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August 22, 2024
Macy’s Struggles To Deliver Value
Shares of Macy’s Inc. fell about 13% Wednesday after the department store chain scaled back its annual sales guidance as second-quarter sales missed estimates amid a worsening pullback in discretionary spending.
“We entered the second quarter with an expectation that discretionary spend would remain stable, reflecting a resilient but choiceful consumer,” said Tony Spring, Macy’s chairman and CEO, on an analyst call. “As the quarter progressed, our customer became more discriminating, which we attribute to ongoing macroeconomic uncertainty and an increasingly complex news cycle.”
The Macy’s flagship chain was most impacted by the shift in consumer behavior.
Under its updated guidance, Macy’s companywide comps, including the 150 Macy locations set to close by 2026 and digital, are now projected to be down 2% to down 0.5% this year, versus previous guidance calling for a decline of 1% to an increase of 1.5%. Meanwhile, Macy’s nameplate stores that will remain open and its digital operations are expected to be down 1.5% to flat, while its luxury nameplates are projected to see an increase of 0.5% to 2%.
Macy’s EPS guidance was maintained as gross margins and SG&A expenses both came in better than expected in the second quarter.
Adrian Mitchell, CFO and COO, said the updated guidance reflects “a more discriminating consumer and heightened promotional environment” relative to prior expectations.
Updated guidance still assumes an improving top-line performance in the second half compared to the 2.3% decline in the go-forward business in the first half, including a 3.8% drop in the second quarter.
In reaction to the softness at the Macy’s banner, Spring said assortments have been realigned, “pulling back where business has been soft while protecting areas where we have momentum.” Men’s apparel, handbags, and home were the worst performers in the second quarter.
Macy’s also increased promotions to clear inventories in the latest quarter and is better calling out Macy’s “value” within in-store signage.
Mitchell told analysts, “We’ve been very clear on value in our promotional calendar and our communicated messages, but we also recognize that there are other dimensions when the customer shows up on our website or in our stores that matter around value as well. And that’s having colleagues available, having a good experience within our stores, making sure that we have strong visual presentation, that we’re amplifying the value that’s available to the customer when they visit us.”
Macy’s also expects to benefit in the second half from “more newness” and improved in-stock levels versus the prior year, as well as enhanced targeted messages and faster online deliveries.
Spring further said that all three of the company’s banners — also including Bloomingdale’s and Bluemercury — “provide a form of escapism and entertainment” in a period when the presidential election may be adding to consumers’ concerns. Spring said, “Our job is to make sure that we’re capitalizing on opportunity to have a larger share of wallet in the fourth quarter because of the range of prices and brands and categories that we sell.”
Macy’s underperformance stood in contrast to second-quarter results that also arrived Wednesday from Target and TJX that topped targets, with both raising their profit outlooks. Several reports concluded that both chains were better at reaching bargain hunters. Comps were up 2% at Target and 4% at TJX.
Discussion Questions
How should the Macy’s banner be repositioned to address a “more discriminating” consumer?
What advantages do department stores have against discounters and off-pricers that could be emphasized more?
What does Macy’s underperformance in the second quarter and Target and TJX’s outperformance say about the state of the consumer?
Poll
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Ricardo Belmar
Retail Transformation Thought Leader, Advisor, & Strategist
Neil Saunders
Managing Director, GlobalData
Cathy Hotka
Principal, Cathy Hotka & Associates
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Macy’s is talking a much better game these days and the management team is focusing on the things that actually matter. The problem is that Macy’s still isn’t playing a great game, and probably won’t do for quite some time. The stores Macy’s has invested in are in growth; unfortunately, it’s not a very convincing level of growth and it is more than offset by the awful performance of the rest of the chain. In a consumer economy where an extremely clear value proposition is king, Macy’s just isn’t regal enough to deliver great numbers. However, it is reasonable to allow the still relatively new management team more time: what counts is long term performance, not a single quarter. Still, Macy’s really does need to show progress and it get its house in order.
I agree with these points. When making the proper changes to turn a business around it takes time before you see progress. And customer confidence does tend to wane during an election year. Macy’s still has a lot of work to do, but I’d like to think they are moving in the right direction. They need to get back to the basics and give a great experience.
It’s a delight to shop at Macy’s online, with great deals on quality merchandise. The store experience, though, leaves a lot to be desired. Can Macy’s step up its ground game before the holidays?
Macy’s has improved its merchandise mix and approach, they appear to have stabilized their E-commerce fulfillment cost and process. However they still have a significant real-estate issue. tom many old long term leases in locations that are no longer destination locations. Target and TJX are able to offer a better value and in some case a better overall experience. Trying to find a person to help you in a Macy’s store is similar to a game of where is Waldo. It is hard to pay a premium for style without the service.
The surprising thing here is that an unremarkable event – macy*s sales trend deviating slightly from its decades long deflation – somehow led to a double digit stock correction.
Whatever. macy*s – save for a few markets like Northern California – and even here those days are but a memory – has never appealed to “a more discriminating customer” (this is a store whose motto was “It’s smart to be thrifty” and didn’t offer credit until the 1950’s)…and it sure as He** isn’t about to start now! The performance relative to discounters tells us nothing…at least nothing that the last 40 years hasn’t told us already.
I visited two Macy’s in Class A malls last week: Woodfield Mall in Schaumburg, Illinois and Fashion Show Mall in Las Vegas. At both malls I played my Million Dollar Game, where I pretend I can buy whatever I want fashion-wise, other than shoes or handbags. I failed at Fashion Show because that Macy’s has an amazing shoe department. (I broke my own rules and bought a couple of pairs). The Woodfield store is very nice, but the visual presentation there pales in comparison to Vegas. So does the apparel assortment. And I still didn’t find any clothing that I wanted to buy in either stores.
So, I lost my game again. Other than basics like t-shirts, I rarely make apparel purchases anymore, and not for lack of trying. It’s mostly because misses merchandise offerings are micro-sized and dull. And I would love some new clothes.
Listen Macy’s, I am in your corner, but you need to step up what’s happening on the sales floor. Target and TJM aren’t visual merchandising palaces either, and their product assortments aren’t any better than yours, it’s just that shoppers expect magic from you. It’s promised in your tagline.
It’s not about appealing to a “discriminating customer” – it’s about being appealing to your customer. This is where Macy’s is currently falling short – in store execution. This is most visible when comparing the best Macy’s in the best performing mall vs any other Macy’s in the fleet. Macy’s needs to be the department store of choice for customers by visually appealing to them and delivering great customer service. Customers that just want to buy basics and move on with their day don’t have a compelling reason to come to Macy’s to buy – they can go to any off-price apparel store for that. If that’s the customer Macy’s wants too win, they will find fewer and fewer customers in their stores. Where is the visual merchandising that inspires a shopper to buy something they didn’t realize they *needed*? All of this takes time to achieve and it’s my hope that the new leadership at Macy’s understands this and is working towards this goal. We can’t expect to see the change in a single quarter but Macy’s should be thinking about how they lead into the holiday shopping season and address these issues to create an environment that makes them a first choice for shoppers not a last resort.
If Macy’s wants to avoid joining Sears and other retailers of the past in department store heaven, it must undergo a radical transformation.
E-commerce is not the solution. As it is, e-commerce accounted for about 25% of Macy’s revenue pre-pandemic. It is a low-margin business for Macy’s. Despite its necessity, it cannot be the savior.
Instead, Macy’s should focus on enhancing in-store experiences to draw customers back into their physical locations. Creating engaging and personalized shopping experiences can foster customer loyalty and differentiate Macy’s from online competitors. This could include interactive displays, exclusive in-store events, and superior customer service.
As Macy’s continues to downsize, it will be able to invest in a truly differentiated shopping experience in its most advantageous stores. Numerous multi-brand retailers earn high margins without investing a lot of capital. Macy’s should pay attention to these retailers. Most of the retail businesses with the best business models operate small or medium brick-and-mortar stores.
It is imperative that Macy’s expands Backstage quickly as a result of the recent liquidity it raised. “Market by Macy’s” has some potential. The goal is to meet customers where they are. Malls are closing all over the country, and Macy’s needs to stop relying on them.
An essentially large specialty store offering national and local brands is the concept. Also on the premises is a cafe and a flexible area for hosting events per week so potential customers can meet the storekeepers.
Hosting events in the store can significantly boost foot traffic and create a sense of community among shoppers. These events provide opportunities for customers to engage with the brand on a personal level, enhancing their overall shopping experience. Additionally, they can attract new customers who may not have otherwise visited the store, increasing brand awareness and loyalty.
Although Macy’s full-line stores are unlikely to become major growth drivers again, there is still room for improvement. There is no way Macy’s can accept permanently low traffic levels.
Successful in-store events, such as fashion shows that showcase the latest collections, can draw significant crowds and media attention. Workshops and pop-up shops featuring local artisans or exclusive product launches have also proven to be effective in engaging customers. Additionally, holiday-themed events and meet-and-greets with influencers or celebrities can create memorable experiences that entice shoppers to return.
Start by offering in-store dining options. Having a cafe in the store would allow shoppers to enjoy coffee or snacks without leaving. Larger stores may also be able to offer casual dining concepts.
In-store dining options could significantly impact overall sales by encouraging shoppers to spend more time in the store. This increased dwell time can lead to higher impulse purchases and greater overall spending. Additionally, offering unique dining experiences can attract a broader audience, including those who might visit primarily for the food but end up making purchases during their visit.
In order to make the shopping experience as enjoyable as possible, Macy’s should incorporate food and beverage concepts.
Macy’s should consider partnering with local chefs and restaurants to offer a rotating menu of regional specialties. This not only supports local businesses but also provides customers with a unique and authentic dining experience. Incorporating food festivals or tastings featuring local ingredients and dishes can further enhance the appeal and drive foot traffic. Weekend wine tastings might work as well.
Customers may also be attracted to events like in-store product demonstrations, cooking classes, and other activities.
In-store product demonstrations can significantly enhance customer engagement by allowing shoppers to see and experience products firsthand. They provide an opportunity for customers to ask questions and receive immediate feedback, which can build trust and confidence in the product. Additionally, these demonstrations can create a lively and interactive shopping environment, making the in-store experience more enjoyable and memorable.
All things considered, Macy’s best opportunity to grow its brick and mortar business is through its expansion of Backstage into a standalone chain.
Standalone Backstage stores can offer a more focused and tailored shopping experience, catering specifically to bargain hunters and discount shoppers. These stores can operate with a different inventory strategy, emphasizing high turnover and constantly refreshed merchandise to keep customers coming back. Additionally, the standalone format allows Macy’s to experiment with new layouts and merchandising techniques that might not be feasible in their traditional department stores. Db
A “more discriminating customer base”? That’s rich. If Macy’s doesn’t stand for Middle America, then who does?
Over the last several decades, how many customers have left Macy’s and found other retailers to fill their needs? The big question is, “Why should they?”
As noted in today’s discussion, management may do all the right things, but if a large part of the customer base doesn’t have Macy’s at the top of their preference list, that shopper will never experience those improvements.
The struggle for relevance in the department store segment continues. In the 1990s, I worked with Dayton’s/Marshall Fields here in Minnesota. The SVP of stores at the time told me that efforts to merchandise the store were too little, too late. “The sector is on life support and talking about updated bandaids.”
For the last decade, we’ve been promised that a turnaround in this sector is just around the corner, and yet, here we are. The segment has not done a great job of recruiting new, younger shoppers, and it’s catching up with them. This downward trend will continue short of a complete reenvisioning of what a department store is and what the customer experience should be.
Well, I think we know how this particular movie is going to end. Stick a fork in Macy’s, the brand is finished. The only question is how long will we have to wait.
This is not all Macy’s fault, the average consumer has simply moved past the department store model as a destination. Add to that the almost total collapse of the stereotypical Mall and the emergence of perceived higher value experiences in stores like Target and you have too many challenges to overcome.
They should pack it up now, and spare all of us the corporate hand wringing language every quarter. Or, maybe let us have a laugh with buttoned down statements like “we recognize there are other dimensions” blah blah blah blah.
The brand should be worth something. Maybe. The stores? Done.
I was hoping to read that there was a bigger spread between the stores that will be closing and the stores that will remain open. That is, more pronounced weakness in the closing stores and better health in the stores remaining open. Unfortunately that’s not the case. My local Macy’s looks better than it has in a long time. It also has less inventory on the floor than I ever remember, reflecting an effort to align inventory and sales levels. Lower levels of sales drive lower levels of inventory and pretty soon the store looks downright undernourished. Neat, but undernourished. Hardly surprising, but this is the underlying math for closing 150 stores. And neat but undernourished is not a winning long term strategy at this point. Neat but undernourished does not lend itself to great storytelling, and certainly does not convey great value.
Managing a downward spiral is wickedly difficult. I give Macy’s a lot of credit for their work in getting physical store inventories in line with physical store sales. But having accomplished that, they have magnified the challenge of executing great storytelling amidst a sea of One Day Sale rounders. There are plenty of sale racks and rounders. There is not enough differentiated, great storytelling…yet.
I was recently in Macy’s where the few staff there seemed uninterested in assisting me. The whole vibe was boring and the sales associates were bored. What is being stated at the corporate level is not translating to stores.
Macy’s is just another dinosaur that is slowly going extinct. The department store model has been dying for decades and its demise is simply accelerating against stronger online/instore models that offer greater value on the same brands or the same quality of product. Why pay more just to shop at Macy’s?