Coverage: Macy’s to close 68 stores, cut 10,000 jobs

In another sign of the rapidly changing retail business, department store chain Macy’s Inc. said Wednesday that it would close 68 locations across the country and lop 10,000 jobs from its payroll.

Phil Wahba of Fortune had the news:

The retailer also announced that comparable sales, which include its booming e-commerce business and sales at stores open at least a year, fell 2.1% in November and December, prompting it to slash its full year profit forecast. Shares were down 10% in afterhours trading.

Of the 10,000 jobs being cut, 3,900 will be at stores being closed this year as part of a plan announced in August when Macy’s announced it would close 100 of its 730 namesake stores in the coming years. (Macy’s Inc also operates the upscale Bloomingdale’s chain.) Another 6,200 job cuts will come from streamlining operations and cutting costs so it can focus more on its digital business. Macy’s e-commerce was a rare bright spot in a bleak holiday season report: online sales rose by a double digit percentage during the holidays, the company said.

“We are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape, as well as monetizing locations with highly valued real estate,” said Macy’s CEO Terry Lundgren, who is stepping down next month as previously announced. Lundgren, who will be replaced by long time Macy’s executive Jeff Gennette, said he expects comparable sales declines in 2017 similar to those during the recent holiday sales. The weak holiday season comes on the heels of seven straight quarters of comparable sales declines.

Charisse Jones of USA Today reported that some of the locations are relatively new:

Some of the stores are relatively new to the chain. The Macy’s store in the Eastland center in Columbus, Ohio, opened in 2006, and has 73 employees. Some, however, are historic or have been around for decades. Macy’s said it will shutter its store in downtown Minneapolis opened in 1902, where it has 280 employees.

Additionally the retail giant says that it will be cutting “layers of management” at its central operations, and paring the number of managers supporting stores, making up the bulk of 6,200 jobs that will be lost.

“We continue to experience declining traffic in our stores where the majority of our business is still transacted,” Terry Lundgren, Macy’s CEO said in a statement.  In regard to the store closings he added, “we are closing locations that are unproductive or are no longer robust shopping destinations due to changes in the local retail shopping landscape. . . .These are never easy decisions.”

The news did not seem to sooth investors, with Macy’s shares plunging 8.7%, to $32.70, in after hours trading.

“It’s a big reduction in space and a lot of stores aren’t pulling their weight,” says Neil Saunders, analyst for Conlumino, a firm that follows the retail industry. who called the action “harsh, but necessary.” Having stemmed some of its losses, he says Macy’s can now pour some of the savings into improving stores that show more promise.

Krystina Gustafson of CNBC.com noted that the company would save $550 million next year in expenses:

As part of a strategy to streamline its portfolio, Macy’s moves will save the company an estimated $550 million a year starting in 2017. The company will use these proceeds to invest an additional $250 million in its digital business, as well as the growth of its Bluemercury beauty shops, Macy’s Backstage off-price stores, and China.

The company expects to record about $250 million of charges, or 50 cents per share, in fourth quarter 2016. These charges were not previously included in its earnings forecast and are in addition to the $249 million recorded in the second quarter as an estimate of asset impairment and other charges primarily related to 2016 store closings.

Fellow department store chain Kohl’s also lowered its forecast for 2016 amid soft holiday sales, and now expects diluted earnings per share to between $2.92 and $2.97, short of its prior estimate of $3.12 to $3.32. Its comparable sales also fell 2.1 percent in November and December.

The weak performance at the department stores came despite recent reports that the industry’s holiday season was shaping up to top previous estimates. Much of that success was driven by strong online sales growth and a burst of last-minute purchases.