Merchant Innovation

Macy’s Trades Floor Space For Innovation Capital

Until the eCommerce boom changed the game, a reliable metric of success in retail was physical footprints. If a retailer had storefronts in every major American market, it was meeting customers in every place they would be expected to shop, but now that eCommerce makes any place with Wi-Fi a shoppable location, are physical footprints really the truest measure of retail success anymore?

One American retail staple is fast moving away from that paradigm.

Macy’s announced in early October that it would be selling the top four floors of its nine-story location in downtown Seattle to Starwood Capital Group. This would reduce the Pine Street store to 363,000 square feet to 283,000 square feet across five floors, one of them being the basement level. However, rather than focusing on the reduction to selling floor space, Terry Lundgren, chairman and CEO of Macy’s explained in a statement that the retailer is emphasizing what these changes open Macy’s up to instead.

“Macy’s on Pine Street is a very successful business serving a thriving community of downtown residents and workers,” Lundgren said.  “Our vision is to make the store easier and quicker to navigate while also attracting new jobs and economic activity to space that has not been fully utilized in recent years. While there will be some construction activity inside the store over the next year, we expect to continue to serve customers without interruption.”

Macy’s will reportedly land about $65 million in cash as part of the deal with Starwood, and while Lundgren’s vague comments on “construction activity” might not seem all that exciting, the Puget Sound Business Journal reported that the funds will more than likely be used to facilitate Macy’s ongoing in-store redesign to make their stores more appealing to younger shoppers. In an indication that the sale is not a sign of regression or poor performance, Macy’s doesn’t plan on laying off any of the Seattle store’s 265 employees despite a 22 percent reduction in floor space.

Pat Johnson, a retail analyst at Outcult and Johnson, told the PSBJ that Macy’s recent actions with its millennial-styled basement at its flagship New York City location – an entire section complete with selfie walls, styling bars and 3D printers – could be a good model for what Macy’s is planning on doing in Seattle.

“If they were going to take it [the NYC model] to other places, Seattle would seem logical because of the huge advance in technology we have here,” Johnson said. “[The sale to Starwood is] a little like drilling back on a slingshot they’re getting ready to launch.”

If Macy’s can prove that a larger physical retail footprint is a holdover of an industry that didn’t have consumer expectations on eCommerce to meet, then more merchants might adopt a similar stance of downplaying floor space in favor of more engaging in-store designs. Tech-enhanced displays can get expensive, though, especially for a company like Macy’s that has shown the willingness to revamp its stores in favor of a more modern consumer mindset. Fortunately, selling floor space can give retailers a little bit of financial cushion to affect what look to be very necessary in-store change for a consumer base that gets younger every day.

“This transaction is an example of the company’s ongoing efforts to enhance shareholder value by identifying and pursuing strategic real estate dispositions while maintaining the flexibility we require to run a successful business,” Macy’s Lundgren said in a statement.

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