Macy's: Growth Through Closures.. Expect Others To Follow (M, KSS, SHLD, TJX, JCP)

In a slowing retail environment, Macy’s (NYSE: M) has decided it’s time to close some stores.  This may not sound like a great ‘growth strategy’ for a retailer, but some companies reach the size that sometimes growth has to occur during actual contraction.  It has slated 9 stores to be closed. 

Macy’s isn’t stopping all growth plans, although if this review gets sharper it could lead to a flat store count through time. It opened 10 new stores and one furniture gallery in 2007. In 2008, Macy’s expects to open five stores, with an additional six to eight new locations currently planned for 2009.  Macy’s currently operates more than 850 department stores, so this is a small drop in the bucket and will only have a limited impact in longer-term sales models.

Below are the nine stores getting the boot:

• Washington Square in Indianapolis, IN (opened in 1974);
• Prien Lake Mall in Lake Charles, LA (opened in 2003);
• Rolling Acres Mall in Akron, OH (opened in 1978);
• Canton Centre in Canton, OH (opened in 1968);
• Randall Park Mall in North Randall, OH (opened in 1976);
• Crossroads Mall in Oklahoma City, OK (opened in 1986);
• Valley View Center in Dallas, TX (opened in 1973);
• Sharpstown Center in Houston, TX (opened in 1961);
• Family Center at Riverdale in Riverdale, UT (opened in 2003).

I don’t know if these other stores are in good areas that are just being used for cost cutting, but if you have ever been to Sharpstown Mall in Houston you might not doubt why the company is pulling out.

It sure sounds like Macy’s may have something in common with winter skinny dippers: shrinkage.  But in all honesty and joking aside, Macy’s may actually need to review even more stores for possible closure if the performance or the retail environment continue to soften.  With their stock hitting 52-week lows you can expect reviews to be stricter and tighter in a weak 2008.

This may have other ramifications in the retail superstore centers and mall operators.  There are many redundant stores in major cities and many geographic locations throughout the country that just aren’t worth the effort for some retailers to continue in.  If you want to try to guess who else may start the downsizing of underperforming stores in a weaker economy take a look at the competitors:

• Kohl’s (NYSE:KSS) operated 834 stores as of the end of last quarter.
• Sears (NASDAQ:SHLD), as of February 2007, operated many more stores than Macy’s and we know Eddie Lampert wants to start making money again on his investment.
• TJX (NYSE: TJX), as of November 2007, operated 851 T.J.Maxx stores, 778 Marshalls, 287 HomeGoods, 130 A.J.Wrights in the U.S. alone with others located elsewhere in Canada and Europe.
• J.C.Penney (NYSE: JCP) as of November 2007, had more than 1,000 stores in the U.S. territory.

If this gets Macy’s off that 52-week low club, it’s hard to imagine that other department store operators won’t follow suite with selective closures in the 1% to 2% area.

Jon C. Ogg
December 28, 2007