Photo: Macy’s
Has Macy’s secured its future success with its new financing deal?
You probably know the story about two men running away from a bear. One wonders aloud if they can outrun the animal. The other man says he doesn’t have to outrun the bear, just his friend. Macy’s announcement that it has raised roughly $4.5 billion in new financing may be the department store equivalent as the retailer now seems ready to move ahead with purchasing new merchandising and paying down its debt on time while many of its rivals (J.C. Penney, Lord & Taylor, Neiman Marcus and Stage Stores) have either filed for bankruptcy or appear as though they may be headed in that direction.
The nation’s largest department store operator announced that it has negotiated $3.15 billion in asset-based credit in addition to a previously announced $1.3 billion bond offering.
Jeff Gennette, chairman and CEO of Macy’s, Inc., said the deal, which was made based on the strength of the company’s real estate portfolio, would give the retailer “sufficient flexibility and liquidity to navigate our current environment and fund our business for the foreseeable future.”
Speaking to stakeholders, Mr. Gennette said improved liquidity along with the retailer’s previously announced Polaris strategy to reinvigorate its business makes him confident that Macy’s, Inc. will remain “a strong company to work for, invest in and partner with.”
The three-year Polaris initiative is focused on building on the strengths of Macy’s core businesses (Macy’s, Bloomingdale’s and Blue Mercury), building its private label offerings and improving the customer experience with an expanded loyalty program, digital initiatives, remodeled stores and its new Market by Macy’s format, now being tested.
Despite a tough first quarter, Mr. Gennette expressed optimism about Macy’s business as it begins reopening stores across the country. The retailer, which announced this morning that it lost $2.10 a share versus a gain of 44 cents last year, said that digital sales picked up steam during the quarter and that sales at the roughly 450 locations it has reopened since June 1 are performing ahead of its expectations.
“We are seeing strong sell-through of seasonal merchandise and anticipate that we will exit the second quarter in a clean inventory position,” said Mr. Gennette. “The holiday season will be crucial, and the team is working now to get the right merchandise and assortment in place.”
- Macy’s, Inc. Raises Approximately $4.5 Billion in Financing – Macy’s, Inc.
- Macy’s, Inc. Provides Preliminary First Quarter 2020 Financial Results – Macy’s, Inc.
- Macy’s, Inc. Announces Three-Year Polaris Strategy to Stabilize Profitability and Position the Company for Growth – Macy’s, Inc.
- Canceled orders and furloughed employees are part of today’s retail reality – RetailWire
- Are strip centers where it’s at for Macy’s and Sephora? – RetailWire
- Will Macy’s cut its way to improved margins and future growth? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Will the combination of new financing along with Macy’s three-year Polaris plan enable the retailer to emerge stronger down the road than it was before the coronavirus pandemic hit? What do you see as the biggest opportunities for Macy’s to improve its business at this moment in time?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Steve Dennis
President, Sageberry Consulting/Senior Forbes Contributor
Macy’s will live to fight another day. While I am less convinced that the Polaris plan is the ultimate answer for Macy’s success, securing financing is vital. The other factors that work in Macy’s favor are: 1.) the Macy’s brand, 2.) the greatly diminished competitive landscape, and 3.) capable management/leadership. With the competitive landscape drastically changed, Macy’s has an opportunity to emerge as a much stronger, relevant player. That said, this is far from a slam-dunk. If Macy’s continues down the same path as it has for years, the end result will be the same. It will eventually go away like the others that didn’t survive.
It’s discouraging to read about Polaris and realize there wasn’t a word about improved customer experience or training. While I’m sure Macy’s will live to see many more days, the answer isn’t more digital coupons when pretty much everything they sell can be found cheaper. Loyalty comes from relationships and that still takes training.
Macy’s $4.5 billion new financing will address their liquidity problem and provide financial stability for a while, but it doesn’t solve some of the ongoing challenges of the department store category. Department stores are primarily merchants of commodity products, brands and products that are available at many other retail stores and online marketplaces, and competing with many other chains and marketplaces often causes department stores to resort to promotions and discounts that impact margins.
The Polaris plan will help Macy’s become more competitive, especially the expansion of private label brands, and they may also benefit from less competition if some of their rivals (J.C. Penney, Lord & Taylor, Neiman Marcus and Stage Stores) don’t survive bankruptcies that are knocking on their doors.
Macy’s has needed to change for a long while now. While the new financing will keep Macy’s alive, there are other bigger fish that need to be addressed – one of which is, how do they stay relevant in a sea of other department store competitors, some of which are doing well?
Macy’s has secured for themselves time and maneuverability — period. Success will be a function of how they use that time maneuverability. The Macy’s brand survived over all the Federated and May Co. brands because they were the best merchants of the bygone era. Emphasis on gone. They once again have to demonstrate that merchandising acumen, beyond the ability to stick a sale sign on every rack. I saw a lot of progress in the fall of 2019. Now show us the role of the department store in 2024.
Macy’s has simply extended the amount of time it has before declaring bankruptcy. This is reflected in their competition declaring bankruptcy almost daily, and in the fact that their business model long ago started facing tremendous declines. Large real estate holdings, physical inventory issues and managing OOSs and apparel dating, cash flow, etc. all add up to make the department store model a poor investment. Add to this the nimble ability of Amazon and Walmart, as well as the other retailers who have already switched to an e-commerce-focused platform, and a brick-and-mortar department store is a dinosaur simply waiting to perish since it cannot adapt rapidly enough.
The funding will allow Macy’s to re-emerge from the pandemic afloat, albeit it as a smaller-sized company. The brand “Macy’s” still has the Thanksgiving Day parade, the 4th of July fireworks and other iconic events that need to be capitalized on via the in-store and digital experience. Macy’s should be a place not just to shop but also to have fun and be entertained, just as someone is when they watch the parade on TV. Just relying on a push in private label merchandise isn’t going to cut it at this point.
A phrase by Ronald Reagan aptly applies to Macy’s: “the more than plans fail, the more the planners plan.”
Over the past five or so years, Macy’s has embarked on so many plans and strategies. Most of them have helped a little, but none of them have fully got to grips with the poor proposition in terms of assortment, store environment, service, and a whole host of other customer-facing factors. A lot of this comes down to poor execution and general resistance to change within the organization.
As such, I am skeptical about the latest strategy. Directionally, it makes sense but I am less than convinced that Macy’s will implement it in a meaningful way. I am also wary of the prognostications of Macy’s management team. Their statements always lack clarity:
And on top of this, unlike every single other retailer, they still haven’t been able to provide a full Q1 financial update and won’t do so until July.
There is something that just doesn’t feel right here. Borrowing money above the prime rate may be good for liquidity but unless it is put to productive use to reform the company it will simply add to the burden and, ultimately, becomes value destructive.
It sounds like it is just what a department store needs — more debt.
The debt certainly gives Macy’s more liquidity and the ability to outrun the bear for now. While liquidity may be the short term problem, this doesn’t solve the long term problem — the department store business model is broken.
So instead of Macy’s joining its brethren in the graveyard in a year or two, now they can join them in four or five years. Money does not solve the department store issue.
Macy’s may have secured its survival with the debt issue, but not its long-term success. The new borrowing helps stop the bleeding caused by store closures, the slow reopening process, and the gradual return of shoppers to the malls.
But Macy’s long-term survival really depends on its willingness to address its merchandising, the condition of its stores and the customer experience. Whether Polaris can fix those problems — or is simply another case of strategic window-dressing — remains to be seen.
The new financing was a must-have for Macy’s to execute on its strategy in Q4 and calendar 2021. Polaris was announced in early February of this year with great fanfare, then reality of COVID-19 hit retailers. Rationalizing their cost structure will require even more work with less people and economic uncertainty at the consumer level. Their new off-mall store format, Market by Macy’s, is appealing with its food options and community events. However, the growth part of Polaris appears fixated on what I call a product focus: plans to build four $1 billion power private brands, without a focus on customer experience that goes beyond Loyalty 3.0. While the Macy’s brand is among the best in retail, it not only loses its luster, but permanently dilutes it as the company expands into off-price formats. The overall strategy needs to be more cohesive rather than a patchwork of growth initiatives that appear sound on their own.
Bottom line, the financing deal was a must-have and gives the company a long runway. But sustained revenue growth and a return to desired margins may remain illusive under the current plan and market conditions.
That’s funny. Macy’s has systemic issues including the big one: relevance. Whoever doled out the money to this dinosaur will be the first one they call when the Bankruptcy Reaper comes calling.
Competitors are closing, they have tremendous brand equity and they’ve at least proven willing to try things. And the last 12-24 months have not been just doom and gloom. Infusing cash into a business that shows a willingness to innovate — which almost by definition means trying things that fail — is one I’d be optimistic about.
Has Gennette been in a store recently? Unless Macy’s can address the underlying issues: lack of compelling reason for customers to visit stores and the merchandise (assortment and how it’s displayed) and shopping experience once they’re inside, additional capital sadly just prolongs the inevitable death of the brand.
No, of course not. What Macy’s has done is to avoid a near-term existential crisis.
The moderate department store space has been in a two decades plus decline, which is only being accelerated by the pandemic. Like so many others that have been struggling for the last few years, Macy’s does not fundamentally have a cost structure or too many stores problem it has a customer relevance problem.
The reality is that at one level Macy’s will benefit from being the strongest moderately priced department store on the mall as Penney’s slowly sinks into oblivion and Sears finally goes away. But despite being reasonably innovative and deploying solid harmonized retail capabilities, Macy’s has had a hard time gaining meaningful share in a contracting sector. And this is, as I go into in great length in my new book, in this era of digital disruption, even being very good is not good enough to win, keep and grow the customers they need to earn superior financial returns.
As I’ve been saying for years, a slightly better version of mediocre is not a winning strategy. For Macy’s to avoid finding itself in crisis a couple of years down the road they must strive to be far more remarkable, not just grab on to the customer crumbs of soon to be defunct brands.
Those of us with aging friends, relatives or family members know the feeling when they are released from the hospital, or the latest medical issue ends up being “nothing.” Immediately there is relief, but also knowledge that they aren’t what they used to be, and ultimately a dread of what will happen next … or eventually.
Where were we? Oh yes: how do I feel about Macy’s chances? Well, right now I feel relief, but I also know they aren’t what they used to be … I wish them well.
Financing helps address the short run due to closure from COVID and moving to e-Commerce. In the long run, it is about merchandising and customer experience that needs to change to make the store relevant to consumers. Simply because you are the last department store standing does not mean you are successful.