Macy's Inc. (M)

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See all Bulls Reasons Bulls: Reasons To Buy Brand consolidation strategies paying off 100% agree Brand consolidation strategies paying off The conversion of Macy’s regional department stores, including Bon-Macy’s, Burdines-Macy’s, Goldsmith-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s in 2005 has helped Macy’s to build its brand name while giving it more for its advertising dollar on a nationwide basis. View or Edit Reason 1 votes 100% agree May stores helping to expand Macy's geogrpahic footprint 100% agree May stores helping to expand Macy's geogrpahic footprint Former May stores completely integrated and almost doubling the numbers of stores run by Macy’s have turned Macy’s into a nationwide department store and profitability should run higher in upcoming years. View or Edit Reason 1 votes 100% agree Focus on creating a better shopping experience should promote higher sales 0% agree Focus on creating a better shopping experience should promote higher sales Macy’s focus on a stronger program of private label and exclusive brands, upgrading systems and giving the Macy’s customer a better shopping experience should promote higher sales at Macy’s stores. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell May stores sales slump hurting Macy's 0% agree May stores sales slump hurting Macy's Results at May stores have been lower than expected, and if traction at former May doors does not improve Macy’s will suffer. View or Edit Reason 0 votes 0% agree Department stores face increasing competition from specialty stores 0% agree Department stores face increasing competition from specialty stores Macy’s will suffer if consumers continue to choose to shop at specialty stores. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion how can I get the results of this poll? [Dismiss] [Done] I absolutly love this site everything was clear and simple! [Dismiss] [Done] See All Suggestions

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Macy’s Inc. (NYSE:M), formerly known as Federated Department Stores, Inc., generated sales revenues of nearly $5.75 billion in women’s, men’s, and children’s apparel, and accessories, cosmetics, home furnishings and other consumer goods in the first quarter of FY 2008, reflecting a same store sales decrease of 2.6% from the first quarter in FY 2007.^[1] Macy’s operates more than 850 stores through its Macy’s and Bloomingdale's divisions, as well as several online e-commerce channels and Bloomingdale’s mail order service.

Responding to the past few years' trend of depressed comparable-store sales and lagging net sales, Macy’s merged with May in August 2005. The company acquired about 400 May department stores, almost doubling the number of legacy Macy’s stores. However, after the integration of May stores in 2006, operating results have been lower than expected--same store comparable sales have been just 0.6%. Despite swinging a profit in 3Q07, Macy's remains plagued by the problems of a sluggish retail industry, and the same quarter saw a lowering in Macy's earnings estimates for the crucial fourth quarter holiday season. Additionally, due to potential lower consumer spending throughout 2008, Macy's has projected a net earnings loss of about 1% the fiscal year.

Like other retailers in the department store industry, Macy’s is susceptible to changes in consumer preferences and spending--a weak seasonal offering was one of the reasons cited for rather disappointing sales levels in 3Q07. In recent years, consumers have also increasingly chosen to shop at off-mall specialty stores (which provide a wider portfolio of unique merchandise) and at less expensive mass/discount merchandisers. To compete with these other retailers, Macy’s is focusing on a stronger program of brand exclusivity, business efficiency through system upgrades and innovations, marketing, and enhancements to the consumer shopping experience.

[edit] Business Overview

Macy's and upscale Bloomingdale's sell men's, women's and children's apparel and accessories, cosmetics and home furnishings. Aside from its brick-and-mortar stores Macy's also operates macys.com, bloomingdales.com and Bloomingdale's by Mail in addition to an online bridal registry.^[3]

Macy's acquired rival May's department stores in mid-2005 in order to bolster its flagging same-store sales growth (growth in sales in stores open for at least a year). The $11.7 billion transaction^[4] involved 500 May’s department stores and 800 bridal and formalwear stores (operated under brands of Lord & Taylor, Marshall Field's, Filene's, Kaufmann's, Meier & Frank, After Hours Formalwear, and David's Bridal)^[5] as well as an assumption of $6 billion in debt. Since the acquisition, Macy's has disposed of May's bridal and formalwear operations as well as Lord and Taylor department stores. By the end of 2006, Macy’s converted over 400 May’s stores to the Macy’s or Bloomingdale’s nameplates.^[6]

[edit] Purchase Agreement with Citigroup

Macy's sold its credit card business to Citigroup (C) over June 2005 - July 2006. The company used the proceeds of this sale, along with proceeds from selling some of its stores, to pay off debt and institute stock buybacks stock dividend payments for investors. In connection with the agreement, Macy’s and Citigroup entered into a long-term marketing and servicing partnership whereby Citigroup owns the outstanding account and any new accounts opened by Macy's customers. In return, Macy's receives ongoing payments from Citigroup for charges made to these credit cards.

[edit] Result of Operations

[edit] 3rd Quarter Fiscal Year 2008

Fiscal year 2008 has been a disappointing one for Macy's. The company reported losses of $44 million in the third quarter alone, a considerable drop from last year's profit of $33 million. Macy's has also decreased its projected 2009 capital spending from $1 billion to between $550 and $600 million. The volatile stock market, coupled with job losses and the 2007 Credit Crunch have caused many consumers to rein in their spending on nonessential goods such as clothing. Despite its 3rd quarter losses, Macy's maintains its earnings projections for the fourth quarter at $1.10 to $1.30 per share.

[edit] Business Strategies

[edit] Pricing

Promotional strategies used by Macy’s in the past--including permanent markdowns, point-of-sale discounting and the use of coupons--were found to actually confuse the customer about product pricing. As a result, customers lost interest in Macy’s products.

Macy’s has been reducing promotions and steering consumers away from waiting to make purchases with discounted pricing. In addition, Macy’s has been reducing discounts on top sellers to restore faith in the value of its products, and decreased the use of coupons by 20%. These activities have led to direct impacts on the company's bottom line.

In April of 2005, the company began using the 20/20 program (similar to Profit Logic in Bloomingdale’s stores) to create the optimal product mix in its Macy's stores. The 20/20 program separates merchandise into 5 sections allowing for the quick review of the top 20 selling items and the bottom 20 (poorly) selling items. This way poor sellers become candidates for greater markdowns, and the top sellers are chosen for delayed markdowns. Moreover, this system helps management decide which merchandise to buy more of and which is not profitable.

[edit] Reinvent Strategy

Aiming to improve the shopping experience for the Macy’s consumer, Macy’s has implemented the Reinvent Strategy in 70% of its stores. This strategy provides for price-checking machines, fashionable shopping carts, improved fitting rooms (e.g., better lighting and lounges with TV’s), and better in-store signage which are suspended from the ceiling in order to help the customer easily locate specific merchandise. Aisle width has also been increased for easy transportation of shopping carts or strollers.

[edit] Brand differentiation

To compete with specialty stores and other retailers, Macy's is enhancing its assortment of private brands and exclusive brands. Private label brands are produced by wholesalers and sold under the brand name of the retailer. Exclusive brands, on the other hand, are sold under the wholesaler’s name. Private brands produce greater gross margin results and account for higher sales. In 2005, Macy’s private brand assortment was 18% in comparison to May’s 12%. By fall 2006, May’s private brands accounted for 17% of sales, compared to the 19% penetration level at Macy’s legacy stores. In addition, about 1/3 of Macy’s merchandise is what the company calls limited distribution.

Macy’s widely recognized private brands, including famous brands such as I•N•C, Alfani, Tasso Elba, American Rag, Hotel Collection, Greendog and Tools of the Trade were introduced to former May stores. Two private brands, Karen Scott and John Ashford, are former May brands that have been included in Macy’s product mix. Also rolled out this spring were new exclusive brands T Tahari collection from designer Elie Tahari and the O Oscar collection from designer Oscar de la Renta. A new exclusive home brand called the Martha Stewart Collection debuted this fall to help the Home and Furnishings sales at Macy’s, which had fallen recently to 15%; a turnaround in Home's sales weakness was attributed largely to this line's debut (as well as to improved advertising). Finally, in October 2007, Macy's also disclosed a deal with Tommy Hilfiger USA to be the exclusive department store retailer of its sportswear in conjunction with an agreement to expand retail offerings in all of Hilfiger's product categories.

[edit] Bloomingdale’s

Bloomingdale’s is more upscale than Macy's and competes at a price point similar to that of luxury department stores such as Nordstrom (JWN), especially in the contemporary sportswear department. Bloomingdale’s is also expanding its brand portfolio in women’s apparel, women’s accessories, women’s cosmetics and fragrances, men’s apparel and accessories and home furnishings.

[edit] Advertising/Marketing

The re-branding of Macy’s regional stores into the Macy’s nameplate allowed Macy’s to launch its first comprehensive national marketing campaign in 2006 at a cost of $1.2 billion. The marketing campaign was meant to accompany the re-branding of May’s stores. Throughout the fall and holiday seasons, Macy’s went on an advertising streak across the country using high-impact ads on broadcast and cable television, national magazines, local newspapers and radio, most-visited internet sites, and coordinated events in stores across the country. These included the hopping “Parade of Parade’s” from state to state and the Macy’s Thanksgiving Day Parade in New York City.

Macy’s is currently changing its method of advertising. Instead of focusing on promotional events, Macy’s is switching to promoting stronger product offerings on single day sale events. Macy's is also increasing its emphasis on internet advertising, as reported in its Q307 earnings report.

[edit] Star Rewards Program

Star Rewards is a loyalty program offered to Macy's credit card customers that works by rewarding them with benefits the more they spend at Macy's stores. The program was introduced to former May Company customers in 2006 and has done well, but not to the penetration level at Macy’s.

[edit] Trends and Forces

[edit] Macy's Suffers from Decrease in Consumer Spending

The 2007 Credit Crunch, followed by the bankruptcy of Lehman Brothers (LEH) and the stock market plunge, have had an adverse effect on consumer confidence.^[8] Consumers have curbed spending on any item considered to be a luxury, and clothing is often one of the first to go. Macy's third quarter sales have declined by 6.9% since the same period last year.^[9] In the second quarter of its fiscal year, Macy's same store sales decreased by 2.1%.^[10] Poor store sales have caused Macy's to lower its earnings forecast from $1.70 to $1.85 per share to $1.30 to $1.50 per share for fiscal year 2008.^[11] According to a Goldman Sachs Group (GS) survey released on November 5, 2008, 37% of Americans have mentioned they will decrease their spending for this holiday season, 10% more from last year.^[12] This trend does not bode well for the holiday season, which is an important time of the year for retailers--many make a large amount of their revenue from the holiday season.

[edit] Consolidation

Consolidation activity amongst traditional department stores in the past two years has increased. This consolidation of stores has caused the top 5 department stores to control over 75% of the fashion retail industry. As in the merger with May, consolidation is favorable as it has allowed Macy’s to grow its business and to get rid of unwanted stores. The expansion of businesses also allows for a national chain such as Macy’s to negotiate lower prices and favorable distribution agreements as to exclusive and private labels with its suppliers. To its advantage, Macy’s does not purchase more than 5% of its merchandise from any one supplier.

Consolidation also means that department stores have been losing or gaining little square footage while specialty stores have seen a steady rise in square footage, giving specialty stores undeserved market share. Additionally, the slow growth cycle of malls (only 1-2 are opened yearly) add to this effect of losing market share to off-mall specialty stores.

[edit] Off-Mall Specialty Department Stores

Specialty department stores are based outside of malls (or are "off-mall"), and consumers have shifted in recent years from shopping in traditional mall-based department stores to specialty ones. The off-mall stores cost less to run than traditional mall-based department stores and offer consumers convenience with a one stop shop. These specialty department stores typically have fewer employees and rent expenses and retailers (e.g, Kohl's (KSS)) can produce double digit operating margins.

Same store sales growth--a key retail metric--has been in slow decline for mall-based department store retailers such as J.C. Penney (JCP), Sears Holdings (SHLD), as well as Macy's. It should be noted that some traditional mall-based retailers have moved towards off-mall locations. For example, J.C. Penney plans to have 90% of its store be off-mall standalone outlets.

[edit] Competition

Macy’s faces strong competition in the retail industry from other retailers in their geographic areas, including other traditional, moderate or luxury department stores, specialty stores, general merchandise stores, off-price and discount stores and other forms of shopping including the Internet, mail order catalogs and television. Retailers competing with Macy’s include:

• Other traditional department stores such as Bon-Ton Stores (BONT), Belk, Dillard's (DDS), and Sak’s Department Store Group
• 'Moderately priced department stores that have lower gross margins than traditional stores like Macy’s. These include Mervyn's, J.C. Penney (JCP), Kohl's (KSS), and Sears Holdings (SHLD)
• Luxury department stores such as Neiman Marcus, Nordstrom (JWN) and Saks (SKS)
• Specialty stores, including children’s, teens, women’s and men’s stores. These include Children’s Place, Tween Brands (TWB), American Eagle Outfitters (AEO), Van Heusen, Aeropostale (ARO), Abercrombie & Fitch Company (ANF), AnnTaylor Stores (ANN), Chico's FAS (CHS), Gap (GPS), Limited Brands (LTD)
• Discount stores such as Target (TGT) and Wal-Mart Stores (WMT)
• Warehouse stores such as BJ's Wholesale Club (BJ), Costco Wholesale (COST) and Wal-Mart's Sam's Club.
• Off-Price stores such as Ross Stores (ROST) and TJX.

Below are charts comparing Macy's to the different retailers it competes with through the operational metrics of net or total sales and operating margin for the fiscal year of 2006, which is sometimes called 2007 because the period in question sometimes extends into 2007 by one or more months. Operating margin is the operating income as a percentage of the retailer's total revenue (which is not always the same as net sales) for that year. Operating income accounts for earnings before interest expenses and income taxes.

Total Sales generated by all Department Stores (not just the ones in the chart) for 2006 was 119,436.

Total sales for specialty stores in 2006 were 58,408.

Mass Merchandisers netted a total of 417,821 in sales in 2006.

 Macy's Inc.

	Select All  |  Select None Metrics Merchandise Revenue Credit Card Revenue Inventory Long Term Debt Number of Discount Stores Cost of Sales Operating Income Comparable Sales Growth Number of Stores Sales per Store Net Income Cancel

	Select All  |  Select None Companies Macy's Inc. (M) Sears Holdings (SHLD) J.C. Penney (JCP) Bon-Ton Stores (BONT) Cost Plus (CPWM) Gottschalks (GOT) Saks (SKS) TJX Companies (TJX) Kohl's (KSS) Dillard's (DDS) Cancel

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Company	Data From	Comparable Sales Growth	Number of Stores	Sales per Store	Net Income
Dillard's (DDS)	2006	(1%)[13]	328[14]	$23.3M[14]	$246M[14]
J.C. Penney (JCP)	2006	3.7%[15]	1.03K[16]	$19.4M[16]	$1.15B[17]
Macy's Inc. (M)	2007	Add	853[18]	Add	Add
Saks (SKS)	2007	4.9%[19]	103[20]	$28.5M[21]	$53.7M[21]
Sears Holdings (SHLD)	2006	(3.7%)[22]	3.79K[22]	$14M[23]	$1.49B[22]

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See all Department Stores Industry WikiData

[edit] Specialty Stores

Department stores have lost favor in the recent past due to the practice of over distributing their brands to many locations of each mall. Consumers are opting for a wider portfolio of unique merchandise sold in off-mall specialty stores and less expensive mass/discount merchandisers.

[edit] Comps

Comparable store sales (or "comps") are a crucial operational metric in the retail industry that measure the increase or decrease of sales at stores open for at least one year from the time period in question. Macy's comps have shown a marked increase from 2001 to 2006, when the company generated a 4.4% comps rate; this rate includes sales from retail, e-commerce and mail order (May's stores are not included). Sales were strongest in dresses, handbags, cosmetics, fragrances and young men’s wear.

When the company included May’s stores in its monthly same–store sales growth in February of this year, the growth in same-store sales comps was much lower, at 0.6% for the first quarter (February-April).

The Gap is a specialty store whose products include women's clothing. Department stores such as Macy's have been more successful than women's specialty stores, which have been facing challenges due to fashion misses.

In recent years the department store industry has seen a decline in market share offset only by an increase in market share in the luxury segment and general stabilization of market share in the moderate department store segment in 2006 (as opposed to the traditional department store segment). Conversely, specialty stores have seen a steady increase in market share, with the teen sector driving the growth and the women’s sector lagging.

However, department stores have been improving their store productivity through enhanced technology, newer and stronger private label and exclusive brands, and timely offerings of trendy fashions. In addition, a number of retailers, including J.C. Penney's and Kohl's are having success with new off-mall type stores. Macy's now has two off-mall type stores. Specialty store market share growth is driven by both the growth in square footage as well as the growth in sales per square footage.

[edit] References

1. ↑ [Macy's Q1 2008 Earnings Release]
2. ↑ M 2007 10-K. Item 1, Page 3
3. ↑ M 2007 10-K. Item 1, Page 3
4. ↑ M 2007 10-K. Item 7, Page 16
5. ↑ M 2007 10-K. Item 7, Page 16
6. ↑ M 2007 10-K. Item 7, Page 16
7. ↑ M 2007 10-K. Item 6, Page 15
8. ↑ "Macy's, Target Monthly Sales Fall, Wal-Mart Gains." Bloomberg.com
9. ↑ Macy's, Inc. Same-Store Sales Down 6.3% in October
10. ↑ Macy's F2Q08 (Qtr End 8/2/08) Earnings Call Transcript Seeking Alpha
11. ↑ Macy's Lowers 2008 Forecast. Fashion United
12. ↑ "Macy's, Target Monthly Sales Fall, Wal-Mart Gains." Bloomberg.com
13. ↑ DDS,2006,10-K,Item-6,Page-17
14. ↑ ^{14.0 14.1 14.2} DDS,2006,10-K,Item-6,Page-9
15. ↑ JCP,2006,10-K,Item-6,Page-10
16. ↑ ^{16.0 16.1} JCP,2006,10-K,Item-6,Page-11
17. ↑ JCP,2006,10-K,Item-15,Page-F-3
18. ↑ M,2007,10-K,Item-2,Page-10
19. ↑ SKS,2007,10-K,Item-7,Page-24
20. ↑ SKS,2007,10-K,Item-1,Page-1
21. ↑ ^{21.0 21.1} SKS,2007,10-K,Item-6,Page-19
22. ↑ ^{22.0 22.1 22.2} SHLD,2006,10-K,Item-6,Page-18
23. ↑ SHLD,2006,10-K,Item-8,Page-55