Analysis: Macy’s making some progress

Neil Saunders, managing director of GlobalData Retail, comments on Macy’s fourth quarter results:



Despite the torrid time it had in the final quarter of 2015, Macy’s has not managed to translate that weakness into a period of holiday cheer this time around. Sales continue to slide at a fairly hefty pace, with particular weaknesses in apparel. The latter is especially disappointing given the extremely soft sales during the prior year when the weather was firmly against winter fashions. We also believe that online sales were lackluster across the quarter.



There is no doubt that, like other players, Macy’s suffered from the reduction in traffic to malls across the holiday period. However, we also think that it did little to help itself with shops that remained, for the most part, uninspiring and badly merchandised. Against an exceedingly tough backdrop, Macy’s seems to be making very little effort on the shop floor – a position that does not bode well for the future.



That said, Macy’s is making a little more progress in terms of the future structure of the organization. There now seems to be a realization that the company must move faster if it is to survive. The price of this nimbleness is a smaller, leaner business where investments can be focused on the stores and initiatives that will generate the strongest return.



The shrinking of the business, which included 66 store closures over this fiscal year, has generated cash proceeds of $675 million. A further 34 stores are scheduled to shut in the year ahead, and will generate more income. This monetization of assets provides Macy’s with a war chest that it can use to invest in improving its proposition. However, we believe that it is vital that this money is spent wisely and well. It should not be used in a piecemeal way to simply smarten up existing stores, but to overhaul the whole customer experience and to reinvigorate the Macy’s brand. This is the last chance saloon for Macy’s: if it gets this wrong, it will increasingly find itself without the resources to implement a decent turnaround and will begin a downward spiral into oblivion.



To be fair, the company has taken some steps in the right direction, including offering more experiences in store, integrating more third party offers, and developing an embryonic off-price business in the form of Backstage. But there is much more work to do to tie all of this together into a meaningful proposition – including bolstering its range of own-label and exclusive products.



The reinvention effort comes at a time when Macy’s is the subject of takeover speculation. While we do not completely rule out corporate activity, we believe that despite Macy’s strong asset base, it would be an act of folly for a company like Hudson’s Bay to take on the all consuming challenge of turning around an ailing business. We feel even more strongly about the rumors that Amazon may buy the brand and see no compelling reason for it to do so. But regardless of ownership, there is a lot of work to do before Macy’s is back to full health.