More Stores May Be Dark for the Holidays, and That’s a Good Thing

Macy’s is closing at least two of its mall anchor stores and turning them into fulfillment centers. Heading into the all-important holiday shopping season, the move could be seen as a leading indicator of trouble for the financially strapped retailer.

However, because Macy’s is counting on the stores to service its e-commerce ambitions, the development of so-called “dark stores” is actually a hopeful sign, though investors probably shouldn’t go betting the farm on a full recovery.

Dark days ahead
Macy’s is viewed by many as being barely a step or two ahead of bankrupt rival J.C. Penney. It suffered steep second-quarter losses as it was pummeled by the coronavirus pandemic that caused sales to plummet 36% to $3.5 billion on a 35% drop in comparable-store sales.

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Yet having invested heavily in its digital presence over the years, the department store chain was able to supplement the lack of physical store sales with a healthy 53% gain in online sales. It may not have been enough to offset in-store sales that tumbled 61% from the year-ago period, but it showed Macy’s the way forward.

The retailer was already discounting whatever benefit its mall locations could deliver, announcing that if it opened new stores or expanded, it would site them at off-mall locations. It’s not abandoning malls completely, but it knows they’re not going to be delivering the growth it needs to survive.

So closing down two mall stores to have them fulfill orders placed through its bustling e-commerce platform makes perfect sense, and it wouldn’t be surprising if Macy’s closes additional mall stores to do the same.

A hint of things to come
CEO Jeff Gennette told analysts during Macy’s second-quarter earnings conference call that 30% of the retailer’s digital sales were fulfilled through its stores and he only sees it growing.

To meet the demand, Gennette said Macy’s was continuing to build out its omnichannel network and fulfillment strategies, obviously hinting at the dark stores to come. The chain certainly has more than enough under-performing stores to choose from. And with its plan to close nearly 100 stores over the next few years, this dark-store experiment gives it the opportunity to see if those locations might actually work better as fulfillment centers.

Macy’s had only six direct-to-consumer warehouses at the end of last year and another 18 locations dedicated to its stores, and this could be the model to expand upon…  The Motley Fool