Why aren’t shoppers paying full price for Macy’s merchandise?
Macy’s, lauded for many years for its ability to use consumer insights to tailor local assortments and grow its business when other department stores struggled, has a really big inventory problem on its hands. The retailer has way too much inventory because consumers are no longer buying enough of what it is selling.
The chain has seen same-store sales fall for three consecutive quarters and it has announced plans to close up to 40 of its full-line stores.
"We are disappointed that the pace of sales did not improve in the third quarter, as we had expected. Spending by domestic customers remained tepid, especially in key apparel and accessory categories," said Terry Lundgren, chairman and chief executive officer of Macy’s, Inc., in a statement. "Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations."
Macy’s has begun looking at its off-price Backstage concept as a means to renew growth. The chain currently has five stores in the New York Metro area offering discounts of up to 80 percent off prices in its flagship stores with plans to build 50 standalone units in the next two years. The company also plans to add Backstage sections to 10 existing locations to create a new hybrid store.
"We believe that these stores within our stores can help bring new vendors and new categories, which will appeal to existing customers, but also attract new customers to the full-line store," Mr. Lundgren told analysts on Macy’s third quarter earnings call. "We are finding that Backstage is definitely attracting a younger consumer. And assuming these pilots work, we’ll be ready to roll this concept out as a hybrid model quickly."
With the critical holiday selling season technically underway, Macy’s has also said it will increase discounting to drive store traffic and sales. That could, in turn, have an impact on competitors such as Gap, J.C. Penney and Kohl’s, Paul Lejuez, a retail analyst at Citigroup, told The New York Times.
According to Mr. Lejuez, American consumers are spending their money in places other than Macy’s, such as on meals away from home and on tech and entertainment services.
"The consumer is fine," Mr. Lejeuz told the Times, "but retailers are not."
- Macy’s, Inc. Reports Third Quarter Results – Macy’s, Inc.
- Macy’s Terry J. Lundgren on Q3 2015 Results (Earnings Call Transcript) – SeekingAlpha
- Macy’s Sounds a Holiday Alarm, and Retailers Brace for Heavy Discounting – The New York Times (tiered sub.)
What do you think is ailing Macy’s? What would you advise Macy’s management to do to reverse its same-store sales slide?