By Suzanne Kapner 

Macy's Inc. and rival Kohl's Corp. warned of weak holiday sales, more evidence that department stores have lost their central place in American retailing and the chains haven't been able to solve the shift to online shopping.

Macy's outlined restructuring plans Wednesday to eliminate more than 10,000 jobs, or 6% of its workforce, as the first nationwide department store chain retrenches and looks to find new ways to draw back shoppers.

"We are closing locations that are unproductive or are no longer robust shopping destinations owing to changes in the local retail shopping landscape, as well as monetizing locations with highly valued real estate," Chief Executive Terry Lundgren said.

The retailer said it would eliminate about 3,900 jobs with 63 store closings this spring, which are part of a plan announced last summer that will shut about 100 locations. It will also eliminate about 6,200 other positions as part of an effort to streamline operations so it can invest more in digital efforts and other growth areas such as the expansion of its Bluemercury and Macy's Backstage concepts.

Analysts generally expect the recently completed holiday season to be a strong one for retailers. The National Retail Federation, for instance, expects retail sales to increase 3.6%, more than the 3% gain of a year ago.

But department stores face particular challenges given their large size and dependence on brands, which now have their own retail stores that compete with the big box chains for customers.

On Wednesday, Kohl's warned of weak results, saying comparable sales declined 2.1% in the months of November and December from a year earlier. The chain, which operates 1,800 stores, lowered its profit targets for the current year.

"Strong sales on Black Friday and during the week before Christmas were offset by softness in early November and December," said Kohl's CEO Kevin Mansell.

Shares of Kohl's tumbled more than 12% in late trading, while Macy's fell 8%. The news pressured other retailers, with Nordstrom Inc. and J.C. Penney Co., also trading lower after the market closed.

Macy's said its sales declined 2.1% on a comparable store basis in November and December from a year earlier. As a result, Macy's lowered its earnings estimate for the current fiscal year to between $2.95 and $3.10 a share from a prior estimate of between $3.15 and $3.40.

Mr. Lundgren said he expects 2017 sales to decline at a similar rate to its holiday performance. The company has ramped up its digital efforts and Mr. Lundgren said online sales were strong this holiday, but Macy's continues to "experience declining traffic in our stores where the majority of our business is still transacted."

Macy's said the latest store closings would result in a $250 million charge in the fourth quarter and reduce its 2017 revenue by about $575 million. However, Macy's expects annual savings of about $550 million as a result.

"The big thing we're focusing on is what should our stores look like going forward?" said Karen Hoguet, Macy's chief financial officer, in an interview.

Ms. Hoguet said that Macy's will be testing new strategies this spring, but has already moved to eliminate back office space in some stores to enable it to provide the same level of service at lower costs.

She added that the addition of Macy's Backstage, a discount concept similar to T.J. Maxx, to existing Macy's department stores has helped boost traffic. As a result, Macy's plans to add 50 Backstage locations to existing stores over the next few years.

Ms. Hoguet said that despite the challenges, brick-and-mortar locations will continue to be crucial to retailers. "Research tells us that customers are visiting stores, and then buying online," she said.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

 

(END) Dow Jones Newswires

January 04, 2017 17:37 ET (22:37 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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