Traditionally, retail chains that aren’t growing are dying.
That has changed in the modern era, when many retailers have made careful decisions to get smaller in order to get healthier. It’s actually hard to know if that’s a successful strategy, but Macy’s, JCPenney, GameStop, and multiple other major chains have been selectively closing stores.
Related: Walmart issues urgent message about the alarming cost of food
In theory, it makes sense to get rid of stores that can’t make money. The challenge, however, is when to decide that a store can’t be saved.
Macy’s has actually closed breakeven stores as its brick-and-mortar footprint has dramatically shrunk. It’s difficult to measure the impact of physical stores on digital sales.
Closing a significant number of locations could lead to consumers forgetting about the brand. It’s a sort of out-of-sight, out-of-mind situation. There’s also the added benefit of customers in brick-and-mortar stores being able to go online when the store does not have their size.
💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰💵
That’s a sale driven by the physical store that does not count when a company judges sales in that store. It’s an imperfect system under which closing locations may not have the long-term benefit many retailers expect.
Some malls have become less attractive for retailers.
Image source: Getty Images
Mall retailer pushes turnaround plan forward
Fossil has been trying to streamline its brand. It recently exited the smartwatch business and has been working to properly define its brand.Â
CEO Franco Fogliato tried to paint a positive picture during the retailer’s first-quarter earnings call.
“We’re pleased to report another quarter of exceptional progress under our turnaround plan. Our teams delivered results ahead of our expectations, both operationally and financially. We recorded a significant improvement in sales performance on a sequential basis, drove another quarter of meaningful gross margin expansion and generated a second consecutive quarter of profitability,” he said.Â
Fogliato is confident in his company’s continued climb in a challenging environment.
“Despite the dynamic macro backdrop, we’re not currently seeing any softening in our demand trend and continue to have confidence in our ability to drive growth to our turnaround plan,” he shared.
More closings:
Popular Mexican chain closing all restaurants, no bankruptcyIconic mall chain shuttering more stores foreverMajor gym closing multiple locations after franchisee bankruptcyAfter Chapter 11 bankruptcy, beloved retailer closes all stores
This isn’t just empty bravado, according to the CEO.
“Our confidence is underpinned by several factors. First and foremost is the immediate traction and positive results we’re seeing from our turnaround efforts over the past two quarters. Additionally, we have a number of tailwinds to propel the business forward, a leading market position, favorable industry dynamics and a core underlying strength, including iconic brands, innovative design, talented teams in a broad global reach,” he added.
Fossil closing dozens of locations
Part of Fossil’s turnaround plan has been shrinking its brick-and-mortar footprint.
“In our retail stores, we’re seeing a strengthening trend in our full price location led by improved performance in our traditional watches. During the quarter, we continued to optimize the store portfolio throughout the closure of 28 additional stores,” shared Fogliato.
He believes these cuts are essential.Â
“As we continue to make great progress across the strategic areas of the business, we’re also taking action to transform our operating model by rightsizing Fossil Group’s cost structure,” he added.
The store closings, which will grow to 50 in total by the end of the year. have been carefully planned.
“During Q1, we closed 28 stores, ending the quarter with 220 stores. All of these closures occurred at natural lease expiration with very minimal closing costs,” he said.
Related: Bankrupt department store unexpectedly receives a savior
Closing stores is not the only way the company is cutting expenses.
“We have already taken the necessary steps to align…our cost structure to our newly defined strategies, scope and scale. This includes a reduction in workforce in February, moving some of our international markets to a more profitable distributor model and closing unproductive retail stores,” the CEO explained. “These actions are expected to drive $100 million of SG&A savings in 2025 versus 2024. We’re also continuing to evaluate other opportunities, including the potential sale of non-core assets.”
