With apparel retail on the ropes, real estate increasingly dominates the discussion when department store executives address shareholders and analysts.
With more than 829 stores across the country, Macy’s, in particular, is looking at its stores differently as it attempts to boost the bottom line.
At a fireside chat Tuesday at the Morgan Stanley Global Consumer & Retail Conference, CFO Karen Hoguet provided some perspective on the company’s latest real estate deals, discussed what investors can expect in the future and shed light on the ways in which these plans will add “energy” and “vibrancy” to the remaining stores.
When deciding which locations to close and which to reimagine, the department store divided each box into one of two main buckets. While productivity was one consideration, it wasn’t the only one, Hoguet said. “The criteria was in part performance but it was more, if we were starting Macy’s over today, as opposed to being a combination of the different companies we bought over time, which locations do we think are critical to the footprint?” she said.
What rose to the top were 245 locations the company views as strategic to the business. Those, Hoguet said, are unlikely to be sold—though they could shrink.
A prime example is the company’s flagship in downtown Chicago. There Macy’s is looking to monetize the upper floors in a way that could follow the downtown Seattle redevelopment, where the selling space will shrink and Amazon will occupy the top six floors which are now owned by Starwood Capital Group. In fact, when asked about Lord & Taylor’s decision to share its NYC flagship with WeWork, which recently purchased the location, Hoguet was nonplussed, saying simply it’s “similar to things we have considered.”
The next bucket are those stores that, due to acquisitions, are in close proximity to one another, creating redundant stores as shopping patterns have changed. “Those are the properties where we’ve monetized some of those because the real estate was greater than the retail value to us,” she explained.
Macy’s Union Square stores in San Francisco illustrate this point. There, the company had a men’s and a women’s store across from one another. Now, men’s will move into the women’s store as that location has been sold. “Our hope is we’re going to be able to reintegrate men’s into the main box and hopefully bring energy to the whole store,” she said. Though there will be a loss of sales, “not as much as you might think,” she added, the productivity should go up.
In that location, the retailer is also planning to redevelop the exterior, which Hoguet called “extremely valuable,” creating space for specialty stores along the front of the store. “We think it will bring new energy and vibrancy to the store,” she reasoned.
The retailer is also looking at creative ways to transform some locations through its strategic alliance with Brookfield Asset Management. Macy’s plans to redevelop about two thirds of the 50 stores in the deal with both big and small scale changes. For instance, at one store an outparcel will be converted to residential, retail and office space. “How wonderful to have that use of space that will hopefully come across the parking lot to the mall more often,” Hoguet mused.
She said there are quite a few examples at play as Macy’s looks at its wealth of real estate. “The idea is to frankly take advantage of the opportunity we have with real estate that’s valuable that isn’t being used today,” she said. “We see benefits in two ways: the first is any monetization we get from it and the other is to try to create vibrant shopping environments.”
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