Macy’s will shutter another 125 of its namesake department stores as it attempts yet again to turn its business around. The goal: remake itself into a retailer equipped to survive today’s shopping landscape.
The company, which currently operates about 650 stores (including the Bloomingdale’s luxury chain) said on Tuesday that the locations on the chopping block have total annual sales of about $1.4 billion. The stores, which will be closed over the next three years, are in “lower tier malls.” Macy’s will also break from its traditional anchor spot in malls by trying out a concept called Market by Macy’s, which will feature new smaller store formats outside of the shopping centers.
To bolster profits, Macy’s also said it would cut about 2,000 corporate jobs, or 10% of non-store staff. That includes closing its Silicon Valley office and relocating that e-commerce staff to New York. The company is also dropping its dual-headquarters structure, closing its offices in Cincinnati and consolidating in New York, where the bulk of its top leadership works.
Macy’s earned praise for its efforts from Moody’s, which said in a research note that “Macy’s, like its major department store competitors, is working to accelerate change after a weak 2019.”
This is the retailer’s second round of store closures. In 2016, Macy’s shuttered 100 stores. This latest round of cuts is an admission by the U.S. largest remaining department store operator that many of its locations are not up to standard for shoppers today. Many Macy’s stores are poorly maintained, without any of the “fashion authority” look or feel that the company’s executives like to tout.
The news comes as Macy’s reported comparable sales fell about 0.8% in the fiscal year that ended on Saturday, a weak performance in a strong consumer environment. The numbers underscore how the company keeps losing market share: Macy’s rivals like T.J. Maxx, Target, Amazon, and Ulta Beauty have continued to thrive.
Macy’s will present the details of its turnaround plan, dubbed “Polaris,” on Wednesday at the New York Stock Exchange.
Jeff Gennette, Macy’s chief executive, had long defended the idea of having some stores be less spectacular while lavishing much more capital on its 150 best stores like Herald Square in Manhattan. Gennette argued that the weaker locations at least provide Macy’s with a presence in often underserved markets and acted as spokes in its e-commerce infrastructure.
But today, in a press release, the company acknowledged that the weaker stores were of limited value, saying “today’s shopper expects a consistent experience whenever and wherever they encounter Macy’s brand.” Target for one has thrived with a rolling program of store remodels that has led to consistency in the caliber of its stores.
Many of Macy’s problems can be tied to the fact that it is the product of a 2005 merger between Federated Department Stores and May Department Stores, which made it a true national player at a time department stores still tended to be regional.
But the purchase of Marshall Fields in the Midwest angered local shoppers for years, while other acquisitions led to having two Macy’s stores too close together in a given market, at times with very different layouts and looks.
The closings will leave Macy’s with about 500 stores. Bloomingdale’s has 40 stores, while the small-store Bluemercury beauty chain has some 170 locations.
As for the 161-year-old company’s plan to open the smaller Market by Macy’s stores, the rollout will begin Thursday in Dallas in strip centers, where rivals like Ulta, T.J. Maxx, Target, and Kohl’s are typically found. These locations will be about 15,000 square foot in size, about one-eighth the size of a regular Macy’s.
Such stores are no guarantee of success: Kohl’s has shrunk many of its stores yet it continues to struggle thanks to merchandise that doesn’t set it apart from competitors.
Meanwhile, Target has taken much market share away from traditional department stores by successfully launching new brands and retiring old tired ones. Target’s strategy has meant giving up billions in sales, something the likes of Kohl’s, J.C. Penney and Macy’s have been loath to do. Macy’s said on Wednesday it plans to build four $1 billion brands hoping to reignite interest in its products.
The company is also looking to generate more cash from its real estate, with its eye on bringing in $130 million in the new fiscal year by plans including selling off square footage it doesn’t need. (The company generated $1.6 billion from such transactions since 2016.)
Within three years, the company expects the reduced number of stores to bring in between $23.2 billion and $23.9 billion, compared to 2019’s $24.6 billion, suggesting Macy’s plans to be a leaner, nimbler and more profitable store chain.
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