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Commentary: Real chance of a turnaround at Macy's, but...


After a torrid opening quarter, Macy's second quarter numbers come as a relief. Certainly, a same-store sales decline of 2.8% is far from good, but it is one of the better performances Macy's has turned in over recent periods. Of course, the question is whether this gentler decline represents a genuine turning point for Macy's, or whether it is simply a bottoming out after years of sharp deterioration.

One of the factors that has benefitted comparable sales is the program of store rationalization. As much as this is painful to total sales growth, Macy's has retained some of the sales as loyal shoppers have transferred their custom to other stores. This impact was not present in the first quarter as Macy's was in the midst of closing down stores, but is now coming through more strongly. This is encouraging as it indicates that Macy's rationalization will ultimately deliver higher levels of store productivity without severe damage to volumes.

Positively, the ebbing sales tide has also slowed at a time when some of Macy's long talked about strategic initiatives are finally coming into play. In our view, this suggests that the company may now be getting its act together in improving the quality of the in-store experience. We are hopeful that this energy and drive is a function of the new leadership of Jeff Gennette, although we recognize that it is still far too early in his tenure to pass fair judgment.

The revamped women's shoes offer is an example of an initiative which is helping Macy's regain some momentum. Here, the company has advanced the proposition and moved to an open-sell self-serve model. After a successful pilot, which resulted in double digit sales growth, the strategy is now in more stores and will be rolled out to all shops by the end of August.

Jewelry is another area of progress, albeit one that has been in play for quite some time. The edited assortment, improved training, and higher staffing levels have all helped to provide momentum to the category and have increased sales. As this has been successful, we have previously lamented the fact that Macy's has not rolled out the initiative faster; however, we are pleased that there is now a concerted effort to get it into all stores by the end of summer.

As much as these steps are positive, they are but small drops of success in a vast ocean of challenges. Alone, they will not transform the business, and they do not put Macy's on a growth footing. For that to happen a more radical and fundamental rethink of other categories -- including the problem child that is apparel - needs to happen.

On this front, some good thoughts are coming from Jeff Gennette. He has recognized that stores carry too much assortment, that ranges are not adequately curated and coordinated, that inspiration is lacking, and that Macy's is not a place for ideas and the exploration of exciting products. These are all issues we have long since flagged and that we believe need to be remedied if Macy's is to get back on a path to growth.

As might be noted, the list of things to do is long. It cannot be delivered overnight. As such, we see more short-term pressure for Macy's, albeit not on the highly negative scale of the first quarter. There is now a real chance of a turnaround, but it has to be actively worked for.

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