Macy's is opening new, smaller stores away from the mall, and it reflects a growing trend in retail

• Macy's CEO Jeff Gennnette said in an earnings call on Wednesday that the department store chain would test small-format Macy's and Bloomingdale's stores outside of malls.
• "We continue to believe the best malls in the country will thrive," Gennette said. "However, we also know that Macy's and Bloomingdale's have high potential off-mall and in smaller formats."
• Macy's will also open another Market by Macy's concept store and freestanding off-price Backstage stores.
• The move away from underperforming malls is a growing trend in retail.

Macy's is testing the waters outside of America's shopping malls.

During its quarterly earnings call on Wednesday, Macy's CEO Jeff Gennette said the department store chain would test new small-format Macy's stores in locations outside of malls. It will also test a Bloomingdale's store off-mall, beginning in the fourth quarter of 2021.

"We continue to believe the best malls in the country will thrive," Gennette said. "However, we also know that Macy's and Bloomingdale's have high potential off-mall and in smaller formats."

Macy's has designated Dallas, Atlanta, and Washington, DC, as test markets for the new stores.

The test of smaller-format stores comes as Macy's continues to execute on its cost-saving turnaround plan, which it calls "Polaris." The main priorities of Polaris include strengthening customer relationships, curating quality fashion, accelerating digital growth, optimizing the store portfolio, and resetting the cost base.

But it's not just Macy's — the move away from the mall is a growing trend in retail. On a May earnings call, Nordstrom said it is no longer considering itself a true mall brand. It has invested heavily in its off-price and e-commerce offerings while closing 16 full-line stores.

Being located away from malls makes it easier for stores to provide convenient, no-touch services like curbside pickup. Though many states are requiring retail stores to limit how many customers can enter due to the coronavirus pandemic, malls can be crowded and contain a lot of confined indoor space — which is thought to be conducive to spreading the virus — and it's not clear when people will feel comfortable coming back.

Even before the coronavirus pandemic brought health and safety concerns to the fore, foot traffic to malls and their anchor stores was on the decline. Many chains have opted to shut down locations in underperforming malls, including Macy's and rival department store JCPenney.

Macy's said in February, when it revealed Polaris, that it would close 125 stores over the next three years. Gennette said on Wednesday that that plan was still on track.

In addition to the new off-mall stores, Macy's is experimenting with its new Market by Macy's store concept, which reopened in Southlake, Texas, in May after temporarily closing due to the pandemic. The store, which is not located in a mall, has a curated assortment of clothing and home decor, an apothecary, community events, and an in-store café.

Macy's will open a second Market store, also in the Dallas area, in 2021.

Gennette said the company would also be building out more standalone stores for its off-price Backstage concept.

Each of the new off-mall stores Macy's discussed will have services for fulfillment, online order pickup, and returns, Gennette said.

"We're going to learn in 2021 and 2022 on that, and we'll make adjustments as we need as we move forward," he said.