What: Macy’s will open five more off-mall formats as its closes more of its giant mall anchors this year.

Why it is important: In a pivotal time for the retailer’s expansion strategy, its 10 off-mall stores have outperformed the rest of the company.

The department store group is focusing on off-mall expansion with mini-versions of its stores, Market by Macy’s and Bloomie’s, which are about one-fifth of the size of the retailer’s typical stores.

The company is targeting customers in fast-growing suburbs and busy shopping centers as it exits dying malls. The new and smaller stores feature a smaller assortment of popular brands with displays that change frequently to stay on-trend.

At the end of this year, the retailer will finish the test and learn phase of the stores and decide on expansion plans. For now, the CEO states that the size and locations are working and the retailer is hopeful to be able to scale the concept more aggressively in 2024.

The off-mall stores have performed better than the rest of the company, with comparable sales at the stores that have been open over a year grew 8% and 12% in the holiday quarter compared to a decline of 3.3% at Macy’s and 0.6% growth at Bloomingdale’s.

The new store formats have also drawn in younger and more diverse consumers, some of which are first time shoppers.

So far this year, Macy’s shares have dropped almost 26%, underperforming the nearly 7% rise of the S&P 500 and the roughly flat year-to-date performance of the retail-focused XRT.

In 2020, the retailer announced plans to close 125 stores over three years and lay off about 2,000 corporate employees. Currently, 80 Macy’s locations have been closed and the retailer has plans to close five more this year.

The off-mall shops have worked best so far in shopping centers with grocery anchors or stores such as off-mall retailers that draw traffic.

The retailer has found that shoppers at Market by Macy’s tend to be shopping for gifts or occasions and skew a little more towards men than other locations.

Bloomie’s stores have performed well in shopping centers with popular and higher-end retailers. The smaller format has been a way for the retailer to reach new markets and even features a restaurant concept and concierge-like service desk.

While these smaller off-mall formats look to be an opportunity for the retailer, challenges will still linger for the company as discretionary spending is expected to remain under pressure in the US and net sales are expected to decline by 1% to 3% in 2023.

Macy’s opens more strip mall stores as expansion strategy faces pivotal test