M Macys Inc

By Suzanne Kapner 

Macy's Inc. said it will slash more than 10,000 jobs and detailed plans to close dozens of stores after another holiday season of weak sales, providing more evidence that department stores have lost their once-central place in American retailing.

Like its rival, Kohl's Corp., which also warned Wednesday of lackluster holiday results, Macy's hasn't been able to solve consumers' shift to online shopping. Macy's will close stores from San Diego to Bangor, Maine, and use the savings to boost its efforts to capture more e-commerce spending.

"We are closing locations that are unproductive or are no longer robust shopping destinations," Chief Executive Terry Lundgren said in a statement, adding that the company could make money off highly valued real estate.

On top of eliminating about 3,900 jobs with 63 store closings this spring -- part of a plan announced last summer that will shutter about 100 locations -- Macy's will cut about 6,200 other positions to streamline operations so it can invest more in digital efforts and other growth areas such as the expansion of its Bluemercury beauty outlets and Macy's Backstage off-price concept.

Analysts generally expect the recently completed holiday season to be a strong one for U.S. retailers, helped by higher wages, lower gas prices and rising employment. The National Retail Federation, for instance, expects retail sales increased 3.6%, more than the 3% gain of a year ago. But much of the growth has come online. Mastercard SpendingPulse estimated that e-commerce spending jumped 19% during the holidays, compared with an overall 4% increase in retail spending.

But department stores face particular challenges given their large size and dependence on brands, which now have their own retail stores and online venues that compete with the big box chains, as well as price pressures from fast-fashion retailers such as H&M and Zara. Also, analysts say demand was stronger for gadgets and toys than for the apparel and handbags that fill much of department stores.

On Wednesday, Kohl's warned that holiday results were weak, saying comparable sales declined 2.1% in the months of November and December from a year ago. The chain, which operates 1,100 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 ago. Assuming, business doesn't pick up considerably in January, it would mark the eighth consecutive quarter that Macy's sales have declined on that basis. Macy's lowered its per-share earnings goal for the current fiscal year, which ends Jan. 28, to a range of $2.95 to $3.10 from a previous estimate of $3.15 to $3.40.

Mr. Lundgren, who is preparing to step aside as Macy's CEO this year, said he expects 2017 sales to decline at a similar rate to the company's holiday performance. The company has ramped up its digital efforts and Mr. Lundgren said the company's 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."

The retailer, which also owns upscale department store Bloomingdale's, is only closing Macy's locations.

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 the closing to result in annual savings of about $550 million.

"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 a variety of new strategies this spring.

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 department stores over the next few years. The company has also been exploring options for some of its flagship properties such as its Herald Square store in New York City.

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."

Other retailers, including Wal-Mart Stores Inc. and Sears Holdings Corp., have tried to adapt to the shift by closing weaker locations and trying to compete with Amazon.com Inc. for customer loyalty.

Wal-Mart closed more than 100 U.S. stores last year and agreed to spend $3 billion to last fall to acquire online retailer Jet.com.

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

(END) Dow Jones Newswires

January 04, 2017 19:29 ET (00:29 GMT)

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