Macy’s is suddenly free from the threat of a takeover or the meddling of an activist hedge fund investor. It is still struggling amid an industry-wide downturn in retail. But new CEO Jeff Gennette has freedom to experiment with a raft of initiatives to spur new sales. Alexander Coolidge.
CINCINNATI — In a sudden turnaround this month, Macy’s appears to be free to find new ways to grow after a key investor has pulled out and a potential rival is shopping elsewhere for a takeover target.
An investor favorite as recently as 2015, Macy’s (M) has been scrambling to spur sales after a string of earnings and sales disappointments. Pressure intensified that summer when Starboard Value LP purchased a major stake in the Cincinnati-based retailer and pressed it to sell off real estate assets.
Macy’s cut expenses and shuttered stores. It sold off all or parts of some pricey store locations. It pursued multiple new growth initiatives. Longtime CEO Terry Lundgren announced he would step aside and Macy’s fired its top executive in charge of growth. But sales continued to slump amid a nationwide mall and retail slowdown, prompting Macy’s stock to lose half its value.
Last month, it appeared Macy’s plight might go into overdrive amid reports of a potential takeover by Saks owner, Toronto-based Hudson’s Bay Co. (HBAYF). An acquisition by Hudson’s Bay, a much smaller rival, probably would have been paid for in part with massive cuts. Indeed, the potential deal was so daunting, reports emerged that financial backers were resisting bankrolling a serious offer.
Then on March 14, after a year and half of drama, Macy’s cloudy future became much clearer. The Wall Street Journal reported Hudson’s Bay had shifted its sights to Macy’s smaller rival, Neiman Marcus, with takeover talks in early stages. The following day, Reuters reported that Starboard Value LP had sold off its Macy’s stake, signaling an end to its campaign to influence corporate strategy.
Related:Macy’s is closing these 68 stores: Is yours on the list?
Wall Street analysts say Macy’s still has a long road to return into investors’ good graces. But with no looming takeover or no activist investor meddling in its affairs, newly minted CEO Jeff Gennette has leeway to implement, refine and experiment with his turnaround plans. At an industry conference March 14, Gennette outlined only modest tweaks to strategy.
Gennette took over as Macy’s CEO on Thursday. Lundgren will become the company’s executive chairman.
So far, Gennette’s plans appear to be a lot of dabbling with more discount sections in Macy’s stores, more stores within Macy’s stores, a wider selection of private-label beauty products, fewer coupons and even self-serve shoe departments.
Howard Davidowitz, chairman of New York retail consultants Davidowitz & Associates Inc., says stay tuned — things could change faster as Gennette takes charge.
“Turned loose, I think this guy’s going to do something big,” said Davidowitz.
Macy’s experiments, shoppers want to keep coupons and deals
Dedicated Macy’s customers say they like some of the ideas the department store is experimenting with, but they hope potential changes don’t come at the expense of good deals or their shopping experience.
“Macy’s is one of the better department stores: it’s clean and well organized — Kohl’s, even Dillard’s sometimes, have so much stuff jammed in them, it’s overwhelming,” said Suzanne Borgemenke, a 48-year-old IT analyst who works in downtown Cincinnati. “I’m also not a fan of full price — and Macy’s always has great sales.”
Borgemenke, who shops at Macy’s up to three times a week, said she’d wait to see whatever changes her favorite department store implements.
“I spend a lot of money there,” said Karen Cramer, a 58-year-old paralegal who works at a Cincinnati firm. “I like their coupons — I used one today. I like knowing you’re getting some money off.”
Related:Sears, J.C. Penney, Kmart, Macy’s: These retailers are closing stores in 2017
Among some of the changes Macy’s has implemented are moving clearance items to dedicated sections, dubbed “Last Act.” Company executives say the sections allow bargain-hunting customers to find deals more easily. Coupons don’t apply to merchandise in the section, but goods are priced as much as 85% off the original cost. Moving clearance to a special section also allows Macy’s to stock more full-priced items on its regular sales floor.
Macy’s is not discontinuing its frequent sales on regular, non-clearance items. But company executives believe they will sell more bargain and more regular items if they are clearly separated and priced, boosting overall sales and maximizing profits.
As online shopping gains more popularity, retail stores like Macy’s and Sears are closing hundreds of storefronts and focusing on their presence on the internet. USA TODAY NETWORK
Macy’s is experimenting with giving more discounts for a straight $10 or $25 off instead of coupons that target specific brands or categories.
Analysts say Macy’s is carefully preserving its sales event culture, mindful of J.C. Penney’s disastrous 2012 attempt to ditch coupons and switch to an everyday low pricing format. Though Penney’s went back to coupons and frequent sales in less than a year, the retailer’s revenues have yet to recover after plummeting more than $4 billion, or nearly 25%, in 2012. Shoppers enjoy the bargain-hunting and the thrill of a found deal, analysts say.
Related:Macy’s merging with Hudson’s Bay? Not so fast
“We will always be a promotional department store,” Gennette told analysts earlier this month.
Macy’s also has broadened a test with self-serve shoe sections at stores around the country. Macy’s is experimenting with putting its shoe selections on the sales floor, similar to off-price retailers, such as TJ Maxx or DSW. The move would cut staffing costs, while providing customers with ready access to footwear.
Another critical strategy will be the continued rollout of stores within Macy’s stores.
“This has turned into a home run for us,” Gennette said, noting successful concepts within Macy’s generate additional foot traffic to Macy’s, which generates additional sales. Some of the stores set up inside Macy’s are Macy’s-owned concepts. Macy’s Backstage — the retailer’s off-price concept competing with TJ Maxx and Nordstrom Rack — has nearly two dozen locations, along with 15 within regular Macy’s stores. An additional 30 will open within existing stores this year. Bluemercury, a beauty and spa retailer that Macy’s acquired in 2015, has nearly 120 locations with about 20 in Macy’s stores, and plans to install an additional 30 Bluemercurys in department stores this year.
Davidowitz predicted Macy’s will use its Last Act clearance sections and its Macy’s Backstage off-price sections to compete more aggressively with off-price retailers that have thrived as department stores struggled.
“Before department stores decided to go all high-end, the busiest part of those stores were the basements where all the markdowns were — that’s where the term ‘bargain basement’ comes from,” Davidowitz said. “Macy’s has all these stores and they’ve got to maximize the use of their space. I think it’s a smart move.”
Related:Macy’s: Sales declines will continue
Meanwhile, Macy’s executives have said they will continue cost cuts to fund new initiatives to turn around the struggling department store amid an industry-wide retail slump.
Last year, Macy’s profit plunged 42% to $619 million as total sales slid 4.5% to $25.8 billion.
In January, Macy’s announced another wave of cost-cutting. The company said it will cut 10,100 jobs and shutter 68 stores nationwide as part of a massive corporate restructuring that will save it $550 million a year.
Macy’s expects sales in 2017 to decline from the previous year, down between 3.2% and 4.3% in fiscal 2017. Excluding the impact of closing stores, sales on a comparable stores basis will decline between 2.2% and 3.3%.