\n This audio is auto-generated. Please let us know if you have feedback.\n <\/div>\n<\/p><\/div>\n<\/div>\n
In an era when the department store model is under siege, two major examples of it in the U.S. \u2014 Macy\u2019s and J.C. Penney \u2014 are pursuing very different brick-and-mortar strategies.<\/p>\n
They do have much in common, with plans to improve stores and streamline their supply chains, indicating an abiding faith in the department store as a still-relevant retail destination. J.C. Penney last year announced a $1 billion investment\u00a0in store refreshes and tech upgrades; this year, the company said it would revamp 200 stores by the end of the year and touted improvements in the speed and cost efficiency of its supply chain. And at Macy\u2019s, newly arrived CEO Tony Spring said he would use lessons from his time leading the company\u2019s Bloomingdale\u2019s banner to inform the flagship chain\u2019s transformation.<\/p>\n
Their differences are real, however, particularly when it comes to plans for the size, number and location of their stores. Analysts peg the reasons for those differences on their current \u2014 and potential \u2014 ownership.<\/p>\n
Dropping anchors<\/h3>\n
These two retailers have long anchored shopping centers, a setup from the mid-20th century meant to drive consumer traffic to the mall. Today, Macy\u2019s has increasingly broken this mold, while J.C. Penney remains firmly ensconced in it.<\/p>\n
For both its Bloomingdale\u2019s and Macy\u2019s banners, Macy\u2019s Inc. has been experimenting with stores about one-fifth the size of its sprawling downtown and mall-anchor locations, placed at strip centers. Last year, Macy\u2019s announced it would accelerate this small-format strategy by opening as many as 30 smaller stores through the fall of 2025, which would triple their number and sometimes also entail shuttering a full-line store in a given market.<\/p>\n
Speaking at the Shoptalk conference in March, Spring said that Macy\u2019s runs \u201ctoo many locations that were built for a different era\u201d and that it has \u201cno choice\u201d but to close stores if it is to prosper.<\/p>\n
By contrast, J.C. Penney, which nearly four years ago was acquired out of bankruptcy by shopping center REITs Simon Property Group and Brookfield Properties, is maintaining its relationship to the mall. Its turnaround plan makes no mention of experimenting with small formats or entering strip malls as Macy\u2019s has done.<\/p>\n
\u201cI think their plans make a lot of sense. They\u2019ve got a great leadership team that\u2019s leading them into the next generation of what a department store should be,\u201d Kevin McCrain, CEO of Brookfield Properties U.S., told Retail Dive\u00a0about J.C. Penney. \u201cThey are very focused and know exactly who their consumer is, and they\u2019re looking to cater to that consumer, which is exactly what every department store should be doing.\u201d<\/p>\n
Open and shut<\/h3>\n
Another stark difference <\/strong>between Macy\u2019s and J.C. Penney\u2019s <\/strong>real estate strategies lies in how each contemplates adjustments to the sizes of their fleets. As of its most recent quarter, the Macy\u2019s banner runs 481 full-line stores, 12 small-format stores and nine Backstage off-price stores. According to a financial report released last week, J.C. Penney runs 663 stores.<\/p>\nA little over a year ago, Macy\u2019s previous CEO, Jeff Gennette, said that the closure of four full-line stores meant that the retailer was largely finished with its plan to shutter about 125 underperforming stores, part of a turnaround announced in 2020. But this year, Spring said the company would shutter another 150 stores over the next three years. Stores won\u2019t be spared just because they turn a profit, he also said, a hard line that analysts say may be necessary in the long run.<\/p>\n
Normally, profitability is the main driver of whether or not to run a store, unless a different location might generate even more sales or consolidation might drive efficiencies, according to GlobalData Managing Director Neil Saunders. But neither Macy\u2019s nor Penney are in normal situations, he said by email.<\/p>\n
\u201cIt is no secret that Macy\u2019s has been in decline for a very long time, and it is probably the case that some locations are seeing an ongoing deterioration in sales, so in five or 10 years they may not be profitable,\u201d Saunders said. \u201cIf Macy\u2019s acts now it can get in front of the problem and focus its efforts on investing in the stores it thinks can carry the business forward. In some ways this is like amputating gangrenous parts of the business: it\u2019s not very pleasant and it has arisen because of a lack of care in the past, but it is necessary for survival.\u201d<\/p>\n\nThis approach balances profitability, capital cost, operating costs and potential real estate value, making it \u201cthe right thing to do,\u201d according to Nick Egelanian, president of retail development firm SiteWorks.<\/p>\n
\u201cMacy\u2019s needs to exit stores with no future, to focus its limited\u00a0<\/strong>resources on its most promising future investments,\u201d he said.<\/p>\nThe state of affairs at J.C. Penney couldn\u2019t be more different. As part of its bankruptcy in 2020, J.C. Penney slated 144 stores for closure, but that may be the extent of its downsizing. Last week, Simon Property Group CEO David Simon told analysts that he doesn\u2019t \u201canticipate much portfolio real estate activity\u201d <\/strong>at J.C. Penney, citing the chain\u2019s profitability and importance to the communities where it operates.<\/p>\n\u201cI don’t necessarily believe in \u2018shrink to grow,\u2019\u201d he also said. \u201cIt’s very hard to achieve.\u201d<\/p>\n
If anything, the retailer could benefit from expanding because even many of their low-volume stores turn a profit, at least as measured by EBITDA, he said.<\/p>\n
\u201cPenney is able to produce positive EBITDA even if there’s not high sales,\u201d he said.\u00a0\u201cIn fact, I think Penney almost can be a beneficiary of opening new stores as opposed to closing stores.\u201d<\/p>\n
Both McCrain and David Simon have said that saving local jobs factored into their companies\u2019 interest in acquiring J.C. Penney. But Egelanian is skeptical, and says that Penney should probably also put more focus on its best performers.<\/p>\n
\u201cWhat matters is shareholder value, and what determines that is a combination of profits and the hope for or path to future profits,\u201d he said.\u00a0\u201cSo JCP must focus on promising investments and exit dead-end businesses.\u201d<\/p>\n\nTaking ownership<\/h3>\n
The contrasting real estate plays at Macy\u2019s and J.C. Penney have everything to do with their ownership, and, in Macy\u2019s case, potential ownership, analysts say.<\/p>\n
Macy\u2019s is a publicly traded company, beholden to stakeholders including investors, employees and customers; J.C. Penney has been private since being purchased out of bankruptcy four years ago by Simon Property Group and Brookfield Asset Management; since then, brand management firm Authentic Brands Group has acquired 16.7%.<\/p>\n
\u201cMacy’s is in the retail business,\u201d Erik Gordon, professor at the University of Michigan\u2019s Ross School of Business, said by email. \u201cSimon and Brookfield are in the mall business.\u201d<\/p>\n
However, Macy\u2019s could soon also be a private company if one of its investors \u2014 namely real estate-minded investment firm Arkhouse Management \u2014 gets its way. Arkhouse and its financial partners have bid $6.6 billion to take over the retailer (which includes Bloomingdale\u2019s and Bluemercury). Since Arkhouse\u2019s overture, Macy\u2019s has been more preoccupied with its properties, beefing up its board\u2019s real estate expertise and announcing that property value will be a factor as it contemplates which stores to close in the next three years.\u00a0<\/p>\n
\u201cAs Macy\u2019s owns a lot of its shops, in some cases it might make more sense to monetize them and take the proceeds to invest in the business,\u201d Saunders said. \u201cIn the case of the activist investors, that money would be used to generate a return rather than invest \u2014 but the same principle applies.\u201d<\/p>\n
J.C. Penney, meanwhile, is owned by two of its landlords. Both Brookfield and Simon have invested in other retailers besides J.C. Penney, and analysts have long speculated that was at least in part to prevent vacancies at their malls. Penney\u2019s position as an anchor is especially valuable because an empty anchor often trips clauses in other tenants\u2019 leases that reopen rent negotiations or allow those retailers to leave.<\/p>\n
\u201cMacy’s doesn’t own malls,\u201d Gordon said. \u201cIt just does retail, so it closes marginal stores. Simon owns malls, so marginal Penney’s stores can be valuable enough to the mall business to keep open.\u201d<\/p>\n
Saunders agrees that \u201cthe viability of the malls in which <\/strong>J.C. Penney operates\u201d depends on keeping stores running, that the success or failure of Penney stores would influence the malls\u2019 footfall, sales and property value, and that a closure could upset other tenants.<\/p>\n\u201cThat would be very undesirable, so the priority is to keep the stores operating for the greater good of the business,\u201d he said. \u201cThat said, I think Simon has a genuine desire to make J.C. Penney <\/strong>work better and to keep it profitable.\u201d<\/p>\n<\/p><\/div>\n![\"Retail](\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png\")
<\/a><\/p>
<\/p>\n","protected":false},"excerpt":{"rendered":"Listen to the article 9 min This audio is auto-generated. Please let us know if you have feedback. In an era when the department store […]<\/p>\n","protected":false},"author":1,"featured_media":12526,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-12525","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts\/12525","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/comments?post=12525"}],"version-history":[{"count":0,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts\/12525\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/media\/12526"}],"wp:attachment":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/media?parent=12525"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/categories?post=12525"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/tags?post=12525"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}