Macy's to open four more smaller stores, as strip mall experiment shows early signs of success

Macy’s said Tuesday it will open four more stores that look a lot different than its typical giant mall anchors as it tries to refresh a brand that has lost luster with many shoppers.

The struggling retailer thinks the format is working.

The new shops will open in the fall in Boston, Las Vegas and San Diego, and another debuted this month in suburban Indiana. The locations will be smaller and situated in strip malls. They will host events and frequently swap out merchandise.

On a call with CNBC on Tuesday, CEO Jeff Gennette said Macy’s smaller stores outperformed the company in the most recent quarter. Those that have been open for more than a year posted sales growth in the three-month period. Across the company overall, comparable sales on an owned-plus-licensed basis dropped 7.3%.

The stores also outperformed the company during its holiday quarter, a key period for the retailer.

Macy’s already opened 10 similar stores to test the new concept. It unveiled the first one in the Dallas-Fort Worth area of Texas about three years ago. Some are called Market by Macy’s, a mini version of the Macy’s namesake stores, and others are named Bloomie’s, a smaller version of upscale department store Bloomingdale’s.

The company has opened the stores to replace a shuttered mall location, to add density to a market with high demand or in some cases, to enter a new area such as Seattle.

With the four new locations, Macy’s will test a fresh approach: Calling them by just its name, Macy’s.

The off-mall shops are one way Macy’s is trying to address an existential question: how it can refresh its reputation and merchandise to appeal to younger shoppers, who may see the 165-year-old department store only as a place where their parents or grandparents would shop. Led by CEO Gennette, the retailer kicked off a three-year turnaround plan, called Polaris, which zeroed in on strategies including driving online growth and shuttering underperforming stores.

A tough consumer backdrop has complicated those turnaround plans. Macy’s on Tuesday beat fiscal second-quarter sales and earnings expectations, but stuck with a full-year forecast that calls for a sharp year-over-year sales decline. Its shares dropped 14% Tuesday.

Along with the new stores, Macy’s is trying to shake off its old-school reputation in other ways. It launched a new women’s apparel brand earlier this summer called On 34th, a tribute to its Herald Square flagship location. It has given other private brands a makeover, including women’s brand I.N.C.

The company plans to refresh or replace all of its existing private brands and introduce three more new ones in addition to On 34th through 2025.