Macy's Inc. is accelerating its rollout of smaller department stores, betting that it can attract more shoppers with fewer products and more digital services at stores closer to where customers run their daily errands.
Department stores like Nordstrom Inc. and Bloomingdale's, a unit of Macy's, began experimenting with smaller footprints years ago as online shopping depressed foot traffic to malls and millennials began moving to the suburbs.
The pandemic accelerated the trend, with retailers gravitating toward suburban shopping centers where people are making more frequent visits to grocery stores and using new curbside pickup services.
Open-air shopping centers have been the "backbone of retail over the last five to 10 years," said Brandon Isner, head of Americas retail thought leadership at CBRE Group Inc., a commercial real-estate services firm.
These centers include grocery-anchored shopping hubs and strip malls with smaller convenience and services-oriented tenants.
Retail availability in grocery-anchored and strip malls has declined over the past decade, from nearly 13% in 2012 to less than 8% last quarter, according to CBRE. Availability at enclosed malls, by contrast, has been on an upward trend since 2016.
Macy's opened five Market by Macy's locations over the past two years in Texas and Atlanta. At 22,000 to 58,000 square feet, these stores are about a fifth the size of the company's department stores.
The smaller stores offer a frequently updated inventory that mixes trendy and staple items, such as the latest style of loafers and classic T-shirts.
A key focus for the store is providing places for customers to pick up and return items bought online or from other Macy's stores, said Chuck DiGiovanna, head of real estate for Macy's.
He said Market by Macy's has found particular success attracting both new and existing customers when the stores are located in "power centers," or shopping complexes that include several anchors such as wholesale clubs and discount department stores.
"There are so many people working from home, these suburban power centers have really been strong," Mr. DiGiovanna said. "But we were heading in that direction anyway."
Macy's found the smaller stores were more productive to staff and stock with inventory. Sales at these stores exceeded the company's expectations in the fourth quarter of 2021, Mr. DiGiovanna said.
The company plans to add an additional 10 off-mall locations this year, including Market by Macy's, the off-price Macy's Backstage, Bloomie's and Bloomingdale's outlets.
Some of the stores will open in areas where Macy's is closing underperforming mall locations.
Macy's executives said in February 2020 they would close about 125 department stores within three years and so far have shuttered about half that number, according to a spokeswoman, though the timing and number of remaining closures remains fluid.
