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Macy's – On a Quest to Regain Momentum
EXCERPTS
STRUGGLE IN STORE
Over the years, department stores had lost their appeal. What used to be a fashionable and elegant outlet with sales assistants who helped the customers choose the right apparel and accessories, had turned into just another shop in a mall. Macy’s stores, especially after the merger, did not present a unified look and the layouts confused the shoppers. The sales assistants were not readily available and even when they were, they were neither knowledgeable nor friendly. Over the years, the stores started looking ‘distressed and dispirited’ due to years of low investment. Conlumino retail analyst Neil Saunders said, “The blunt truth is that Macy’s has simply not bothered with a large rump of stores for many years: they have lacked investment, been devoid of management attention, and now look distressed and dispirited. Macy’s is right to identify that the cost of correcting this state of affairs is too high relative to the returns that would be yielded, but it could have avoided this situation by taking a more disciplined approach some time ago.” |
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INCREASING INVENTORY WEIGHT
While Macy’s remained confused about its position, it experienced a constant decline in traffic in 2015 and 2016 . Comparable sales too started to fall. (Refer to Exhibit V for Comparable sales of Macy’s). One of main factors that impacted Macy’s was unseasonal weather. The US was experiencing warm weather in November and December 2015. This led to sales at Macy’s falling by 5.2%.The warm weather in February and March in 2016 this impacted the sales of cold weather goods like coats, scarves, sweaters, boots, gloves, etc. In April, the weather was cooler, and this resulted in lower sales of spring clothing. It reduced the demand for cold weather goods and Macy’s was forced to sell at a discount to clear the stock...
COMPETITION ONLINE
Some observers said that the main reason for the lackluster performance of Macy’s was the growing popularity of e-commerce companies and several startups which sold chic outfits online. Amazon, which had entered the online apparel business in 2006, found that several prominent sellers were not ready to sell their wares online. It continued to build up its presence through the acquisition of companies like Shopbop and East Dane. In 2010, Amazon renewed its focus on clothing, shoes, and accessories, after acquiring online shoe retailer Zappos in 2009. In 2016, it launched its own in-house clothing brands...
MORE TROUBLE
In January 2016, activist investor Starboard LP, which had around a 1% share in Macy’s, started pressuring Macy’s to take advantage of its real estate holdings and spin them off. Starboard suggested that Macy’s could split the company into two joint ventures – an operating company and a property company...
THE NEXT STEP
In January 2016, Macy’s announced that In the 2015 holiday season , it had recorded its sharpest holiday decline since 2008. The comparable sales fell by 2.5% and during the year the stock value fell by half...
TOUGH ROAD AHEAD?
The US economy was slowing down. The GDP was increasing by 1% on an annualized basis. But the real income had decreased by 0.4% in the first quarter of 2016 and by 1.6% in the second quarter. Analysts said Americans were making less money and were spending less than in previous years. At the same time, the global economy was also expected to be weaker...
EXHIBITS
Exhibit I: Macy’s – Consolidated Statement of Income (Quarterly)
Exhibit II: Macy’s – Consolidated Statement of Income
Exhibit III: Apparel Industry in the US
Exhibit IV: Macy’s – Competitors
Exhibit V: Macy’s – % Change in Comparable Store Sales
Exhibit VI: Macy’s Stock Price Chart
