Macy's is testing smaller stores to save money

  • Macy's is currently turning four of its stores into "neighborhood" locations with less square footage.
  • It's still unclear what the department store chain will do with the unused space.
  • The department store chain is, meanwhile, taking 350 more productive stores and giving them a facelift, with Starbucks coffee shops and remodeled dressing rooms.
Pedestrians walk by Macy's flagship store in Herald Square in New York, New York.
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Pedestrians walk by Macy's flagship store in Herald Square in New York, New York.

Macy's is testing smaller stores to slash expenses on staffing and inventory, according to a report by The Wall Street Journal.

The department store chain currently is trying the idea at four locations, including at Stamford Town Center in Connecticut, to cut its real estate by as much as a fifth there and turn those shops into "neighborhood stores." It mimics similar initiatives already taken by rivals Kohl's and Nordstrom. Kohl's is dividing some of its bigger stores to allow room for new tenants like grocer Aldi, while Nordstrom is trying a small-shop concept known as Nordstrom Local in Los Angeles. Even mall operators like Macerich are looking at store space in a new way, rolling out stores that showcase a number of brands for a short period.

"If your store is too big and your dollars per square feet are too low and you can't lease the space to someone else, then you've got to hive off a floor," Macy's CEO Jeff Gennette told the Journal in an interview. "If we were building stores today, we'd build them smaller."

Not needing so many locations — and with some being unprofitable — Macy's in early 2017 shut 100 stores as it's been working to whittle down its real estate. It's also been working with Brookfield Asset Management to allow the real estate firm to redevelop all or part of 50 select properties. Macy's had roughly 690 locations, including those under the Bloomingdale's banner, still open as of the latest quarter.

Macy's "neighborhood stores" will reportedly have more self-service options and an area dedicated to picking up online orders. It's unclear what Macy's will do with the space leftover after the store shrinks in size. A spokeswoman didn't immediately respond to CNBC's request for comment.

Macy's, meanwhile, has set aside about 350 of its more productive stores to get a facelift, including expanded merchandise, remodeled dressing rooms, Starbucks coffee shops, couches for lounging and more, Gennette told the Journal. He said sales at these newly renovated "magnet stores" are surpassing expectations already.

Macy's is set to report fiscal third-quarter earnings before the bell on Wednesday, when it is planning to discuss its real estate strategy in greater detail.