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Why This Major Retailer Is Closing 40 of Its Stores

By Motley Fool Staff - Jan 17, 2016 at 12:00PM

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Macy’s announces dozens of store closings and thousands of layoffs.

2015 wasn't a good year for Macy's (M -3.22%) -- the stock dropped nearly 47% -- but the company hopes to help the situation with 40 store closings and more than, 4,000 layoffs.

In this video segment, Motley Fool analysts Sean O'Reilly and Vincent Shen talk about what the retailer is hoping to accomplish.

Listen to the full podcast by clicking here. A transcript follows the video.

 

This podcast was recorded on Jan. 12, 2016.

Sean O'Reilly: So now we're talking about my favorite retail brand and yours, Macy's. They just announced a bunch of store closings. What was it, 40?

Vincent Shen: Yes. Store closings and layoffs. So we mentioned, Under Armour had a pretty good year -- I think up 19%, like we said.

O'Reilly: Macy's not so much.

Shen: Macy's has been struggling a little bit more. I have this down here where ...

O'Reilly: And they're not, just for listeners that may or may not be aware, they're not an outlier here. Nordstrom, Dillard's ... They all had a rough second half of last year.

Shen: Absolutely. So stock was down 47% in 2015, and pretty much all of that decline came after July. So the stock peaked around $73 and it's trading at about half that now. And the most recent announcement that from what I've seen has actually pushed the stock up quite a bit year to date is around those store closings that you mentioned, about 40 stores.

Four of them, they were already closed last year. 36 will be closed through the spring of this year. Some of those are local. They include stores around Chesapeake, Glen Allen, Norfolk, Richmond Virginia ... And they're hoping, along with the store closings and the layoffs ... They're laying off about 4,350 employees. That includes 3,000 sales associates, so about three to four sales associates per Macy's and Bloomingdale's location that they currently have. And then another 1,350 back-office service center employees. And even in terms of the senior management, they're giving 165 senior executives a "voluntary separation opportunity." So all that's going to add up ...

O'Reilly: Is that like "conscious uncoupling?" (Laughs) What is that?

Shen: So I think overall that's going to add up for a big part of that in terms of their expense reduction, which is going to be a big focus for them this year.

O'Reilly: Well not only that, but their average sales per store will automatically go up. No offense to any of these stores, but they're not closing the New York or the Tyson's Corner Macy's, or the ... It's in like Buffalo, New York ... Actually we're losing one in Hagerstown, Maryland up here in the DC metro area. There's one in Akron, Ohio at the Chapel Hill mall that's very close to where I grew up. They're not closing major stores. What they're trying to do is pivot to a mix ... And we're maybe getting ahead of ourselves here, but I love this move because they're pivoting through having these huge Amazon-like distribution centers for online sales. If you want to go shopping, you can find a Macy's, but it's going to be in a higher density urban area, and they'll just mail it to you I guess, I don't know.

Shen: I'm glad you mentioned that. You're absolutely right. These store closings are obviously going to be of their lower performing locations. They actually specifically say that the 40 stores will account for about $375 million in annual revenue. Keep in mind that their annual revenue overall is $27-$28 billion dollars. Drop in the bucket. Also keep in mind that ... They're hoping that $375 million doesn't just completely poof and go off, because some of those sales that might have happened at those locations will be diverted to nearby stores, for example. And also through their online efforts. Macy's now has really focused on their omni-channel strategy, about making the shopping experience attractive for somebody who's online, picking up in store, or actually going to the store to shop.

O'Reilly: It's just a good move, because that's inventory they don't have in these lower performing stores ... It's a good move.

Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Under Armour. The Motley Fool recommends Nordstrom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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