While the closing of 14 department store anchors located in struggling malls underscores how critical location and demographics can be for bricks and mortar success -- that is only part of the story.
There were many other nuggets of information contained in Macy's, Inc. (NYSE: M ) recent five-page press release that are crucial for retail investors to understand.
The most important investor takeaway was Macy's focus moving forward on omnichannel retailing. Omnichannel is an umbrella term for strategic initiatives designed to connect with the customer through both bricks and clicks.
Notably in 2014, about $1 billion of Macy's and Bloomingdale's direct-to-customer shipments originated from stores.
According to Macy's CEO Terry Lundgren, “Our digital strategies represent an increasingly important driver of the business. Macy's and Bloomingdale's websites, apps and fulfillment systems performed exceptionally well in the holiday season."
"Moreover, we are pleased with the convenience and customer access provided by the full companywide rollout of Buy Online Pickup in Store, as well as the initial positive results from our pilot of Same Day Delivery in eight selected markets."
No Worries -- Macy's Is Healthy
During 2014, Macy's investors who stayed the course through the multiple peaks and valleys in share price were rewarded with a total return of close to 30 percent.
Shareholders of Macy's have seen shares rise over 10 percent during the past month alone; this retailer pays shareholders a dividend yielding approximately 1.85 percent.
Class-A Malls -- Unscathed
With an increased focus on omnichannel, what does it mean to investors who own REIT shares?
A check on Macy's stores being closed reveals that they are not located in the Class-A malls owned by Simon Property Group Inc (NYSE: SPG ), General Growth Properties Inc (NYSE: GGP ), Macerich Co (NYSE: MAC ) or Taubman Centers, Inc. (NYSE: TCO ).
Class-A malls typically have sales of $600 per square foot or greater.
Class-B Malls -- Investors Feel Pain
However, in stark contrast, shareholders of Simon's May 2014 spin-out Washington Prime Group Inc (NYSE: WPG ) have seen shares fall about 15 percent. Washington Prime Group was
comprised of Simon's former open-air centers as well as smaller Class-B malls that averaged only $300 per SF of sales when they were spun.
Washington Prime will be losing Macy's as an anchor at both its Gulf View Square and Richmond Town Square malls.
Two additional stores being closed by Macy's are located in Los Angeles suburb Woodland Hills, California, and owned by Australian mall operator Westfield. The other 10 targeted stores are located in struggling, smaller market, privately owned malls.
Macy's Continues To Invest In Well Located Bricks & Mortar
In addition to seven previously announced new Macy's and Bloomingdale's stores, Macy's revealed additional expansions:
- The construction of a 150,000 SF new Bloomingdale's store in Westfield's Valley Fair center in San Jose, California.
- The replacement of an existing 136,000 SF Macy's in Westfield's Century City, California, with a new 155,000 San Francisco Macy's store -- along with remodeling the existing Bloomingdale's store located in this Los Angeles mall.
- In addition, new Macy's and Bloomingdale's stores are planned to open in Abu Dhabi in 2018.
Restructuring Merchandising and Marketing: A hybrid of store and online buying, providing a single omnichannel brand focus for Macy's and for Bloomingdale's.
Off-Price Channel Exploration: Creating a team within the company to explore potential opportunities for Macy's off-price business. (The company currently operates 13 Bloomingdale's Outlet stores.)
Digital Retailing: Grow Macy's San Francisco-based support for Macys.com and bloomingdales.com by more than 150 people.
Order Fulfillment: Begin operations in April 2015 of a new 1.3 million SF direct-to-consumer fulfillment center, with a total workforce of approximately 2,500 full and part-time associates.
In order for Macy's to continue being a successful retailer, the company is deploying its resources and molding its business model around "emerging customer preferences."
While closing 14 stores gets the headline, the real story for investors is how Macy's is deploying its capital and resources in order to maximize ROIC in a rapidly evolving retail world.
Investors in Class-A mall REIT shares should be pleased that well located bricks and mortar is still the foundation for omnichannel retail success.
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