Macy’s is turning stores dark for the holidays

Discussion
Photo: Wikipedia/MikeKalasnik
Oct 15, 2020
George Anderson

Macy’s has decided that it will close two of its department stores to on-site shopping for the holidays. The retailer is choosing instead to convert the locations into dark stores that offer in-store and curbside pickup of online orders and enable product returns.

The retailer will use stores in Dover, DE, and Littleton, CO, as pilot locations for the dark store test, reports the Delaware News Journal. Macy’s did not disclose to the paper if it intends to turn any other locations into dark stores for the holiday season.

The department store chain, like other non-essential retailers, saw its online sales jump after it was forced to close stores due to the novel coronavirus. Macy’s reported a 34.7 percent decline in same-store sales (brick and click) during the second quarter as its online business jumped 53 percent. In-store sales fell 61 percent year-over-year.

CEO Jeff Gennette told analysts on the retailer’s earnings call that 30 percent of online orders were fulfilled by stores (curbside and in-store) in the second quarter and that he saw that “increasing” going forward.

We’re building out in terms of our omni-network and our fulfillment strategies, our opportunity to be able to satisfy customers however they want to shop, in a store, curbside or same-day delivery, we will be able to do that,” he added.

Macy’s and other retailers testing dark stores can go into their pilot programs knowing that many consumers are open to using them.

A recent survey of U.S. consumers by WD Partners found that 47 percent are open to purchasing from a dark box store and 40 percent from a dark grocery store. Forty-nine percent are okay buying meals from a dark restaurant.

Whole Foods made news last month when it announced the opening of a 100 percent dark store intended to serve local customers in Brooklyn, NY.

DISCUSSION QUESTIONS: Do you see dark stores as a good way for retailers to turn underperforming locations into productive sales assets? What do you think of Macy’s decision to convert some stores into dark locations for the holidays, and do you see other retailers doing the same?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I think it’s a good short term solution given all the uncertainties around. Long term, Macy’s has to decide what it’s going to do with under-performing stores."
"They are transforming these to systems of higher value delivery for their customers while creatively addressing demand uncertainty in this unique retail holiday season."
"It’s a bold experiment at a time when the rumors are rampant about Amazon and how they might use mall space."

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34 Comments on "Macy’s is turning stores dark for the holidays"


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Neil Saunders
BrainTrust

This is a sensible move and one that will help Macy’s cope with elevated online demand. However it has to be said that turning stores dark is also a function of the fact that too many of Macy’s stores simply do not work. They are not pulling in customers and they are not driving sales and profits. Some of this is down to the pandemic, but a lot of it is down to Macy’s atrocious retail standards, its chronic underinvestment in shops, and its inability to put together compelling assortments. After all, if stores did work properly, there would be no reason to turn them completely dark: they could and should operate as combined retail and distribution outlets.

David Naumann
BrainTrust

With the massive growth in online sales and expectations that social distancing will be a concern for many consumers through the end of 2020, converting some underperforming locations to dark stores is a smart strategy for Macy’s during the holiday shopping season. Dark stores and ghost kitchens are hot topics lately as retailers are trying to find effective ways to fulfill online orders profitably. In a few years, I suspect dark stores will become much more pervasive.

Mark Ryski
BrainTrust

Many retailers are in survival mode and so this is a reasonable approach under this circumstance. However it’s a short-term survival tactic only. Macy’s decision to convert stores into dark locations is just that, a short term tactic to try to serve customers through what will be a brutal holiday season for Macy’s. Using high priced mall real estate for dark store distribution is a losing proposition.

Gene Detroyer
BrainTrust

For Macy’s, don’t you think “using high priced mall real estate for regular business is a losing proposition”? Which alternative would be more productive?

Mark Ryski
BrainTrust

I was referring to Macy’s use of dark stores for distribution as being problematic as an ongoing strategy. In the short term, I think it’s absolutely the right thing for Macy’s to do — what else can they do? I appreciate that Macy’s is making the best of their difficult circumstances, but using high priced mall real estate for dark store distribution is not economically viable in the long term.

Gene Detroyer
BrainTrust

True. But neither is the alternative.

levineweinberg
Guest

But Macy’s mall real estate is not high priced. The Dover store, for example, is ground leased. Macy’s probably pays no more than $4/foot including utilities, taxes, and common area charges: significantly less than it would pay for industrial space. There’s a reason why Amazon is interested in taking over vacant mall anchors for distribution space: the inefficiency of not having a purpose-built space is at least partially offset by extremely low occupancy costs.

Suresh Chaganti
BrainTrust

Converting stores in prime real estate to dark stores is like trying make lemonade out of lemons. It is an attempt at asset utilization that they had to do. But if Macy’s had an opportunity to design from the ground up, they would probably choose a smaller size and different location.

Gene Detroyer
BrainTrust

I suspect that if Macy’s had a do-over the alternative would not be a smaller store, but no store at all. Sadly, they are stuck today.

Paula Rosenblum
BrainTrust

I think it’s a good short term solution given all the uncertainties around. Long term, Macy’s has to decide what it’s going to do with under-performing stores. It’s expensive real estate to act as distribution centers.

Gene Detroyer
BrainTrust

I suspect for Macy’s the decision will be made for them.

Mohamed Amer
BrainTrust

What we are seeing is traditional silos – both physical and functional – between sales activities and distribution and fulfillment operations, dissolve in the face of changing consumer purchase behavior. Instead of thinking in line-item accounting terms and functional roles, retailers and other consumer-facing companies are reworking their sales and fulfillment networks. They are transforming these to systems of higher value delivery for their customers while creatively addressing demand uncertainty in this unique retail holiday shopping season.

Gene Detroyer
BrainTrust

Let’s imagine two of Macy’s suburban stores. The one that is open to shoppers has staff standing around waiting to help customers who aren’t there and getting paid to do it. The other is a dark store with a balance of staff to meet the online demands and getting paid to contribute to success of the company.

Jeff Sward
BrainTrust

I’d sure like to know more about the detailed math of this proposition. An open store with ongoing revenue wasn’t working out. Now a dark store with zero revenue works as a distribution center? I understand that Macy’s is expecting a surge in internet sales this holiday season that they have to service, but this sounds like an expensive solution. Still, I admire the leap they are making. It’s a bold experiment at a time when the rumors are rampant about Amazon and how they might use mall space (JCP). The look and feel of next year’s mall keeps getting harder and harder to predict.

Peter Charness
BrainTrust

Technically the sale occurs at the time of fulfillment, so you could somewhat argue that all the revenue goes to that store. While shipping from a dark store or a customer fulfillment center isn’t exactly ringing through a POS, it’s also not right to categorize a BOPIS or curbside as having no implied revenue attached to it.

Jeff Sward
BrainTrust

Good points. I was thinking in terms of the mall location as an incremental expense — that the sale could have been fulfilled at an existing warehouse. But if they truly needed more space, and they are locked into that lease, then a dark store as fulfillment center might just be cheaper than adding another warehouse, in the short term. As soon as the lock on that lease expires, I think the math changes. In the meantime, both Macy’s and the mall are learning some powerful lessons on what future options could be.

Gene Detroyer
BrainTrust
Shelley E. Kohan
BrainTrust

Macy’s decision to create dark stores is a short-term fix for a long-term problem. Based on the need to reduce cash burn and try to recoup sales from a down-trending season, using the stores as fulfillment centers make sense for the next four months. The problem faced is making sure the right stock is in the few stores that are doing fulfillment. Macy’s has been notorious for keeping goods sitting on trucks in transit and not in the right locations down to the SKU level. If Macy’s can make sure there is better visibility into the supply chain and it can improve the speed to market for Q4, it could be a savior. Other retailers may follow suit if the financials support the decision. Low inventory, a need to conserve cash and significant changes in consumer demand are making this holiday especially tough for apparel and department store retailers.

Rich Kizer
BrainTrust

We all realize that department stores are taking a hit with new aggressive competition from channels that did not exist only a few years ago. With declining sales trends, along with lower traffic counts, this is probably a great offensive move. Keep in mind that Mr. Gennette is not afraid of being aggressive as he has shown us by past years’ closing of fair performing stores.

Oliver Guy
BrainTrust

Re-purposing of locations is something retailers need to get good at. There are so many well located sites close to population centers that can be utilized for same-day delivery and other express services that this becomes a no-brainer.

Craig Sundstrom
Guest

While your idea makes sense, it makes the selection of the Dover store baffling: the large (6M) Philly market is crowded with their stores and yet they chose this one, far removed and (seemingly) not near anything. It appears the intention is to test the concept in a location that ISN’T “well located.”

Peter Charness
BrainTrust

I never thought I would quote Donald Rumsfield but — “You go to war with the army you have, not the army you might want or wish to have at a later time.” Trying this in two stores with timing that’s just a month or two away seems like a pretty good plan to me.

Mel Kleiman
BrainTrust

Macy’s needs to turn more of its stores into dark stores since the quality of customer services in the stores it has reopened during the pandemic is so poor.

Ryan Grogman
BrainTrust

As others have noted, Macy’s hand has mostly been forced in this situation. Too many stores and too little foot traffic had them on a downward trajectory even prior to the pandemic. That being said, I think this is a smart move which drives some value out of underperforming locations and likely helps consumers get online orders fulfilled quicker. If nothing else, Macy’s is at least recognizing the PR value in a headline that reads about converting to a dark store to meet surging online demand vs. a headline that reads about having to close yet more stores before the holidays.