Though the decision to close up to 40 low-performing stores may boost the company’s financials, Macy’s store closings could sink mall traffic and spell doom for other retailers. Barclays PLC experts noted that the department store usually lures buyers into the nation’s malls, so vanishing from the malls could be bad for other businesses.
Macy announced that it plans to shut 36 stores Jan. 6, but the decision was first made public in September when the company pledged to close up to 40 stores that weren’t producing enough revenue.
Barclays PLC’s Hale Holden think that when the department store would be gone, the number of shoppers visiting malls would decrease ‘significantly,’ spelling trouble for other mall tenants.
The situation might get even worse as there is a general trend for U.S. consumers to spend less in brick-and-mortar department stores and do their shopping on-line. One of the retailers that could face the ripple effects of Macy’s departure is J.C. Penney Co., which has more than a dozen stores in locations that now host Macy’s stores. And so does Sears Holdings Corp.
J.C. Penney declined to confirm any speculation on the consequences as every store is different. Other retailers couldn’t be reached for comment.
Analysts, however, believe that the most levered retailers will suffer the hardest blow because they lack any margin for error. Additionally, retailers with huge debts would also be badly hit. The day following Macy’s announcement, some retailers’ bonds slipped including Neiman Marcus and Claire’s Stores Inc.
Furthermore, remaining retailers can no longer put a bet on traffic generated by foreign shoppers because a strong national currency against euros, yuans and yens cannot generate too much revenue from tourists. This is why Neiman Marcus could suffer the consequences because it caters especially for international customers.
But the news did not affect Macy’s stock too much. Surprisingly, its share prices went up 2 percent after the announcement, despite a separate report showing that sales slipped 4.7 percent in 2015 and Q4 earnings were lower than anticipated. The company noted that the decline in sales was mostly due to high temperatures during this season which affected sales of cold weather clothing.
The department store also explained that the closings are necessary because some stores do not generate enough revenue to be sustainable. The company expects to save up to $400 million annually from the closings and closing-related layoffs.
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