Macy’s web sales grow but an overall decline prompts 100 store closures
August 11, 2016 04:04 PM
Macy’s Inc.’s first “Black Friday” in July sale proved to be a bright spot in an otherwise disappointing second quarter.
Macy’s, No. 6 in the Internet Retailer 2016 Top 500 Guide, ran the online and in-store promotional event on July 12, the same day as Amazon.com Inc.’s second annual Prime Day sale, resulting in “record store and online sales for a mid-year period,” CEO Terry Lundgren said Thursday. Lundgren and Macy’s did not provide specifics on Macy’s sales that day.
For the second straight quarter, Macy’s generated double-digit growth in online sales, but the retailer did not state how much. However, overall sales dropped 3.9% year over year during the quarter and 5.7% through the first six months of 2016. Transactions, including online, declined 5% year over year during Q2.
With sales sliding, Macy’s says it will close 100 stores within the next year, or 13.7% of its current store base, in an effort to cut costs. The company says those closings will result in about $1 billion in annual lost sales, but the cost of operating the stores outweighs the loss.
“This potential sales loss is lower than the projected volume of these 100 roughly stores due to our ability to retain some of the sales in other stores as well as on Macys.com,” chief financial officer Karen Hoguet told analysts on the retail chain’s Q2 2016 earnings call, according to a transcript from Seeking Alpha.
Industry experts say Macy’s decision to close so many stores is a sign of the times.
“Legacy retailers like Macy's are like cargo ships in a speedboat race,” says Dianne Inniss, customer experience and innovation strategist at ThoughtWorks Retail. “They cannot accelerate or maneuver as quickly so they're dumping excess weight off the top, trying to catch up. But the ship is a hulking mass of archaic systems, structures, teams and processes built to support a cargo ship. Companies like Macy’s need to fundamentally rethink how they manage their technical and business architectures in order to be more nimble, responsive, engaging and relevant to the needs of today’s and tomorrow’s customers."
That’s not to say Macy’s isn’t trying.
“Our company is committed to being tomorrow's leader in omnichannel retailing,” Hoguet told analysts. “We will strike the right balance between stores and digital.”
Macy’s stores will offer a competitive advantage as the retailer tries to compete with the likes of Amazon (No. 1 in the Top 500), Hoguet said in response to an analyst’s question.
Macy’s stores can show merchandise and offer instant gratification to shoppers, she said. “For many customers, to be able to see the color, feel the fabric, see how it fits, [stores are] still where the lion's share of where merchandise is being sold.”
Macy’s has had 363.1 million visitors to its site over the past six months, averaging 60.5 million visits per month, with 58.8% of those visitors coming from a mobile device, according to data from web analytics company SimilarWeb. Macy’s mobile app currently ranks 63rd on Google Play and 46th in the Apple app store. The retail chain ranked No. 19 in the 2016 Internet Retailer Mobile 500 with an Internet Retailer-estimated $1.264 billion in mobile sales in 2015, up 60% from $790 million in 2014.
“We are benefiting from new releases on our mobile apps and other technology improvements that are driving increases in conversion,” Hoguet said. “Our investments are focused on removing points of friction.”
For the second quarter ended July 30, Macy’s reported:
- Net sales of $5.86 billion, down 3.9% from $6.10 billion last year.
- Year-over-year comparable sales decline of 2.0%
- Net income of $9 million, compared with $217 million.
For the first six months of 2016, Macy’s reported:
- Net sales of $11.64 billion, down 5.7% from $12.34 billion last year.
- Year-over-year comparable sales decline of 3.8%.
- Net income of $124 million, compared with $410 million.