It's been a tough year for retailers, and Macy's (NYSE: M), despite its well-known name and vast array of offerings, hasn't managed to emerge unscathed. The department store giant just released its third quarter earnings -- and the numbers weren't pretty.
Macy's stock declines as sales prove sluggish
Macy's shares fell on Nov. 19 as the retailer reported a same-store sales decline of 20.2%. The department store operator attributed that drop to changing spending habits during the coronavirus pandemic.
Macy's net sales for the third quarter fell to $3.99 billion from $5.17 billion a year prior. And while the retailer did see its digital sales increase 27%, those gains weren't enough to offset losses at its stores. The company also reported a net loss of $91 million, or $0.29 per share, compared with net income of $2 million, or $0.01 per share, a year earlier.
A bad sign for Macy's
While Macy's saw a major decline in sales during its third quarter, the company did have some encouraging spots to highlight. CEO Jeff Gennette said that while customers have shifted to buying casual apparel during the pandemic, which makes sense given the shift to remote work, home furnishings, jewelry, and fragrances generated double-digit sales growth compared to a year earlier. Still, these third-quarter results paint an ominous picture for the company, signaling a potentially rough start to the holiday shopping season.
Will poor sales result in additional store closures?
From a real estate investing perspective, poor sales numbers from Macy's raise the risk of additional department store closures. Though the company, like so many retailers, has clearly been hurt by the pandemic, it was already making plans to shut down its less-profitable locations and shift away from malls. In fact, in February, before the coronavirus outbreak began, Macy's announced that it would be closing 125 store locations in the three-year period to follow.
But will that number of closures increase? Given poor in-store sales, it just may. These days, Macy's faces even stiffer competition as big-box stores like Target (NYSE: TGT) aim to expand their apparel and beauty line. And given the cost-effective nature of online sales, it makes sense for a company like Macy's to shift its focus to digital orders.
That's bad news for mall operators, though, given the number of retailers that have filed for bankruptcy this year and are planning store closures of their own. At a time like this, malls can't afford to lose another tenant. But losing department stores is a particularly harsh blow for malls, since these tenants serve as anchors, drawing in customers and other businesses alike.
The Millionacres bottom line
While a surprisingly strong holiday season could put Macy's on a different trajectory, the reality is that the company will probably continue to close locations that don't prove profitable while aiming to boost its online model. Real estate investors and commercial landlords should brace for some backlash in the coming months or years in light of this likely and ever-growing trend.