Down Arrow Button Icon

Wall Street is losing faith that Macy’s can pull off a long-awaited comeback.

The department store chain’s stock tanked as much as 18% on Wednesday, after cutting its 2019 adjusted profit on the heels of huge markdowns on products that flopped with customers. This year, Macy’s has lost nearly 60% of its stock market value.

Macy’s also reported a meager 0.3% increase in second-quarter comparable sales, including licensed departments, allowing the company an empty victory of being able to crow about continued sales growth. But in a healthy consumer spending environment, it suggests Macy’s continues to lose market share to the likes of Target, T.J. Maxx, and Ulta Beauty.

Executives pinned the blame on factors like bad weather in May and on “fashion misses” in its women’s sportswear business, particularly its own brands. Macy’s CEO Jeff Gennette told Fortune that while the company had to do better, these problems are part of “the vagaries of being in the fashion business.”

But vagaries aside, it is clear Macy’s will have to do better, much better, with its own clothing brands if it wants to win back market share. The company gets almost a third of business from its brands (including home goods) and is betting a good chunk of its future on those private labels.

Target’s strong performance in apparel is adding to the pressure. That company has boldly eliminated a number of large-but-stale brands and found enormous success in the new names replacing them. Gennette acknowledged some of Macy’s clothing brands need to be “rejiggered” but said he had “confidence” Macy’s will revitalize the brands.

Should more stores close, or downsize?

Another big challenge for Macy’s is what to do with the bulk of its 600-store fleet, beyond the marquee stores it operates in top markets like Manhattan and San Francisco. With comparable sales up (which includes e-commerce) and digital sales rising more than 10% for the 40th quarter in a row, the math makes it clear that business in its stores is down and that fewer shoppers are coming for a visit.

Gennette, who oversaw the closing of more than 100 stores a couple of years ago, has long argued that even stores with declining sales are valuable, provided they have positive cash flow, meaning they take in more money than they need.

Indeed, stores provide a visibility in a market and when one closes, Macy’s permanently loses a big chunk of business. “We know that when we close the store, we’re firing customers,” Gennette said.

What’s more, many of these regional stores are crucial as nodes in Macy’s massive e-commerce operation—a $6 billion a year business— that can ship items to customers, to other stores, and where shoppers can get customer service.

“I’m not opposed to closing more doors, I just want to make sure that I’ve considered the full customer in that,” said Gennette.

But such facilities are typically in more remote areas rather than in suburbs, where doing business is more costly. Consequently, it’s an open question whether e-commerce support is enough of a justification to keep many locations open. Gennette conceded that Macy’s is looking at reduced square footage at many of these stores, along with more self-service to keep costs in check.

What’s more, many Macy’s stores beyond its top stores are inadequately maintained, with clothes strewn on the floor, and the walls in need of paint, a far cry from the “experiential retail” many companies know they need to offer shoppers to get them to physical locations. It’s hard to see how letting any stores become shabby adds to the brand ultimately.

Playing to Macy’s strengths

Macy’s has a lot to build on, and Gennette said things were in play that will let the chain have a good holiday quarter.

The company boasts a stellar e-commerce operation, a loyal clientele, a promising start to website-only brands (currently, the assortment of such merchandise is 500,000 items), and enormous (although possibly eroding) clout with vendors. Its jewelry and men’s business enjoyed good quarters. But all that is clearly not enough

“All is on the table,” Gennette said. And all needs to be if Macy’s is to finally reignite growth in a meaningful way beyond some anemic increases.