brick-and-mortar retail sinks artfully into coma.
It’s been a tough quarter for Macy’s. Again. Sales dropped 4% to $5.87 billion in the second quarter, it reported today. It had already closed 41 “underperforming Macy’s stores” in its fiscal year 2015. So among the remaining company-owned stores, comparable sales fell 2.6%. Operating income plunged 73% to $117 million. Net income plummeted 95% to a nearly invisible $11 million, or 3 cents a share.
The first quarter, on a year-over-year basis, was even worse. So for the first half, sales dropped 5.7%, operating income 53%, and net income 82%.
“We are encouraged by the distinct improvement in our sales and earnings trend in the second quarter,” is how CEO Terry Lundgren explained the phenomenon. He even gave credit to “a normalized weather pattern” – rather than blaming the weather, as is normally the case. And tourist spending dropped again, but less than before.
Then came the music to Wall Street’s ears.
In a separate statement, Macy’s announced that it would be “reallocating investments to highest-growth-potential store and digital businesses, and capitalizing on opportunities within the company’s real estate assets.” These changes “represent an advancement in our thinking on the role of stores….”
What this corporate speak means in numbers is this: It will shutter “approximately” 100 Macy’s full-line stores, or about 15% of its current 675 full-line stores. Final decisions which stores to close haven’t been made yet, it said. Most of this will happen in early 2017.
And there’s a real estate angle, testament to the breath-taking commercial property bubble that has transpired across the US, and particularly in large urban markets. It’s going to shutter “a number of stores” and sell the locations because the “value of the real estate exceeds their value to Macy’s as a retail store.”
One of them is the Macy’s Men’s Store on Union Square in San Francisco, a fabulously expensive location. It’s a big store, with a number of floors. You don’t have to wind past perfumes, bras, stockings, and handbags to get to the escalators or the underwear section. It’s a little threadbare, but who cares. I treat shopping like I treat unpleasant jobs around the house, such as replacing tile grout in the shower. When I finally decide to do it, I make a plan, and I execute the plan as efficiently as possible. That store allows me to get in, get my business done, and get out.
But that’s not what Macy’s wants. It wants me to wander past bras and perfumes apparently. So it’s “in negotiations” to sell the property. If the deal goes through, the big men’s store will be shuttered, and merchandise will be crammed into a floor or so in “a comprehensive and compelling men’s shopping experience” at the women’s store across the street. Surely, men can find other suppliers for their stuff, like online.
Please follow SGT Report on Twitter & help share the message.