By Phil Wahba
January 10, 2019

Macy’s (m) has been making so many of the right moves in the last two years: closing weak stores, overhauling its loyalty program, focusing on its most productive locations, and being more adventurous in how it presents products.

And yet the department store chain reported an anemic increase in comparable sales for the crucial holiday season, reawakening fears—after a strong start to 2018—that it can’t quite find its way back into shoppers’ graces.

Macy’s said on Thursday that comparable sales, a metric that excludes stores closed in the last year, rose 1.1% (it was even less when stripping out the benefit of space leased to outside brands) in November and December. Such a modest increase was disappointing in the strong consumer spending environment in which overall retail sales between Nov. 1 and Dec. 24 were up 5.1% according to an estimate from MastercardSpendingPulse. And in theory, Macy’s should have gotten a bit of a lift from the troubles at its mall neighbors J.C. Penney and Sears.

But Macy’s also lowered its sales and profit forecast for the full fiscal year ending in early February. ( Kohl’s also reported a modest 1.2% increase but that was compared to a very strong season a year ago, an excuse Macy’s doesn’t have.)

Macy’s shares fell 19%. That reaction might seem out of proportion to the sales number. But the forecast downgrades came just weeks after Macy’s had raised its projections following a strong third quarter. What’s more, Macy’s said beauty, one of the biggest sources of shopper visits and a priority for the chain, had underperformed. Macy’s CEO Jeff Gennette in a press release said he would ” ensure a clean inventory position as we enter fiscal 2019,” suggesting clearance markdowns will hurt profit, a major setback for a company trying to reduce its reliance on and reputation for endless discounting. And business was good during the Black Friday and Cyber Monday rush, and again right before Christmas, but sagged earlier in December, showing how hard it is for Macy’s to keep any momentum it builds, at least during less promotional periods.

In contrast, Target (tgt) reported a stellar holiday season, with comparable sales up 5.7% in November and December, with more shoppers visiting stores even as e-commerce soared. Target’s success suggests how hard it is for department stores, and frankly other mall-based retailers—L Brands’ Victoria Secret continued to shrivel quickly in December—to hang on to their clientele. Target said nearly all of its online growth came from orders filled at its stores. And its new fashion brands have taken market share from the mall-based chains.

Macy’s is probably feeling some pain from weaker traffic at malls it co-anchors with Sears and Penney. Still, the holiday season numbers illustrate how the venerable retailer will have to pick up the pace of its transformation if it wants to regain its momentum or at the very least, keep up with retail’s overall strength these days. Imagine how hard this will be once a recession hits.

SPONSORED FINANCIAL CONTENT

You May Like

EDIT POST