As I said earlier this week, it is high time to start thinking of Macy's (M) as a real estate play (and buy the stock) instead of as an actual retailer (that happens to be struggling mightily). So, in that regard, it's a big-time positive that Macy's announced a jaw-dropping move today to shutter 100 stores by early 2017. While this news will likely be painful for many Macy's workers and consumers that depend on their local store for attire, this is the right move for a publicly traded retailer with valuable assets and an obligation to shareholders.
Note: I will be talking with Macy's CEO Terry Lundgren and CEO-Elect Jeff Gennette today around noon. Please follow my Twitter handle @BrianSozzi for news as this call takes place.
Macy's will shed a good bit of operating expenses in 2017 due to the announced store closures. So even if sales continue to decline next year (possible, despite easier comparisons), Macy's bottom line could still surprise to the upside. And if sales start to increase by the slightest of amounts, the retailer could deliver some epic earnings beats. Either way, the news today to close stores will likely cause analysts to aggressively move up their forward earnings estimates.
The store-closure news gives Macy's a huge buffer should sales disappoint during the upcoming holiday season weeks before an uncertain presidential election. In other words, Macy's could have a poor holiday season and it will unlikely lose 25% of its shareholder base.
Expect some big real estate transactions from Macy's over the next three years, likely to commence in 2017. After all, 100 properties -- many of which are owned -- will now be up for sale. I suspect Macy's will subsequently announce some very shareholder-friendly initiatives in early 2017 (share repurchases, dividend hike), especially as the new CEO takes the reins.
Long term, this is great news for an apparel brand such as Polo Ralph Lauren. Macy's just made it a heck of a lot easier for Ralph Lauren (RL) to clean up its excess inventory and tarnished brand name. Short term, Polo will likely see a hit to sales and profit.
Meanwhile, Macy's store-closure news is bad news for off-price retailers such as TJ Maxx (TJX) and Ross Stores (ROST) . First, apparel and accessory manufacturers will move to produce less product for Macy's because it has fewer locations. That means less product for the off-price channel.
Second, Macy's has sent a message to all department stores that they have to close a ton more units in order to be viable. I believe those announcements will come over the next year. A fresh round of mass department store closures is also likely to hurt off-price retailers (and yes, many apparel and accessory brands).
This is bad news for a mall retailer such as Gap GPS (already doing horribly), which relies on anchor stores such as Macy's to drive traffic.
However, this is good news for mall developers as they could re-purpose these properties for more productive uses.
What a day in retailing history, folks.