Target, Kohl’s, TJX could benefit

Target, Kohl’s, TJX could benefit

Signs are posted at the entrance of a Macy’s store scheduled to close at Bay Fair Mall on February 27, 2024 in San Leandro, California. Macy’s announced plans to close 150 underperforming stores across the United States.

Justin Sullivan | Getty Images News | Getty Images

Macy’s has not yet closed the approximately 150 planned branches. But competitors in the retail sector are already sensing opportunities.

In recent interviews with CNBC, Goal CEO Brian Cornell and Kohl’s CEO Tom Kingsbury said the department store’s decision to shrink its footprint gives it a chance to increase its own sales.

Off-price chain TJ Maxx could also do more business, according to Jefferies, because it carries similar merchandise and has stores near Macy’s locations that may be closing.

And many other retail names, including off-price chains Horse and department store competitors like Nordstrom could also benefit from the closures. These companies already count many of Macy’s shoppers as customers, according to an analysis of credit card data by Earnest Analytics.

Facing weak sales and pressure to improve its business, Macy’s announced it would close in late February more than a quarter of the approximately 500 shops with the same name. With the wave of closures, the department store joins a list of retailers that have shrunk in size and created a gap for other brands to enter. These include Bed Bath & Beyond, which closed all of its stores after filing for bankruptcy, and others like JC Penney, a department store that is a fraction of its former size.

The closure of Macy’s could result in the loss of up to $2 billion in market share. The department store’s net sales were $23.1 billion in its most recent fiscal year, and the 150 stores it is closing account for less than 10% of sales.

But Macy’s, for its part, has said closing the underperforming stores will help the company focus on higher sales at other locations. Macy’s CEO Tony Spring said the company will open more locations of its luxury department store Bloomingdale’s and cosmetics chain Bluemercury, both of which have performed better than the company’s namesake chain. The closures will also free up capital to invest in better-performing namesake stores.

Macy’s has not yet said which locations will close or exactly when they will close, but said it will close 50 stores by early 2025. The move will also impact malls, as Macy’s will close massive stores that are mall anchors.

An opportunity for off-price chains

Department stores have been losing market share for years as shoppers prefer to shop in malls or online, said Corey Tarlowe, retail analyst at equity research firm Jefferies. Beneficiaries ranged from big box stores like Target to specialty retailers like Target Abercrombie & Fitchwhich has opened flagships in major cities like New York.

In an interview with CNBC in March, Target CEO Brian Cornell said the retailer had gotten a head start through other closures in the past. For example, he said some of his stores are in former Toys R Us locations.

Off-price retailers, in particular, pose a major competitive threat to department stores — and are the big winners from their troubles, Tarlowe said. They also sell many necessities such as clothing, handbags and shoes, but often in cheaper locations and at a better price.

“It’s basically similar to a new department store, but much smaller,” he said. “They sell similar brands and similar products, but for 40 to 70 percent of the price.”

With Macy’s wide clasps, TJX CompanyThe company’s own TJ Maxx, which also includes the Marshalls and Home Goods stores of the same name, is particularly well positioned. About 63% of Macy’s stores have a TJ Maxx or Marshalls within a mile, according to a Jefferies analysis.

Off-price stores also attract a similar clientele, which tends to be wealthier. About 47% of Macy’s shoppers have an annual household income of more than $100,000, compared with about 50% of shoppers who visit TJX-owned stores, Jefferies found. Only about 30% of it Burlington Buyers and about 34% of Horse Customers have an annual household income of more than $100,000, which may mean they have less overlap with Macy’s shoppers.

“I used to see Toyota Camrys in the parking lot of a TJ Maxx, and now I’ll see BMWs, I’ll see Mercedes, I’ll see Porsches,” Tarlowe said.

He added that TJX stores are easier for shoppers to reach, with about 2,500 locations across the United States. That’s a much larger footprint than Macy’s, which will have about 350 stores with the same name after the closure.

Department store and big-box competitors see an opening

Other competitors also have a lot of overlap with Macy’s customer base, which could position them well.

About a third of Macy’s customers have also shopped at Kohl’s in the last 12 months, according to a credit card data analysis from Earnest Analytics in late March. This figure was surpassed only by TJ Maxx, which had 37% of Macy’s customers shop at its brands during the same period.

In a recent interview with CNBC, Kohl CEO Tom Kingsbury described the Macy’s closures as an opportunity for the company to grow. He also said Kohl’s is the largest department store in the country with 1,174 stores but has prime locations.

“The beauty of Kohl’s is the fact that our stores are in malls,” he said in an interview at Shoptalk, a retail conference in Las Vegas, in March. “This is really a big deal. So we can bring the department store concept into the shopping centers, where, as you know, a lot of the successful companies are based.”

Still, Kohl’s faces similar problems to Macy’s as it struggles with lower consumer spending and difficulty attracting younger customers. Like Macy’s, the company also forecast that comparable sales, which exclude the impact of store openings and closings, may not increase or only increase slightly next year.

Macy’s has also tried to differentiate itself from its competitors’ books. Up to 30 smaller stores will be opened in shopping centers. And at many of its department store locations, the company has added Backstage, an off-price shop within the larger store.

But where Macy’s leaves a gap, Target could also be poised to open stores or acquire customers. The Minneapolis-based company said last month that it plans to build more than 300 new stores over the next decade. There are already more than 1,950 stores in the US

Speaking to CNBC, Cornell did not say whether the major retailer will open more stores near Macy’s, which is closed. But, he added, they are watching closely.

“We always look at the local market and opportunities and believe there will continue to be displacement in retail for years to come,” he said. “And with our performance and financial position, we can be one of the players that continues to engage and gain market share and growth.”

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2024-04-01 16:50:45