Retail investors have had serious concerns for several years about the potential impact of e-commerce on physical retail. Then the pandemic happened, and a record 12,200 stores closed in 2020 alone, according to commercial real estate firm CoStar Group.
But then things began turning around quickly as people started getting out more. Last month, global advisory and research firm Coresight Research announced that as of Dec. 16, only 5,079 stores had closed in 2021 -- and that number was actually outpaced by the 5,080 stores that opened during the same period.
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Now, Macy's (M 1.44%) is kicking off the new year by announcing several store closures. The six Macy's stores announced in this latest round of closings are expected to close in late July to early August, and a Bloomingdale's closure should take place at the end of this month.
Perhaps more disturbing, though, the retailer's plans involve many more closures to follow -- ultimately 125 locations, or one-fifth of its stores, as part of a three-year plan. This isn't what retail real estate investors want to hear. So, let's take a look at the Macy's announcement and explore how the retailer's plans for its future could impact physical retail.
Physical stores continue to fill a crucial role
It's important to note that these store closures are part of strategy the company unveiled shortly before the pandemic even became an issue. So while the pandemic did lead to many retailers shutting their doors for good at the height of the pandemic, that hasn't played a role in this case and therefore shouldn't raise suspicion that more physical retailers are failing.
Macy's CEO Jeff Gennette explained during the company's third-quarter conference call in November that the retailer performs better online in markets where the company has a physical presence. My colleague Reuben Brewer recently explored this concept further in a piece you can check out here. What this means is that while Macy's is getting more strategic about where it chooses to have physical stores, going online-only would not be in the company's best interest.
And in more good news, while Macy's is closing some stores, the retailer is continuing to open and invest in the success of others. Macy's has been opening more of its smaller off-mall stores and plans to continue doing so. The retailer also plans to open 400 small Toys R Us shops in its stores starting this year, having taken the concept for a spin with Toys R Us products available on its website during this past holiday shopping season.
Macy's is not leaving physical retail behind
On hearing that Macy's is planning multiple rounds of store closures, you might suspect that the company is backing slowly away from its brick-and-mortar presence following a rough patch for physical retail. But the fact that these plans have been in place for a while proves that this is not more fallout from the pandemic.
And perhaps most importantly, the retailer's continued opening of smaller-format stores as well as hundreds of Toys R Us shops within its own stores demonstrates an ongoing dedication to brick-and-mortar retail. Like most retailers, Macy's continues to see physical retail as an important part of its business model going forward, and that's great news for retail investors.
