Good for shoppers, bad for Macy’s? Sluggish sales suggest markdowns ahead..
For more than a decade, Macy’s Inc. Macy’s chief executive Terry Lundgren said the company needs to clear space for new merchandise in the new year, which might mean discounts for shoppers. (LM Otero/The Associated Press) CINCINNATI — With a hint at what may be in store for shoppers this holiday season, Macy’s chief executive Terry Lundgren said markdowns are likely as falling sales have left the department store with excessive inventory.
Macy’s M -13.99% has hit its roughest patch since the Great Depression, prompting the retailer to add to its program of store closings as sales continue to fall.Bad news for Macy’s could be great news for customers—the company’s revenues have plunged, which means year-end sales are likely to be fantastic. M -13.99 % boss Terry Lundgren has defended the traditional department store—gobbling up other retailers, testing out new selling formats and trying to clamp down on discounts, to name a few tactics.
But without that store interaction, it’s likely the sale would not occur.” Macy’s has spent billions in recent years integrating its e-commerce and its physical stores to enable so called “omni-channel” shopping, something that has given it a big head start on the likes of Kohl’s KSS -5.35% and J.C. And the retailer, which is heading into the crucial holiday season with piles of unsold goods, also warned that it expects comparable sales this fiscal year to decline, compared with previous guidance for sales to be unchanged. “The retail industry is going through a tough period,” said an unflustered Mr. And for the last three months of the year that encompasses the critical holiday shopping season, Macy’s expects sales to fall between 2 percent and 3 percent from a year ago.
Data recently compiled for Fortune by eMarketer found Macy’s to be the No. 4 Internet retailer in the United States with sales of $4.7 billion in the last 12 months, or 17% of sales, one of the highest rates among bricks-and-mortar retailers. What’s more, Macy’s has equipped hundreds of stores to ship online orders, speeding up the process and making better use of unsold store inventory. Later, he added, “I’m certain we will come up with some creative ideas that will surprise people.” He noted that while consumer spending seems healthy, many shoppers are buying goods and services that department stores don’t carry, such as cars, electronic gadgets and home improvement items. “Macy’s has been so successful for so long with its core format that it blinded them to the ways that consumer shopping behaviors were changing,” says Craig Johnson, president of Customer Growth Partners, a research firm. “Terry and the board have since had a ‘come to Jesus’ moment,” he adds, noting that “the fix isn’t going to happen overnight.” Adding to the pressure, Mr. Lundgren’s comments echo those of his counterpart at Wal-Mart Stores WMT -1.87% , Doug McMillon, who recently said that company’s 4,500 stores are its best asset against online rivals.
But a mix of consumers shifting spending away from apparel, a drop in international tourism, and declining traffic in many malls have halted the once high flying retailer’s growth. 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. To add insult to injury, Macy’s cut year-end guidance across the board, Even though it expects to make $60 million selling real estate in Seattle, Washington and $250 million on property in downtown Brooklyn, New York, earnings, revenue, and same-store sales projections are all lower than expected over the summer. Macy’s said on Wednesday that it had ruled out creating a real-estate investment trust, because it didn’t want to be saddled with extra debt and expensive lease payments.
But traditional retailers, particularly Macy’s, are getting hit hard as the strong dollar limits the spending power of international customers. “We’re going to take markdowns, I mean, great for consumers,” Lundgren said during an interview on CNBC. “Consumers are going to have a field day because we’re going to have lots of values out there.” For the quarter ended Oct. 31, Macy’s Inc. earned $118 million, or 36 cents per share. It’s a reboot time,” the person added. “The fact that Terry has had one bad year is not an indication that he’s been in the job too long,” said Allen Questrom, who has run Macy’s, J.C.
Lundgren to his first retailing job, at Bullock’s. “What Terry is doing, unlike a lot of people, is trying different things as the market changes.” Under Mr. In a stark example of the retailer’s slow decision-making pace, its latest concept—now hotly touted by executives—was debated for six years before finally getting the green light. It could potentially address the overflow of goods on Macy’s floors while helping to bring in coveted new customers who don’t relate to old-line department stores. Some analysts say it will be hard for Macy’s to find equilibrium, even as it meanders into the competitive off-price business. “It feels like too little, too late,” says Joan Payson, a Barclays analyst. Lundgren is also tiptoeing into China with an online store, and expanding Bluemercury, a successful chain of high-end beauty stores the company bought earlier this year.
The CEO plans to close 35 to 40 weaker Macy’s locations and redevelop dozens of others to make them more productive. “You can’t just stop and assume that growth will continue without doing things differently,” the 63-year-old Mr. In the years following its 2005 merger of Federated Department Stores Inc. and May Department Stores Co. that created the current company, it saved millions of dollars by consolidating divisions. As the first department store chain with a coast-to-coast footprint, it reaped the benefits of national advertising and used its size to win exclusive deals from suppliers. At the same time, off-price chains were appealing to the frugality of consumers, who had remained price-conscious even years after the recession—something that Macy’s had noticed in its own department stores. During a meeting in the fall of 2014, the team in charge of men’s store-brand sweaters noted that customers were waiting for the nicer items to get marked down to the same price as more basic sweaters before buying them.
Maxx and Marshalls, now has a market value more than triple that of Macy’s—even though TJX’s sales, at $29 billion, are only slightly higher than Macy’s $28 billion in sales. That fall the group commissioned a study from Bain & Co., which asked consumers who shopped at off-price chains which retailers they had stopped visiting in the past year. Their ideas, which were tested in a store in Columbus, Ohio, included installing a day care center where customers could drop off their children while they shopped and adding shopping carts, both of which flopped. A few of the changes caught on and were adopted in all the stores, including better signs to make the vast stores easier to navigate and scanners where shoppers could check prices. From those conversations came a partnership between Macy’s and a Fung subsidiary that enabled Macy’s to sell products online in China beginning last week.
At a December meeting, executives told a group of about 100 employees to make sure they visited outlet stores when they shopped the competition, according to a person who was there. Maxx merchandise displays and talked about how the chain wasn’t afraid to bet big on specific items and “really stand for something,” this person says. By April, five months before the first store was scheduled to open, the new concept still didn’t have a name, so executives asked Macy’s employees to choose one. But while the Backstage stores will function as a clearance outlet for Macy’s goods, they will differ from some other department-store outlets by carrying brands that aren’t sold at Macy’s—including those aimed at younger customers such as E.l.f. cosmetics, Haute Hippie and Splendid. LeFebvre, who was named senior vice president of Macy’s Backstage, says that the mashup is meant to attract millennials and other shoppers who don’t spend much time in department stores.
Maxx and other off-price chains is their buyers have the authority to make deals on the spot, industry executives say. “At Macy’s everything is done by committee, and it can take two-to-three weeks to get a decision,” says Stephen Milstein, a senior executive with Burlington Stores Inc. On a recent morning, a Backstage store in Queens, New York had “finds” that shoppers have come to expect from off-price chains, including a Cinzia Rocca wool coat priced at $699.99 compared with the regular retail price of $1,047. The low prices appealed to Janice Erandio, 41 years old, who was buying a pair of $20 Rampage boots for her daughter. “The prices are really cheap,” said Ms.