Is Macy’s heading for a rebound?
Photo: RetailWire

Is Macy’s heading for a rebound?

Macy’s outgoing executive chairman and former CEO Terry Lundgren thinks the department store operator is on the cusp of a rebound even if others still see the company as lagging behind rival retailers.

No doubt, Mr. Lundgren and other Macy’s stakeholders were pleased that the retailer finished the holiday season with same-store sales up one percent during the last two months of 2016 considering it has seen comps fall for 11 straight quarters. But why the optimism?

In an interview with Fortune, Mr. Lundgren pointed to a number of steps Macy’s has taken, including its early start in e-commerce and closing underperforming stores, that he believes puts the company ahead of the curve when it comes to its future challenges.

As to what changes he has seen, Mr. Lundgren points to price transparency as the biggest disrupting factor to hit retailing in recent years. He said it has created a “requirement for all of us to offer unique reasons to shop with us beyond price. It is essential.”

Macy’s, he said, has been able to use its size to get vendors to create exclusive items for its business. It has also moved to offer more dining options in its stores and expanded into categories such as athletic wear to attract new shoppers.

Mr. Lundgren also defended Macy’s decision to bring its off-price Backstage concept into full-price stores.

“That’s the absolutely right way to do it, to bring them into your stores,” he told Fortune. “Use for example the third floor of a three-floor box [store] with off-price so you can capture that consumer who’s already shopping both.”

Based on the holiday same-store sales figure alone, it may be difficult to see how Macy’s has a leg up on competitors such as J.C. Penney and Kohl’s. Penney’s comp sales were up 3.4 percent for Christmas, while Kohl’s posted a 6.9 percent year-over-year gain.

Mr. Lundgren points to the financial stability of Macy’s as its underlying strength. “Three years of a very challenging business and we still have a strong balance sheet,” he said.

BrainTrust

"If Macy’s focuses on the in-store experience instead of trying to drive traffic with promotions and discounts, they have hope yet."

Meaghan Brophy

Senior Retail Writer


"If Macy’s can keep focus on delivering the same experience at all stores then they may successfully turn things around!"

Ricardo Belmar

Retail Transformation Thought Leader, Advisor, & Strategist


"A 1 percent year-over-year increase means “Mission Accomplished?”"

Bob Phibbs

President/CEO, The Retail Doctor


Discussion Questions

DISCUSSION QUESTIONS: What do you see as Macy’s strengths and weaknesses in the current marketplace? Do you share Terry Lundgren’s optimism that Macy’s is on the verge of a rebound?

Poll

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Mark Ryski
Noble Member
6 years ago

I do not share Lundgren’s optimism that Macy’s is on the verge of a rebound. Most retailers had a strong holiday season and, even in this context, Macy’s did worse than others. As we have discussed many times on RetailWire, department stores are still very much trying to find their place and the incrementalism that is offered up as turnaround strategy by department store management rings hollow.

Lee Peterson
Member
6 years ago

I doubt it very much. They need a major re-think on so many fronts including brand image — it’s daunting. The very idea of a department store seems to have served its purpose and run right past the retail world.

However, if we start looking at Macy’s as a pure real estate play, there may be something there: WeWorks upstairs, coffee shops, BOPIS, work out facilities, food offerings, grocery, etc. below. There’s hope on that front but, even then, probably half the units they’ve got now may apply or less. So much has changed, it’s going to be a tough leap in any direction.

Dick Seesel
Trusted Member
6 years ago

As the article points out, Macy’s comp sales of 1 percent paled in comparison to J.C. Penney and Kohl’s, in a season where brick-and-mortar retailers did better than expected. So they actually lost market share during a robust shopping season, and probably ran behind in their physical stores if you assume that most of their growth came from e-commerce.

It’s hard to point out much good news in these numbers, other than being “less bad” than year-to-date. The large number of store closures doesn’t appear to have driven sales to remaining locations, and the jury is still out on the wisdom of the Backstage store-within-a-store strategy. In this panelist’s opinion, it does little to enhance the brand image of the rest of the store.

Dick Seesel
Trusted Member
Reply to  Dick Seesel
6 years ago

A deeper dive into Backstage would make a good discussion on its own. In my opinion, Macy’s is hampered because its “upstairs” brands do not want their own off-price goods inside the same building, and would rather sell their closeouts to an off-mall “safe space” like TJX. So the merchandise content just isn’t very appealing — I saw many of the same brands that I could find (on sale and with a coupon) at my local Kohl’s or J.C. Penney store. And the “treasure hunt” element (i.e., it’s a mess) is a turn-off to this frequent Macy’s shopper.

Art Suriano
Member
6 years ago

Macy’s has had a great name and reputation for decades, so they have a chance of rebuilding their business. I think many of the new strategies they implemented are excellent and have contributed to their comp store sales increase. But can they sustain it? I think an overlooked fact is that our economy is getting better, in fact much better. Traffic was up this holiday season with sales increasing both online and in brick-and-mortar. Now if Macy’s wants to rebuild their business they need to be clear on who they are, and that’s something I don’t see. They chase Kohl’s one day and the next day they try to be something else. Macy’s used to be the chain that all others followed. They do have a great selection, and their prices are competitive, but they need to do a much better job at the store level with staffing and training store associates that can indeed provide an outstanding customer experience. Fix that, and I believe they can leave their competitors behind. That requires investing in store-level personnel, and that is something they seriously need to consider doing.

Byron Kerr
Reply to  Art Suriano
6 years ago

Completely agree here, Art. The store experience continues to be dreary and a true turnaround won’t be accomplished until they figure that out. The e-commerce experience is still lacking and the site looks ultra-dated, despite robust assortment. Their benefit of having an omnichannel presence should be leveraged in ways Macy’s hasn’t explored yet. I can rarely ever find anyone to help me and the experience is reminiscent of the TJ Maxx dysfunctional (yet effective — for TJX) scavenger hunt … but all you’re left with is a messy, understaffed store with dwindling assortment.

Upper management needs to continue to shake up leadership to get fresh perspectives and ideas. I think (and am hopeful) they can rebound, but not with the current structure.

Meaghan Brophy
6 years ago

Macy’s absolutely has the potential for a rebound. They have enormous strength in their reputation as a brand icon — their Thanksgiving parade; Christmas window displays. If Macy’s focuses on the in-store experience (customer service, personalization, impeccable displays) instead of trying to drive traffic with promotions and discounts, they have hope yet. But as others have pointed out — the company has to move fast. They are losing market share and failure to innovate could make Macy’s the next Sears.

Paula Rosenblum
Noble Member
6 years ago

I think the department store model in general has enormous problems, and one healthy season is not going to solve them. They are simply not designed for the way people shop today.

If you want to shop your favorite brand, you can go online or into one of that brand’s own stores. If you want to shop for your lifestyle, you go into a specialty store that caters to you. But department stores really don’t offer a convenient alternative. Unwinding the department store model is really complicated; untangling vendor contracts, internal cultural issues and even finding a good place to prototype something different. I don’t pretend to know what the final product should look like, but I do know it will not look like the store does today.

Perhaps online is a good solution for department stores … they can accomplish that lifestyle re-shuffling without dealing with physical space.

Bob Phibbs
Trusted Member
6 years ago

A 1 percent year-over-year increase means “Mission Accomplished?” Their stores are cluttered with too much stuff — always on sale — with few associates and mediocre offerings. Maybe once the hedge funds have them sell off all their real estate they’ll be able to brag that they’re smart — but not as an evolving retailer who puts the customer, not the discount, front and center.

Phil Chang
Member
6 years ago

A strong balance sheet says nothing except that you’ve got more runway to fail or succeed. Perhaps this means that Macy’s has the luxury of taking its sweet time to figure out who they are. Based on the what we’ve seen from Macy’s there’s nothing to suggest that they are closer to knowing who they are.

It’s true they’re doing some things that may make a difference, but a difference for who? The gap is still in understanding who the shopper is and why dining options make a difference to whoever that is. In another discussion this month, we talked about Kohl’s doing something similar — bringing in dining options to balance out stores that they right-sized. So are department stores just adding dining options now? I think Sears also had a restaurant in it — and a really great balance sheet.

Stuart Jackson
6 years ago

Macy’s problems are similar to those of the U.K. store Marks and Spencer (M&S). The chairman of M&S said in December that the “business has been drifting, underfulfilling its customer promise not for five years, not 10 years but 15 years and maybe beyond.” He also acknowledge that one of the key problems is the running costs of their large number of stores.

But sadly, what he didn’t say was that M&S has lost core customers because their fashion collections have been poor for a number of years, their website looks dated and their customer base is more educated and demanding than ever before, and they can buy better similar products online elsewhere.

Some retailers will survive, some just won’t. I’m not putting bets on either Macy’s or M&S going the full distance if they don’t make really radical changes soon.

Neil Saunders
Famed Member
6 years ago

Reading these comments, I have to wonder if Mr. Lundgren has ever set foot in half of Macy’s down-at-heel, dismal stores. They tell a very different story from the optimistic tale he tells.

Certainly, holiday trading was good. But in a strong market, Macy’s still underperformed — and did so against very weak prior year comparatives.

That said, Mr. Lundgren is right to highlight the relative financial stability of the company. This gives it a chance to turn things around.

Brian Kelly
Brian Kelly
6 years ago

Macy’s no longer has a reason to believe. The cobbling together of failing regional department stores into a national moderate department store was something no one asked for in the ’90s. Now it’s even less relevant. Too much space filled with too much mediocre merchandise managed by too few people. Flogging the brand with too much off-price promotion because the fundamental value proposition is irrelevant. Macy’s is the poster child for the “race to the bottom.” Six-hundred sixty-nine stores acting as sea anchors on profitability. Sorry Macy’s, we no longer live departmentalized lives.

Richard J. George, Ph.D.
Active Member
6 years ago

The only real positive at the moment for Macy’s is its strong balance sheet which will give the company some time to figure out a workable strategy. The announced plans provide little encouragement that the noted turnaround will take place as predicted. I do applaud the exclusive brands and in-store dining as a couple of tactics to bring customers into the stores. However, the full range of the in-store experience needs a major makeover if Macy’s wants to really affect a turnaround.

Nikki Baird
Active Member
6 years ago

I think Macy’s focus on beauty has been a bright spot, but incomplete — they’re simply not moving fast enough, and a lot of the online initiatives around beauty aren’t making it into the store, for example, highlighting the subscription beauty boxes or full-size versions of items in the subscription boxes.

But I think that’s the only bright spot. Until Macy’s has the freedom to build vignettes around lifestyles instead of brands, it’s a losing battle against the brands’ own stores in malls. Why would I want to go to 10 different “areas” within Macy’s to find one specific skirt, when a search online lets me see them all at once? And while I’m online, I might as well check prices and options elsewhere…. Department stores as they are, Macy’s or otherwise, just can’t compete with that.

And Macy’s has not had the money or the discipline to keep all their stores looking good or on brand. Too many of them look like the leftovers of market consolidation that they are. They need updating – and fast. And unfortunately, that costs money.

Ultimately, Macy’s has a lot of work to do, and not a lot of time – or sustainable cash – to do it. In my book, that’s not “on the verge of a rebound”.

Dave Nixon
6 years ago

Stick to creating a premium customer experience and do not chase the Amazon model for retail and you will have a hope to succeed. But there is a small chance Macy’s will “rebound” as much as they will find their place in the department store transformation and survive. It will all come down to the experience which will drive transaction. That is the only place Macy’s can stand and fight.

Georganne Bender
Noble Member
6 years ago

Macy’s has a good chance at a rebound if it returns to its brand roots and improves the shopper experience. As a consumer, Macy’s has always been my go-to store. Maybe it’s because my mother was a buyer, working at its NYC flagship store in the 40s, or because the Thanksgiving Parade is a time-honored tradition my family looks forward to all year long. This year’s parade, however, was packed with plugs for NBC’s TV shows, and performances by stars I’ve never heard of. It was too much commercial and not enough parade. And this year, the CEO broke tradition and cut the ribbon himself instead of the parade’s executive producer. It’s an employee focused event so that bothered me, but I digress….

I agree with Bob Phibbs in that the shopper experience in too many Macy’s stores is dismal. I have visited stores across the U.S. where the sales floor is a mess, the fitting rooms haven’t been updated in years (torn carpeting, holes in the wall, bare cement floors), one sales person to serve customers on the non-fashion floors, and the fashion selection lacks bridge and designer brands. The Herald Square and State Street stores would be the exception; these locations represent what I expect to find in a visit to Macy’s.

The website is easy to shop, and the company does a good job pushing emails and text messages, but the content is heavily tilted towards price. If Macy’s is to rebound it needs to be what Macy’s used to be: a premium department store that was a pleasure to visit. The company is so busy chasing coupons and ONE DAY ONLY sales (that often run 2-3 days), trying to compete with Kohl’s and J.C. Penney, it has lost its identity.

Ricardo Belmar
Active Member
6 years ago

Reading most of the comments here would lead you to believe there isn’t much hope for Macy’s. I would describe Macy’s as a source of contradictions. There is definitely potential as Meaghan Brophy pointed out, but it will really depend on execution across their stores. Too often I believe Macy’s focuses on their flagship Herald Square store and a handful of other high performing stores at the expense of the rest.

I did have an opportunity to hear from people at Macy’s during NRF last week about some interesting new experiential projects in the works, including some very interesting VR and AR activity that leaves me with hope they can turn things around in some departments. That healthy balance sheet certainly gives them some extra running room as others here have stated, but more importantly, I believe is that as they develop new experiences for the store, Macy’s is careful to measure the impact on sales and act accordingly. Concepts that don’t move the sales needle don’t need to go to all stores to fail, and successful initiatives are put on a path to deployment. The trick for Macy’s will be how they execute that deployment to stores that haven’t felt the love of either remodeling or upgraded infrastructure in recent years. If Macy’s can keep focus on delivering the same experience at all stores then they may successfully turn things around! I’m staying positive for their future for now…

Terry Lugo
6 years ago

I have hope that Macy’s is heading for a rebound! I think they are starting to take the right steps needed to make sure they can survive the changing retail environment. Making sure the store is staffed with helpful, engaging and trained personnel is key. Having events and making the shopping experience more personal is going to help. I haven’t been in a lot of the Backstage locations, but I think with a bit more attention to the merchandising could help. It will certainly be a sad day if this iconic store is someday gone.

Craig Sundstrom
Craig Sundstrom
Noble Member
6 years ago

“Seldom prescient and never pessimistic” is phrase that describes parade planners and I suppose, outgoing CEOs. While I wish them all well, I see no reason to join the parade. The department store industry in general has been facing decline for a long time — 20, 40 even 90 years depending on who you ask — and Macy’s in particular still has indigestion from the ill-considered May merger. The changes in the past few years, like fast-fashion, online buying, emphasis on “experiences” over “things” (allegedly), can only deepen the gloom.

It’s been almost two decades since we’ve seen a big shakeout (Montgomery Ward), but with both Sears and Bon-Ton teetering, that lull may be about to change … so I see this as a preemptive effort to grab a seat in the lifeboat, PR wise.

Rich Kizer
Member
6 years ago

For department stores, a paradigm shift must be birthed into action. Today’s customers are all about experiences that create emotions; the kind of emotions that make them happy to visit repeatedly, and buy.

For example, remember the days of department stores owning cosmetics in a football field sized footprint? And then specialty retailers like Sephora came in and changed how customers preferred to purchase and interact with the store. Specialty retailers have figured out that it is excellent service by knowledgeable and attendant staff, excitement in offerings and merchandising, with a constant change in-store that seems to work wonders. During the holiday selling season in specialty stores, I constantly heard comments like “I love coming in here, it’s always changing?” For department stores, perhaps it is a mentality of multiple stores or shops within a department store.

I think the department store challenge is not being a department store at all, but rather a world of constantly changing “shop” presentations and experiences within the four walls. And I don’t mean just moving fixtures! And that will take a lot of work, but isn’t that what retail has always been?