Macy's to close 100 more stores. Is the department store era ending?

Macy's, the nation’s largest department store, announced Thursday its plan to close the stores next year to boost profits and invest in other areas, including its online business. 

Mark Lennihan/AP/File
The Macy's logo is seen down the street from the Empire State Building in New York. Macy's announced a change in CEOs on Thursday.

Amid competition from fast-fashion and discount-clothing retailers, plus online stores, Macy’s is downsizing.

The nation’s largest department store announced Thursday a plan to close about 100 stores next year to boost profits and invest in other areas, including its online business. The closures will comprise about 15 percent of Macy's stores.

"The announcements we are making today represent an advancement in our thinking on the role of the stores, the quality of the shopping experience we will deliver, and how and where we reinvest in our business for growth," said Macy's President Jeff Gennette, reported the Associated Press. Mr. Gennette will succeed Terry J. Lundgren as CEO in the first quarter of 2017.

The announcement comes on the heels of Wednesday’s news from Coach that it will stop selling handbags and leather goods at about 250 department stores across North America because the stores' steep discounts are hurting the luxury perception of the brand among shoppers. Though Coach did not say which department stores it would withdraw from, Macy’s is one of its biggest customers, as Forbes reports.

“While we understand that customers may use department stores for trial and shopping across brands, the high level of promotional impressions created negatively impacts our long-term brand health,” Coach Chief Executive Victor Luis told analysts during a presentation.

In May, Macy’s reported its steepest quarterly sales decline since the Great Recession. Other department stores, including Sears, Kohl’s, and J.C. Penney, also have been struggling, as have clothing retailers such as Gap. The Sports Authority, Pacific Sunwear, and Aeropostale all filed for bankruptcy this year.

The declines result from Americans’ changing shopping habits. Based on market data, people are spending more of their money on home improvement and travel. Home Depot, for instance, reported a 6.5 percent rise in sales in the first quarter of the year. The uptick may be driven by a recovering housing market. At the same time, department stores lost an estimated $348 million dollars in apparel revenue in the first quarter.

“Clearly our industry is in something of a rough patch ... but the consumer seems to be doing OK," Macy's CFO Karen Hoguet said on a May analyst call, according to CNBC.

Millennial consumers, at their peak years of spending, are certainly buying clothes, but they’re doing so mostly at discount stores like T.J. Maxx or fast-fashion chains like H&M. They're also shopping on, where apparel sales grew by $1.4 billion in the first quarter, according to The Wall Street Journal. Some forecasts expect Amazon to surpass Macy's as the largest online retailer of clothing next year, the AP reports.

Macy's operates 728 stores, 675 of which are traditional, Macy’s brand shops. The company already had closed 90 Macy's stores over the last six years, and opened 13 new locations, reports CNBC. It also opened six discount Backstage stores and bought upscale beauty-shop chain Bluemercury in 2015.

The 158-year-old retailer says it will use the savings from the shuttered stores to focus on businesses with more potential – Backstage and Bluemercury. It also will invest "more aggressively in digital and mobile," Gennette told CNBC.

Despite the department store’s sluggish sales and profits recently, its second quarter results beat Wall Street expectations, lifting its stock by 14 percent in early trading. Macy’s better-than-expected profits, and ones announced by Kohl’s, lifted US stocks Thursday morning, with the S&P 500 Index briefly topping its all-time high, as Bloomberg points out.

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