Macy’s Is Getting Serious About Making Money Off Its Real Estate

Macy's Inc. To Announce Earnings
Photographer: Daniel Acker/Bloomberg via Getty Images

Just days after announcing it was hiring a specialist to help it negotiate deals to extract more money from its property, Macy’s said on Tuesday it was adding a real estate executive to its board of directors.

The department store, which has been pressured by activist investor Starboard to spin off its most valuable locations into a real estate investment trust (REIT) to boost shares, announced that William Lenehan, CEO of Four Corners Property Trust, a REIT, would join its board of directors next month.

“Bill will contribute to our board’s expertise and working knowledge on matters related to real estate, an important area of activity as we work to create shareholder value through joint ventures or other partnerships related to Macy’s flagship stores and mall properties,” Macy’s CEO Terry Lundgren said in a statement. Lenehan will join the board on April 1.

Last week at an investor conference, Lundgren said he was hiring a real estate specialist to negotiate deals to make the most of Macy’s extensive real estate, which includes crown jewels such as the Macy’s flagship stores in Manhattan, San Francisco and Chicago, as well as the main Bloomingdale’s store in New York City.

Though Macy’s said late last year that it had concluded that creating a REIT was not a good idea, as it would create rent expenses and loosen the company’s control over its stores, the department store chain has been making moves to earn money from its property.

For instance, in January, Macy’s closed on a $270 million deal in which it gave up the top floors of its building in downtown Brooklyn but also got $100 million to remodel the store on the lower floors. Lundgren said last week it was too labor intensive for him and his finance chief, Karen Hoguet, to negotiate such deals piecemeal, hence the decision to hire an outside expert.

The push to extract money from its physical properties comes as the retailer’s sales have declined. In 2015, comparable sales at Macy’s fell 3% and it expects a 1% dip this year. What’s more, the $27 billion a year retailer is in the process of closing 36 stores in a fleet of nearly 800 locations.

Other retailers, including direct rivals Sears shld as well as Lord & Taylor and Saks Fifth Avenue parent Hudson’s Bay hbc, have extracted billions from their real estate. But Macy’s has balked at a wholesale spin-off of its stores, preferring to look for individual arrangements for its best properties.

“We will always be a retailer first. And that’s our primary business,” Lundgren said last week.

Written by Phil Wahba of Fortune 

(Source: Fortune)

Struggling Macy’s Just Brought In a Billion Dollars Online

Pete Bellis/Flickr

Macy’s may have had trouble getting holiday goers to visit its huge department stores, but its website and mobile app sure grabbed a few clicks.

Macy’s generated its first billion-dollar month of sales from its digital platforms in December, said Yasir Anwar, group vice president of digital technology for Macy’s and Bloomingdale’s. Anwar, speaking Sunday at the annual National Retail Federation’s convention in New York City, added that Black Friday saw more than half of Macy’s web traffic come from smartphones — another first.

Macy’s no longer breaks out what percentage of its business is derived from digital sources as compared with physical stores, arguing the lines between the two have become too blurred. But, there are several clues to suggest the digital business is growing while the brick and mortar business is shrinking.

“We are buoyed by a very strong performance in our digital business, with continued double-digit increases in online sales,” said Macy’s chairman and CEO Terry Lundgren in a Jan. 6statement. Lundgren, trying to thwart pressure from activist investor Starboard and reawaken a stock price that has plunged 40% in the past year, added, “In November/December, we filled nearly 17 million online orders at and — a new record for our company, and an increase of about 25% over last year — based on significant new fulfillment capacity, site functionality and aggressive digital marketing.

At least Macy’s is able to hang its hat on something in a challenging holiday season.

The company warned on Jan. 6 that same-store sales plunged 4.7% for the months of November and December combined. Same-store sales for its fourth quarter, which runs through January, are seen falling by about 4.7%, worse than previous guidance for a decline of 2% to 3%.

Macy’s also lowered its full-year earnings guidance to between $3.85 and $3.90 a share from its prior expectations of a $4.20 to $4.30 a share range.

The company will close 36 stores by the spring as part of a broader reorganization. After those stores are shuttered, Macy’s will operate about 730 locations in the U.S.

Macy’s did not immediately respond to additional request for comment.

Written by Brian Sozzi of TheStreet 

(Source: The Street)

These Days, J.C. Penney is the Fastest-Growing Department Store in the Land

© Spencer Platt/Getty Images
© Spencer Platt/Getty Images

For a retailer that many people just three years ago were saying was doomed to disappear, J.C. Penney (JCP) has been putting in best-in-class numbers among the department store chains.

The mid-market retailer on Friday said comparable sales rose 6.4% in the quarter ended Oct. 31, which was better than the 5.6% growth Wall Street expected, according to Consensus Metrix. More notably, Penney easily beat the awful performance of its long-time and sometimes bitter rival, Macy’s, which earlier this week stunned the retail world with a sharp sales decline last quarter and the forecast of more trouble during this holiday season quarter. Among other factors, Macy’s blamed the warm weather it said led to shoppers postponing winter clothing purchase, an excuse that doesn’t wash given overlap between the two chains’ fleet of stores.

Penney also bested Kohl’s (KSS) and the higher end Nordstrom JWN, which each reported modest comparable sales growth. (In Nordstrom’s case, it was well below analyst expectations, and shares fell 20%.)

So, what has Penney been doing right?

Before we fall over ourselves about its performance, it’s worth remembering that Penney is on the comeback trail, trying to claw its way back from a disastrous attempt by ex-CEO Ron Johnson to take the retailer further upmarket, a massive misstep that shaved 30% off the store’s revenues over two years before the bleeding stopped. For all these strong quarterly numbers, Penney is on track for revenue of $12.6 billion this current fiscal year–still $4 billion away from where it was before the Johnson experiment.

Penney CEO Marvin Ellison took the reins in August, and along with his predecessor, Mike Ullman, he’s worked to bring back the popular store brands Penney shoppers loved, notably St. John’s Bay. But Ellison is also in the process of giving the retailer’s tech systems and e-commerce a massive overhaul after they were gutted during the Johnson regime. That includes unsexy, but essential, things like better demand forecasting analytics and inventory management, better mobile apps, and equipping stores to ship online orders to speed up the process. Ellison also recently cut hundreds of jobs at Penney’s headquarters in Plano, Texas to trim costs.

“While there is significant work to do to improve our company, the J.C. Penney team remains determined to regain our status as a world-class retailer,” Ellison said in a statement.

And he is right on that front: Despite the big sales gains, Penney’s gross profit margin rose a meager 0.7%, a smaller improvement than in recent quarters.

For a company that is still far from profitable–Penney has lost $442 million in the first nine months of the current fiscal year, which is down from $712 million a year earlier but still a big loss–any delay in getting back into the black will frighten investors. And indeed, despite a strong quarter, Penney’s shares slipped 5% in premarket trading.

Written by Phil Wahba of Fortune 

(Source: Fortune)

American Retail as We Know it is Dying a Slow and Painful Death

© Provided by Business Insider
© Provided by Business Insider

Gap once ruled the retail world.

But today, America’s largest apparel retailer is closing a quarter of its stores and laying off hundreds of workers amid disappointing sales.

Gap’s closures are indicative of a larger trend in American retail.

Big apparel brands are grappling with shoppers who increasingly want deeply discounted clothes over classic logos and status.

As Americans shell out for items like iPhones and Netflix, they are increasingly unwilling to pay full price for sweaters and jeans.

J. Crew just fired 10% of the workers at corporate headquarters as sales and profits continue to plunge.

The teen-apparel market is also struggling as a whole, with big-name players like Abercrombie & Fitch and Aeropostale closing stores.

Wet Seal, a shopping mall staple, abruptly shut down nearly all of its stores. Sears, Macy’s, and JCPenney have also shuttered hundreds of store locations in recent years.

The closures create a domino effect for malls.

Once mall anchors such as a department store close, it can be difficult for owners to find a tenant to replace them, said Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a national retail-consulting and investment-banking firm.

More than two dozen malls have shut down in the last four years and another 60 malls are on the brink of death, The New York Times reported, citing Green Street Advisors, a real-estate and real estate investments trust analytics firm.

“Teen retailers … are all a disaster and these middle-level malls are killing them,” Davidowitz said.

Certain businesses are Benefitting from current mall closure trends.

Discount retailers like T.J. Maxx and Ross are enjoying soaring sales.

Urgent care clinics like City Practice Group of New York and Concentra are growing at a rate of about 20% a year, reports Doni Bloomfield at Bloomberg Business.

Many are taking over spacious, empty leases in malls to satisfy growing demand from consumers, according to Bloomberg.

Technology-focused tenants like Tesla, Microsoft, and Apple are majorly driving sales, according to WSJ.

Because technology is more expensive than clothing, it’s easier for these stores to turn a profit.

Consumers are also increasingly spending on this category instead of traditional goods like home decor or clothing.

Technology stores also require fewer staff and smaller spaces than department stores, resulting in fewer overhead expenses.

Written by Ashley Lutz of Business Insider

(Source: Business Insider)