Macy's will close 100 stores so it can spend more on digital tech

The retailer on Thursday ​said it's working to align its in-store and online shopping experiences by allocating more funds to its digital businesses and ongoing stores.
Written by Natalie Gagliordi, Contributor

Department store giant Macy's is doubling down on its e-commerce and digital strategy as it tries to become "America's preferred omnichannel shopping destination."

The retailer on Thursday said it's working to align its in-store and online shopping experiences by allocating more funds to its digital businesses and ongoing stores.

There will also be a greater focus on digital technology, including natural language search capabilities, improved online ordering and fulfillment systems, capacity building on its sites and mobile apps, and an upgrade to its "Buy Online, Pickup in Store" service.

Macy's is also planning to close around 100 stores in order to focus spending on its highest-growth-potential locations and new digital tech. The company said it wants to find ways to capitalize on its remaining real estate assets to bolster its e-commerce business.

Truth be told, this is an ongoing mission for the retailer, but it appears it's finally paying off.

Macy's on Thursday reported Q2 earnings of 54 cents per share on revenue of $5.87 billion. Wall Street was looking for earnings of 45 cents per share on revenue of $5.75 billion. Macy's shares soared as much as 15 percent in early trading.

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For the year to date, Macy's said total sales have reached $11.637 billion, down 5.7 percent from $12.336 billion in the first half of 2015. For a legacy, brick-and-mortar department store chain, these numbers could have been a lot worse.

Macy's reiterated its full-year guidance, with expected earnings per share of $3.15 to $3.40, and a drop in same-store sales that's between 3 percent and 4 percent.

Macy's said comp sales fell a modest 2 percent in the second quarter, aided by the previous closure of 41 underperforming stores.

"A number of factors worked in our favor in the second quarter, including a normalized weather pattern, which contributed to a sales lift in our apparel business in particular," Macy's CEO Terry Lundgren said in prepared remarks. "We also saw a smaller decrease in tourist spending during prime summer travel months, supported by strengthened promotional events designed to increase customer traffic and conversion."

Most of the 100 stores set to close will do so early next year. The locations of these stores have not been disclosed, but Macy's admits nearly all of them are cash-flow positive, but "their volume and profitability in most cases have been declining steadily in recent years," said Macy's president Jeff Gennette. He's slated to take over the CEO role from Lundgren in 2017.

Gennette said the savings from the store closures will allow the company invest more aggressively in digital and mobile. Some of this investing has already begun. Last month, Macy's debuted "Macy's On Call", a mobile app rooted in GPS technology that will use machine-learning and cognitive-computing technology via IBM Watson to assist shoppers in-store.

Obviously, there's still a lot of work to be done to make Macy's a truly digital-first retailer, but the company is taking the necessary steps to get there. The success barometer will be if and when Macy's can stave the sales bleed and officially return to growth.

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