‘Mini Macy’s’ Would Mark Next Step in Ongoing Reinvention of Giant Dept. Stores

For a company best known for a Thanksgiving Day parade that ends at its massive 10-story, 1.2 million-square-foot flagship store in Manhattan, the notion of a string of “Mini Macy’s” popping up in neighborhoods, rather than as an anchor tenant in a mall, is certainly a break from the norm.

As much as Macy’s and the entire department store category has struggled to reinvent itself in the face of an increasingly digitized, omnichannel retail world, the core philosophy of the one-stop-shop has remained largely intact, at least until now.

This as Macy’s Chief Financial Officer Adrian Mitchell said the retailer’s “next evolution” will be via physical stores that are less than a quarter of the size of the typical 250,000-square-foot hub, or about the size of a typical CVS.

“We’re incredibly excited about the new store growth potential that we see in off-mall [stores],” Mitchell said in a televised interview with Bloomberg last week, noting that 30,000- to 50,000-square-foot free standing stores would serve customers in a different way.

“[A store] that’s in neighborhoods and power centers closer to where the customer lives, where the soccer game is, where work may be, where the grocery store is located, [that] is the next evolution in our physical footprint,” Mitchell said.

Department Stores in Focus

To be sure, Mitchell’s comments come in the wake of earlier downsizing and store closure announcements by Macy’s, as well as an industry-wide rethink concerning physical retail space.

The news also comes at a time when Macy’s, in the face of pressure from investors, hired retail turnaround advisory Alix partners in November to independently assess the merits of keeping the retailer’s physical and digital assets together or separating them.

Read more: As Macy’s Officially Revisits Dot.com Spinoff, Attention Shifts to Who Might Be Next

“Our focus is to ensure that the omnichannel behavior of customers is going to be respected at all costs,” Macy’s CEO Jeff Gennette said during the company’s third quarter earnings call, while reiterating the company’s commitment to its “Polaris” strategy, which is based on the integration of both pieces of the business. “I think the omnichannel behavior is irrefutable and we need to respect that.”

At the same, other department store rivals, including Nordstrom and Kohl’s, are also facing outside pressure to seek new business models and higher valuations the way Saks Fifth Avenue did when it spun off its dot-com business from its physical stores last spring.

Kohl’s Big Bounce

Most recently, shares of Kohl’s enjoyed their biggest jump in over 10 years last week on reports that two investment firms were preparing bids to take the Wisconsin-based operator of 1,200 stores private for as much as $9 billion.

See more: Kohl’s May Have Second Suitor in Takeover Bid

While the company confirmed receipt of the outside takeover offers, Kohl’s CEO Michelle Gass and the company’s board of directors have also taken a “better together” stance in support of the cohesive benefits derived from omnichannel practices, rather than splitting eCommerce from brick-and-mortar stores.

Prior to those outside offers and the stock’s bounce, Engine Capital and Macellum Advisors both publicly pushed the retailer for faster change.

In an open letter published Jan. 18, Macellum blasted the department store for its lack of urgency in the wake of what it called “another lost year at Kohl’s.”

Read more: Kohl’s Attacked by 2nd Activist Investor, Dept Store Blasted for Lack of Urgency, Wasted Year

“We believe the Company’s Board of Directors … and executive leadership team have spent another year materially mismanaging the business and failing to implement necessary operational, financial and strategic improvements,” Macellum said, citing a 22% share price decline that has since reversed.

Another day, another report about the changing look and feel of department stores, this time with category leader Macy’s mulling a future with mini neighborhood-based locations rather than its large, traditional, mall-based properties. In the meantime, as investors await fresh details from both Macy’s and Kohl’s on their outside analysis and business reorganization strategies, the two will surely be faced with questions when they report their fourth quarter earnings results in the latter half of February.