Shopping malls are dying.
This is a popular idea that many retailers have used to justify store closures, but it doesn't actually reflect reality. Traffic in shopping centres has been really heavy.
“Summer is well underway and malls are still active. In July 2024, visits to indoor and outdoor malls increased by 2.5% and 2.4%, respectively, compared to the equivalent period in 2023. Although these year-over-year increases were more moderate than the significant jumps seen in May and June, they underscore the segment's continued strong positioning,” according to data from ai/blog/placer-ai-mall-index-july-2024-recap—from-fourth-of-july-to-back-to-school”>Pleasure.ai.
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Of course, some malls have been stronger than others. “A” grade malls have been the most resilient, while smaller malls have seen their anchor stores close and traffic significantly reduced.
It is not correct to say that shopping malls are struggling. Instead, they have become more of a game of “haves” and “have nots.” You could say that successful malls have achieved even more success, while those that are struggling are at risk of closing.
This has forced retailers to make very difficult decisions. Several major brands have been selectively closing locations. One retailer, a mall anchor store, has been very aggressive in closing locations for what it claims to be a good reason.
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Macy's is making aggressive changes
Macy's (METRO) has been trying to stay ahead of changes in its stores, which has included changing its product mix.
“At Macy's, which was the store most impacted by the shift in consumer behavior, we aligned our assortments and modified our marketing calendar to better balance value and fashion. We enhanced our promotions and delivered more targeted, personalized messaging across all categories and brands. Additionally, we invested in new releases and proven areas of strong product, while reducing our exposure to areas of weaker demand,” CEO Tony Spring said during the retailer's conference call. Second Quarter Earnings Conference Call,
Spring noted that Macy's saw challenging behavior from its customers in the latter part of the quarter.
“As the quarter progressed, our customers became more selective, which we attribute to the ongoing macroeconomic uncertainty and an increasingly complex news cycle. As trends diverged from our expectations, we did not sit idly by. We took proactive steps to drive profitable sales, protect our gross margins and further control SG&A expenses. As a result, while second quarter sales of $4.9 billion were slightly below our outlook, adjusted earnings per share of $0.53 were well above,” he added.
“At Macy's, which was the store most impacted by the shift in consumer behavior, we aligned our assortments and modified our marketing calendar to better balance value and fashion. We enhanced our promotions and delivered more targeted, personalized messaging across all categories and brands. Additionally, we invested in new arrivals and proven, strong product areas while reducing our exposure to areas of weaker demand,” shared CEO Tony Spring.
Once lauded as one of the top-performing department chains, Macy's and many of its direct competitors have struggled with overexpansion and massive changes in retailing that have often made the value of their physical stores greater than their actual business.
Plus, they have Walmart. (WMT) Aim (TGT) and Costco Wholesale (COST) to compete, not to mention intense online competition from companies like amazon.com. (amazon.com) .
Macy's shares have fallen 78% since peaking in mid-2015. In mid-July, the company walked away from a $6.9 billion takeover offer of two investment companies.
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Macy's to close 150 more stores
In addition to managing its merchandise and promotions, Macy's plans to exit markets where it doesn't believe it can operate profitably.
The chain has divided its stores into “direct sales” and “non-direct sales” stores. The company continues to invest in new merchandise for its direct sales locations.
“Following two consecutive quarters of better-than-expected performance, we are pleased to announce that we will be rolling out staffing trials for women's footwear and handbags and approximately 100 additional locations this fall. These trials will provide valuable insights to be used as we further refine our initiatives,” Spring said.
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The chain's 150 locations that are not in the process of being sold will be closed, but only when the company can sell them through a favorable agreement.
“As a reminder, in fiscal 2023, comparable sales at non-construction locations outperformed non-construction locations by approximately 500 basis points and four-wall adjusted EBITDA rate outperformed non-construction locations by approximately 950 basis points. While non-construction locations are underperforming relative to Macy's total fleet, they are valuable real estate assets. Demand for these properties has been strong,” Spring said in his statement.
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While all 150 projects will eventually be sold and closed, the pace will be slow.
“We are pleased with the pace and quality of transactions and now expect to close approximately 55 stores this year, compared with prior expectations of approximately 50,” he added.
Macy's has not shared a specific timeline for the closure of the remaining locations that will not be reopening.
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