At the beginning of August, Macy’s Inc (NYSE:M) announced it was closing 100 full-line stores by early next year.
InvestorPlace contributor James Brumley wondered at the time whether the bold move, which investors thoroughly cheered, would be enough to stop the bleeding.
His reasoning: The elimination of 100 stores doesn’t fix the Macy’s in-store and online shopping experience, a problem that’s plaguing lots of retailers in this country. Consumers, especially millennials, have to a certain extent lost interest in owning “stuff” opting instead for memorable experiences like the one women get when they visit an Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) location.
People want memories, not landfill.
As a result, I believe Brumley’s observations are bang on.
And that’s why the void created by the closing of 100 Macy’s stores (approximately $1 billion in annual revenue) does not necessarily translate into a billion-dollar gain for one or more retailers operating in the general vicinity of the store closures.
Impact of M Stores Closing
Yes, a billion dollars in potential revenue is soon going to be up for grabs. However, it’s up to these three companies to grab the bull by the horn. If they can get some of the Macy’s customers whose preferred locations are closing to come in and check out their products, they have a decent chance of winning them over. But it’s not going to be easy.
So who could benefit?
Analytics company 1010data’s Local Marketing Intelligence tool believes Macy’s problem locations are in Midwest cities such as Milwaukee, Pittsburgh, Detroit, St. Louis, Columbus, Cincinnati, Cleveland, who’ve suffered significant business losses in the past couple of years. Other places potentially affected include Philadelphia, Hartford and Daytona Beach.
It’s only natural then that the companies best in a position to benefit are those with a strong midwestern presence — or Amazon.com, Inc. (NASDAQ:AMZN), which is working hard to remove the stereotype consumers have that its site is only for mass market brands and not high-end luxury.
I wouldn’t count AMZN out. They could easily snag some of Macy’s customers. But, for the purposes of this article, let’s focus on those businesses with a strong network of physical locations.
Sitting 64th on the National Retail Federation’s 2016 Hot 100 list is TJX Companies Inc (NYSE:TJX), whose discount business model has been taking market share from both traditional retail as well as its off-price competition for some time.
“I would not be surprised to see TJX benefit next year from Macy’s closing 100 of its stores in the United States. Many of their units are not far from a Macy’s store,” retail expert Walter Loeb recently noted in Forbes magazine.
TJX’s T.J. Maxx brand has 120 stores in Wisconsin, Missouri, Ohio and Michigan. Look for those locations to make a big play for Macy customers. TJX is in the catbird seat.
In second position is Nordstrom, Inc. (NYSE:JWN), which has a total of nine full-line stores in the four states I mentioned previously when discussing TJX. In addition, JWN has 14 Nordstrom Rack locations in those same four states.
Nordstrom’s U.S. full-line stores averaged sales per square foot in fiscal 2015 of $370, almost double those of Macy’s. Meanwhile, Nordstrom’s Rack discount stores delivered higher sales per square foot ($523) despite smaller stores. Online, Nordstrom generated almost $3 billion in 2015.
If Nordstrom is to grab some business from Macy’s closures, however, it will likely come through Nordstrom Rack and not its full-line stores. It’s a strong runner-up.
Finally, while it might not be able to take a big piece of the $1 billion of the revenue Macy’s is foregoing, its Midwest roots suggest it has got an excellent chance to grab a chunk.
I’m speaking about L Brands Inc (NYSE:LB), whose home base is Columbus, Ohio, right in the heartland of the Midwest. If anyone can spot an opportunity such as this one, it’s founder Leslie Wexner.
Macy’s generated 38% of its revenue in fiscal 2015 from women’s accessories, intimate apparel, shoes, and cosmetics. Let’s say intimate apparel accounted for 30% of that number, Victoria’s Secret would be in line to snag some of the $100 million or more I’m estimating would be up for grabs with a Macy’s departure.
It’s safe to say, however, that L Brands has far less to gain from Macy’s closure than does TJX or JWN. For that reason, it comes in a distant third.
If these three retailers plus Amazon grabbed 100% of the estimated $1 billion in revenue Macy’s is foregoing by closing 100 stores, I believe the breakdown goes like this.
- TJX: 40%
- Nordstrom: 30%
- Amazon: 20%
- L Brands: 10%
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.