Analysis: Macy's makes bottom-line progress, but company needs to move faster
Macy's has presented a rather mixed bag of results, with gains on the bottom line overshadowed by the continuing slide in sales. Admittedly, total sales have been affected by the program of store closures, but the comparable number — which worsened since the last quarter — cannot fall back on the same excuse.
In our view, one of the central issues with Macy's is the patchiness of its turnaround program. While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching. We get the sense that Macy's fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business.
On the ground, this means it is hard for shoppers to see any material change, which is one of the reasons why Macy's continues to suffer from customer defections. None of this is to suggest that there have not been pockets of advancement: in shoes and jewelry, for example, Macy's has enhanced its offer. However, on their own, these are insufficient to swing the top-line into growth.
As a department store, the reinvigoration of Macy's business means it must reinvent not only each department but the way in which all of those individual elements fit together. In our opinion, the company is a very long way from achieving this and, more worryingly, seems to lack the will or the ability to do so. Instead, Macy's is focusing on smaller scale initiatives like the revamping of its loyalty scheme and improved marketing. As much as these things are valuable, they do not address the fundamental issues facing the business.
Indeed, it could be argued that changing marketing is futile if Macy's does not have a fresh and exciting proposition, which appears to be the case across many of its stores. Here, we see a number of obstacles that Macy's needs to overcome.
The first of these is inventory and space. Many Macy's stores carry far too many lines and have an excess of product. This creates a sea of merchandise in which it is very difficult for the shopper to find both what they are looking for and to identify the latest trends. It also means that space is used inefficiently which weighs down on profit.
The second of these is in general shop-keeping standards. Too many of Macy's stores look like a throwback to the early 1980s, which is a function of a lack of investment over the years. The company may be able to get away with this — at least for the short term — if merchandising and displays were top-not; however, they are far from it. There are some stores where even basic cleanliness is lacking. The net result is a dispiriting environment which deters shoppers rather than encouraging them to visit.
Integrating concepts like Backstage into existing stores has helped to take the edge off the decline in trade. However, it is not a sustainable solution and, indeed, we would argue that despite the boost to sales it will likely hinder long-term efforts to rebuild the full price part of Macy's business.
All in all, Macy's has made some progress, especially on the bottom-line where cost-saving initiatives are helping profit. However, the company needs to move further, faster and in a more coordinated way if it is to transform its fortunes.
In our view, one of the central issues with Macy's is the patchiness of its turnaround program. While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching. We get the sense that Macy's fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business.
On the ground, this means it is hard for shoppers to see any material change, which is one of the reasons why Macy's continues to suffer from customer defections. None of this is to suggest that there have not been pockets of advancement: in shoes and jewelry, for example, Macy's has enhanced its offer. However, on their own, these are insufficient to swing the top-line into growth.
As a department store, the reinvigoration of Macy's business means it must reinvent not only each department but the way in which all of those individual elements fit together. In our opinion, the company is a very long way from achieving this and, more worryingly, seems to lack the will or the ability to do so. Instead, Macy's is focusing on smaller scale initiatives like the revamping of its loyalty scheme and improved marketing. As much as these things are valuable, they do not address the fundamental issues facing the business.
Indeed, it could be argued that changing marketing is futile if Macy's does not have a fresh and exciting proposition, which appears to be the case across many of its stores. Here, we see a number of obstacles that Macy's needs to overcome.
The first of these is inventory and space. Many Macy's stores carry far too many lines and have an excess of product. This creates a sea of merchandise in which it is very difficult for the shopper to find both what they are looking for and to identify the latest trends. It also means that space is used inefficiently which weighs down on profit.
The second of these is in general shop-keeping standards. Too many of Macy's stores look like a throwback to the early 1980s, which is a function of a lack of investment over the years. The company may be able to get away with this — at least for the short term — if merchandising and displays were top-not; however, they are far from it. There are some stores where even basic cleanliness is lacking. The net result is a dispiriting environment which deters shoppers rather than encouraging them to visit.
Integrating concepts like Backstage into existing stores has helped to take the edge off the decline in trade. However, it is not a sustainable solution and, indeed, we would argue that despite the boost to sales it will likely hinder long-term efforts to rebuild the full price part of Macy's business.
All in all, Macy's has made some progress, especially on the bottom-line where cost-saving initiatives are helping profit. However, the company needs to move further, faster and in a more coordinated way if it is to transform its fortunes.