John Nelson & Katie Sloan/Midwest Real Estate News – Macy’s Inc. (NYSE: M) and Sears Holdings Corp. (NASDAQ: SHLD) both announced on Wednesday plans to close a large number of department stores in an effort to improve their long-term operating performance. Macy’s will close 68 stores and Sears will close 150 non-profitable stores comprising 109 Kmart and 41 Sears locations.
“We are taking strong, decisive actions today to stabilize the company and improve our financial flexibility in what remains a challenging retail environment,” says Edward Lampert, chairman and CEO of Sears Holdings. “We are committed to improving short-term operating performance in order to achieve our long-term transformation.”
Jeff Green, president of Jeff Green Partners, a retail consultancy based in Phoenix that works with retailers and shopping center owners, suspects that the footprint of these department stores has contributed to the recent woes of Macy’s and Sears.
“Department stores, by sheer definition, are oversized for this changing retail environment and may be a critical factor, though only one factor, in deciding which stores to close,” says Green. “It is interesting to see just how large some of the older stores on the Macy’s store closure list are. For example, two suburban stores to be closed in Detroit are an average of 400,000 square feet, whereas the newer Macy’s stores are no larger than 140,000 square feet. Even 140,000-square-foot stores are oversized for the changing nature of retail going forward.”
Macy’s to Shutter 10 Percent of Portfolio
Cincinnati-based Macy’s Inc. announced the closure of 68 stores and layoff of 10,000 employees. These closures are part of the approximately 100 closing announced in August 2016.
These closures comprise roughly 10 percent of Macy’s locations, and will be implemented by mid-2017. The company also announced plans to eliminate layers of management to reduce costs, which will result in the layoff of roughly 6,200 employees. An additional 3,900 workers will be displaced by store closures.
“It is essential that we maintain a healthy portfolio of the right stores in the right places,” says Terry Lundgren, Macy’s outgoing chairman and CEO. “Our plan to close approximately 100 stores over the next few years is an important part of our strategy to help us right-size our physical footprint as we expand our digital reach.”
Of the 68 stores, three closed in mid-year 2016, including the stores at Laurel Plaza in North Hollywood, Calif., Ala Moana Jewel Gallery in Honolulu and Valley Fair in West Valley City, Utah. The remaining stores will be closed in the early spring, with two closing this summer.
Three other locations were sold, or are to be sold, and are being leased back by Macy’s. These include two San Francisco stores — Stonestown Galleria and Union Square Men’s — and a store in Tyson’s Galleria in McLean, Va.
Macy’s intends to close approximately 30 additional stores over the next few years as leases or operating covenants expire or sale transactions are completed.
As a result of closing 63 Macy’s stores in early 2017, along with the three closed mid-year 2016, the company’s 2017 sales are expected to be negatively impacted by approximately $575 million. This reflects the company’s ability to retain sales at nearby stores and on macys.com through targeted marketing and merchandising efforts.
Associates displaced by store closings may be offered positions in nearby stores where possible. Eligible full-time and part-time associates who are affected by the store closings will be offered severance benefits. The company estimates that 3,900 associates will be displaced as a result of these closures.
Four new Macy’s and Bloomingdale’s stores are currently planned and/or under construction, as previously announced. These include new Macy’s stores in Los Angeles and Murray, Utah, as well as new Bloomingdale’s stores in San Jose, Calif., and Norwalk, Conn.
Macy’s Inc. also plans to open new Macy’s and Bloomingdale’s stores in Abu Dhabi, and one Bloomingdale’s store is planned to open in Kuwait, all under license agreements with Al Tayer Group. The company also plans to continue its expansion of Macy’s Backstage (within Macy’s stores) and Bluemercury (freestanding and within Macy’s stores).
All told, the store closures and layoffs are expected to generate annual expense savings of approximately $550 million. Macy’s plans to invest an additional $250 million into digital and store-related growth strategies, the company’s Bluemercury and Macy’s Backstage concepts and growth in China.
Macy’s stock closed on Wednesday, Jan. 4 at $35.84 per share, up slightly from $35.79 per share last year. For a list of store closures, please click here.
Sears to Close Stores, Sell Craftsman Brand
Suburban Chicago-based Sears Holdings is looking to transform itself from a store-based, asset-intensive business model into a membership-focused, asset-light business model. Sears will invest its efforts in building up its Shop Your Way membership platform, which is a membership network with tens of millions of active participants, according to Lampert.
The 150 Kmart and Sears stores collectively generated about $1.2 billion in sales over the past 12 months, but they generated an adjusted EBITDA loss of approximately $60 million over that same period, according to Sears.
“The decision to close stores is a difficult but necessary step as we take actions to strengthen the company’s operations and fund its transformation,” says Lampert. “Many of these stores have struggled with their financial performance for years and we have kept them open to maintain local jobs and in the hopes that they would turn around. But in order to meet our objective of returning to profitability, we have to make tough decisions and will continue to do so, which will give our better performing stores a chance at success.”
In addition to the store closures, Sears has entered into an agreement with Stanley Black & Decker to sell its Craftsman brand for $775 million. The transaction includes the use of a perpetual license for the Craftsman brand, royalty fee for 15 years and a 15-year royalty stream on all third-party Craftsman sales to new customers. Stanley Black & Decker will pay Sears $525 million at closing and $250 million in three years.
Sears has also increased its liquidity by nearly $1 billion through both a newly entered $500 million real estate backed loan, secured by real estate properties valued at over $800 million; and a previously announced standby letter of credit facility of up to $500 million from affiliates of ESL Investments Inc., issued by Citibank.
Sears stock price closed on Wednesday at $10.36 per share, down from $19.02 per share last year. For the full list of store closures, click here.