Macy's (M, Financial) is the owner of department store chains Bloomingdale's and Macy's, which specialize in selling apparel, furniture, housewares and beauty products. As of July 26, 2015, the company operated approximately 885 stores in the U.S., Puerto Rico and Guam.
However, Macy’s has been closing department stores over the last few quarters and in the most recent quarter, it revealed 41 store closures while revenue and income continued to fall. Macy’s has been struggling to see off the competition posed by its peers in the ecommerce industry. Evidently, it appears as though the company has lost the battle against online shopping as consumer trends continue to affect its top line and costs.
The company failed to deliver according to investor expectations in the first quarter as its revenue dropped by 7.4% yearly. The poor top-line number was impacted by more than 40 department store closures as comps nosedived 5.6%.
On the other hand, diluted earnings per share came in at 37 cents compared to 56 cents reported in the previous year quarter. The company also lowered its guidance for full-year sales and earnings, thereby compounding its woes.
Nonetheless, the company did try to please its shareholders by increasing the dividend and maintaining consistent buybacks, but this could not turn what had already become a bad quarter for the stock into any tangible positive. The company’s continued closure of stores strongly hints at the company’s realization of a resilient customer trend away from department stores and apparel and toward online shopping and technology.
Nonetheless, CEO Terry J. Lundgren maintained in a press release that physical stores remain an important part of the company's strategy, but he also admitted that Macy’s approach to them has to be fluid.
Ideally, as more shopping centers and online shopping platforms are opened, it means that department stores lose some of their regular buyers to the new entities. It is a simple case of increased supply versus a demand whose growth rate has been slowing. “Every year, we prune some stores that are our weakest performers so we can have our attention on the best locations and maintain a strong physical presence. At the same time, we open a small number of new stores to fill gaps in our market coverage, or where we have outstanding real estate opportunities,” reiterated Lundgren.
Nonetheless, Macy’s is not just about to admit defeat in its endeavors exploring the compelling online marketplace. In fact, despite the obvious challenges, Macy's is "already one of the largest and fastest-growing digital platforms in the country," according to its CEO.
The company has a fast-growing digital presence through its innovative mobile apps as well as mobile-friendly websites, which integrate with its stores to provide an unparalleled Omni-channel shopping experience for customers. Macy’s customers can easily get what they want wherever, whenever and however they prefer to shop. The company believes this will boost its claim to attracting new customers.
Being faced with pressure to become more digitally oriented and better cater to online shoppers, Macy's has been in a cost-cutting mode for over a year, slashing jobs and closing some stores in order to achieve leaner business operations.
Shortly after the end of the extremely competitive holiday season, Macy's announced it would cut more than 4,500 jobs in addition to those already being lost to 36 planned store closures this year. Every store closed means that some jobs are lost. It’s as simple as that, and in return, the annual wage bill becomes leaner thereby boosting the company’s bottom line.
Also, Macy's was affected by the uncharacteristically warm weather experienced during the holidays, which meant that customers were not in the mood for the winter boots and coats it had stocked in its stores.
Subsequently, Macy's lowered its guidance for the year and expects sales at stores opened at least a year ago to fall by 3% and 4%. It had previously said same-store sales would decrease by 1%. On the other hand, the company now expects EPS in the range of $3.15 and $3.40.
Conclusion
Macy’s was once seen as the benchmark for all department stores following the influx of online retailers. However, the company now appears to be falling under the category of the likes of JCPenney (JCP, Financial) as it continues to struggle to adapt to changes in consumer behavior.
Online shopping was once deemed to be a "doomed to fail" marketplace, but that thought now appears to have disappeared in the corridors of history. If anything, Macy’s may be losing the battle against online shopping.
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