Smaller Formats May Pave the Future Path for Macy’s

Macy’s will expand its off-mall presence by opening additional Market by Macy’s and Bloomie’s shops — smaller versions of the Macy’s and Bloomingdale’s department stores, respectively — even as it shutters full-size stores. Macy’s already has opened a combined 10 of these banners and will open five more by the end of the fiscal year as it completes the pilot phase.

Current plans reportedly call for one Bloomie’s in Seattle and four Market by Macy’s in unannounced markets, according to CNBC. CEO Jeff Gennette told the media outlet that 2023 will be a pivotal test period for the off-mall strategy, and that the retailer will decide on its further expansion plans by the end of the year. He also noted that “we really want for the off-mall strategy to have a handoff strategy” before the company goes bigger on its smaller concepts during a presentation at the J.P. Morgan 9th Annual Retail Round-Up Conference.

Gennette believes that the off-mall push is already showing promise. “We’re very bullish on the concept,” he said on a March 2023 call with reporters. “We’re very bullish on the early learnings. The size, the locations are all working.”

Off-Mall Working for Macy’s

His confidence is not unfounded. Comparable store sales at Market by Macy’s and Bloomie’s grew 8% and 12%, respectively, during Q4 2022. This was compared to a 3.3% decline at Macy’s and 0.6% growth at Bloomingdale’s stores during the same period. Conversion rates also are “significantly above mall locations and customer experience scores on layout and neatness of the store, ease of the checkout process and availability of colleagues are 25 to 30 points higher,” Gennette said during the company’s Q4 2022 earnings call in March.

Additionally, company leaders told CNBC that the off-mall locations are drawing younger and more diverse shoppers, including some new to Macy’s. The retailer also has reported lower-than-expected cannibalization rates for off-mall stores that open in markets where Macy’s already has a full-size store presence.

However, some experts have questioned whether the success of Macy’s off-mall experiment will be enough to keep the company afloat in the long term. Department stores in general have been heavily pressured by ecommerce’s massive selection and convenience, and a new brick-and-mortar concept won’t solve that challenge alone.

Investors need to ask, “Are they just making a smaller version of the problem they’re already trying to solve?” said Simeon Siegel, Retail Analyst for BMO Capital Markets in an interview with CNBC.

However, Macy’s isn’t going all-in on off-mall concepts for the moment. While these smaller stores will likely get the most attention, the retailer isn’t abandoning its traditional model — it’s searching for the right balance between both approaches.

“We are currently evaluating the right number and mix of on- and off-mall locations, our ecosystem and customer are dramatically different today than when we announced our 125 Macy’s store closure plan in February of 2020,” said Gennette during the investor call. “Since then, we have closed approximately 80 Macy’s locations and plan to close another five this fiscal year. We have shuttered our most significant underperformers, exited dying centers and improved the existing store experience, while delaying closures of others that are cash flow positive. Today, roughly 99% of our mall base is profitable on a four-wall basis.”