Macy’s expansion strategy made it the largest player in a shrinking market by the late 2000s. However, in 2024, as more consumers opted to purchase items like clothing and appliances online, sales at Macy’s department stores declined by 42.67%. This issue is further complicated by various factors affecting the company’s current and future performance. So, is Macy’s going bankrupt?
The newly appointed CEO, Tony Spring, constantly tries to improve Macy’s performance despite nationwide store closures and the possibility of a buyout.
Key Takeaways
- Significant Sales Decline: Macy’s has experienced a notable sales decline, down 42.67% since its peak in the late 2000s. This decline is attributed to the growth of e-commerce and changing consumer purchasing habits, which have shifted towards online shopping.
- Strategic Store Closures: Macy’s plans to close 150 stores by 2026, with 50 closures by the end of 2024. This is a strategic move to focus on its more profitable locations and improve overall performance. The closures are part of a broader effort to streamline operations and adapt to the changing retail landscape.
- Focus on Luxury and Digital Engagement: Macy’s is expanding its luxury brands, Bloomingdale’s and Bluemercury, to cater to affluent customers. The company is also enhancing its digital presence to provide a seamless shopping experience across different channels, recognizing the need to stay competitive in a predominantly digital retail environment.
- Hostile Takeover Attempts: Macy’s has faced unsolicited bids from private equity firms aiming to acquire the company. Although Macy’s has rejected these offers, it highlights the company’s ongoing challenges and pressures in maintaining its public status and adapting to the evolving retail market.
Macy’s Faces New Era of Strategic Store Closures Amid E-Commerce Challenges
Macy’s has been facing challenges with falling sales and profits, worsened by changes in consumer behavior and the growth of e-commerce. On February 27th, after reporting a loss and decreased sales for the fourth quarter, Macy’s announced it would shut down 150 stores by 2026, starting with 50 closures by the end of 2024. After these adjustments, Macy’s will operate around 350 stores.
This news comes after Macy’s reduced its workforce by approximately 3.5%, to about 2,350 employees.
These closures are part of a larger effort to streamline its business and concentrate on its more lucrative locations, specifically under its Bloomingdale’s and Bluemercury brands. Macy’s is also planning to expand in the luxury market, opening 15 Bloomingdale’s stores and 30 Bluemercury cosmetics stores.
Despite these strategic moves, Macy’s projected a subdued outlook for the upcoming year, even though its adjusted net income and revenue exceeded analysts’ predictions.
Macy’s new “A Bold New Chapter” is adapting to a retail environment that has evolved as the middle class has declined, splitting the market between value-focused stores like Walmart and higher-end brands. By focusing on affluent customers through its luxury brands, Bloomingdale’s and Bluemercury, Macy’s is reducing its presence in locations mainly serving middle-income shoppers.
This approach aims to protect against pressures from activist investors and improve the company’s stagnant stock price and declining sales. Macy’s and the broader department store industry have faced numerous challenges recently. The company has been competing with Amazon’s expansion, the rising presence of discount chains like TJ Maxx, and various online retailers.
Macy’s has described its new business strategy as customer-centric, but it also has a legal duty to prioritize shareholder interests. The company has acknowledged its declining relevance and value, yet it still sees itself as a contender in the luxury market. Such significant challenges could lead to bankruptcy for a company with less brand recognition than Macy’s. Businesses facing insolvency may opt for Chapter 7 or 11 bankruptcy. Closing less profitable stores to concentrate on more viable ones is a common method in Chapter 11 reorganizations, similar to tactics employed by other major companies facing financial difficulties.
Macy’s stock has plummeted 75% from its 2015 peak of $73 per share. Since then, it has shuttered nearly 300 stores, which constitutes about a third of its locations, yet it still maintains around 700 stores across its various brands.
CEO Tony Spring Highlights Necessity of Store Closures for Long-Term Growth
CEO Tony Spring noted in a recent discussion that the 150 Macy’s stores scheduled to be closed over the next three years account for 25% of the company’s total store area but contribute less than 10% of its sales. Spring explained that many of these stores are remnants of a past retail era and that shutting them down is necessary for the company’s survival and growth.
Spring also emphasized the company’s awareness of store closures’ negative impacts on employees, customers, vendors, and local communities. However, he described these actions as essential in adapting to modern shopping preferences, clarifying that the goal is to improve rather than reduce the company’s footprint.
According to Spring, the department store industry continues to face challenges, with increasing competition from discount retailers and online-first brands. He also pointed out that visits to malls during weekdays have significantly decreased. Moreover, he acknowledged the need for further investment in physical stores while recognizing that digital disruption has fundamentally altered the industry’s landscape.
The Looming Threat of Hostile Takeover
Macy’s is also facing the potential threat of a hostile takeover. In late 2023, private equity firms Arkhouse and Brigade Capital Management presented an unsolicited bid to purchase Macy’s for $5.8 billion, which Macy’s board rejected due to concerns over the deal’s financial structure, heavily reliant on debt.
In March of this year, Arkhouse and Brigade Capital Management increased their offer to $24 per share, totaling approximately $6.6 billion. Following this revised bid, Macy’s acknowledged receipt of the proposal and announced its intention to assess and consider this new offer thoroughly, emphasizing its commitment to exploring all options that could enhance shareholder value. The bid exceeded $6.9 billion before Macy’s rejected the offer.
Macy’s is attempting to reinvent itself amidst increasing pressure to go private, and there are lingering doubts about the effectiveness of its current revival strategies. Tony Spring is resolute in his plan to overhaul Macy’s, recognizing that significant changes are necessary.
Spring emphasized that maintaining the status quo is not an option, stating, “We are not going to leave Macy’s as it is today. It’s foolhardy to think that leaving the business as it exists today is a recipe for success in the future.”
Macy’s is actively pursuing increased digital engagement as part of its Bold New Chapter strategy. This strategy aims to modernize the shopping experience and create seamless, convenient customer interactions across various channels, with a strong emphasis on digital improvement.
The retailer is not alone in facing the necessity for significant updates to remain competitive. In September, JCPenney Co. disclosed plans to invest over $1 billion to improve customer experience and operations, including upgrading its eCommerce to offer a more personalized shopping experience. Similarly, high-end department stores adjust as luxury brands capitalize on digital trends to establish more direct customer connections.
As Macy’s makes critical decisions about its future, including dealing with recent takeover attempts, it finds itself at a crucial point. The company might continue as a public entity or transition to private ownership, reflecting the broader industry’s dynamic changes and the increasing need for adaptability.
While facing these challenges, declaring Macy’s near bankruptcy would be premature. The company retains substantial assets and a strong brand identity, which could help it manage current adversities. Macy’s leadership focuses on boosting profitability through cost reductions and strategic closures and focuses on luxury and online sales.
However, Macy’s must persist in adjusting to a retail world where digital sales dominate and physical stores have a transformed role. The effectiveness of its strategies will hinge on its ability to streamline operations effectively while maintaining its customer base and carving out a competitive position against traditional and online rivals.
About Macy’s
Macy’s Inc is a retailer with a wide presence across various channels, including brick-and-mortar department stores and online platforms through its websites and mobile apps. The company sells a range of products, including clothing for women, men, and children, home furnishings, beauty products, intimate wear, footwear, and accessories. It operates under several brand names, including Bloomingdale’s, Bloomies, Bloomingdale’s The Outlet, Macy’s, Macy’s Backstage, Bluemercury, and Market by Macy’s.
Macy’s products are available on its e-commerce sites like bluemercury.com, Bloomingdales.com, and Macys.com. The company operates in several regions including the US, Columbia, the UAE, Puerto Rico, and Guam, with its headquarters located in New York, USA.
Conclusion
As Macy’s navigates this critical period, it’s important to consider the retailer’s substantial assets and strong brand identity. These factors provide a cushion as Macy’s works to adjust to the digital landscape’s demands and defend its position against online competitors. While it would be premature to declare Macy’s close to bankruptcy, the company faces significant challenges.
Its leadership is focused on revitalizing profitability through a combination of cost reduction, strategic store closures, and a greater emphasis on luxury and digital sales. The effectiveness of these strategies will ultimately determine Macy’s ability to adapt and thrive in a market where e-commerce continues to shape consumer behaviors.
