Someone Buy Macy’s, Please!

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Macy’s—the 165-year-old company that was one of the founders of the department store model in the United States, dominated the ‘malling’ of America, became the go-to brand of the last century, and was one of the first merchants to launch an e-commerce web site (in 1997)—is today drifting toward retail oblivion.


That’s the conclusion of a growing number of Wall Street analysts and institutional investors who have turned negative on the company’s prospects after years of disappointments.


The latest was Macy’s financial report for the most recent quarter (April 29, 2023), which included a dismal forecast: declining sales and earnings for the year. The news hammered the stock price down to a two-year low. Despite a bull market, Macy’s trades for less than before the pandemic struck.


The legendary company’s tribulations aren’t new, but they are notable because they come at the end of a much-touted three-year rejuvenation plan, code-named Polaris (North Star). Polaris was meant to address Macy’s flat-footedness in dealing with the e-commerce tsunami and break out of a plateauing sales pattern. Then-CEO Jeff Gennette said the Polaris project aimed to “stabilize profitability and position the company for growth.”


Polaris debuted just weeks before the Covid shutdown began, early in 2020. The timing couldn’t have been worse, but the launch lacked vision and energy. The plan included closing 125 stores, laying off 2,000 employees, moving the headquarters to New York, and “testing new store formats.” It was a stale, corporate-speak response in any event, especially against the unexpected backdrop of an unfolding crisis that demanded quick thinking and creativity.


To be fair, Macy’s is one of a group of traditional merchants whose customers are either cutting back or dining out and traveling instead of consuming goods. The company says that about half of customers for the Macy’s namesake brand have a household income of $75,000. But the dichotomy between Macy’s and some of its principal competitors is stark.


Macy’s revenue peaked in 2014 and has been slowly eroding ever since (except for the sudden dip and rebound the economy experienced in 2021). The company’s revenue is 10% lower today than in 2014. When you factor in inflation, it’s less than half what it had been.


Target’s annual revenue was trending up before Covid, but the pandemic steepened the curve—from $78 billion in 2019 to $109 as of the April quarter. Walmart added $100 billion in annual revenue since Covid broke, growing to about $620 billion.


Is Macy’s on a slippery slope to irrelevance, destined to join other once-venerable brands like Sears and JCPenney? It could be, according to retail analyst Neil Saunders of GlobalData. Earlier this year, he published a blistering report (for Wall Street) in which he took Macy’s management to the woodshed.


The company “is great at talking a good game, [but] it consistently fails to execute well… Current management … has a habit of ignoring hard truths about the business and often seems disconnected from the realities on the ground in both stores and the wider retail market."


Macy’s “isn’t dead or even circling the drain,” Saunders concluded. “However, it is still on a perilous glide path with weak long-term prospects.”


For years, the worst-case scenario for Macy’s rested on its extensive real estate holdings. Past estimates of what that portfolio might be worth have ranged as high as $20 billion. Not anymore. Much of that property is related to malls, which the pandemic has hollowed out. Current estimates hover around $6 billion, more than the company’s current market capitalization.


Theoretically, you could buy Macy’s, sell off the real estate, and get the brands (Macy’s, Bloomingdale’s, and beauty store chain Bluemercury) for free. That may be what it takes to save what’s left, a vulture capitalist fight like the one that decided the fate of Bed Bath & Beyond, another retailer that poor management drove off a cliff.


Another alternative might be to have a visionary buy the company and engage consumers to re-invent the brand with all its great history and proprietary assets while saving thousands of jobs simultaneously.


Any takers?

Department Store  retail  2023

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