How durable is the comeback story at Macy's?

'It's a really difficult environment'
Posted at 8:52 AM, Sep 24, 2018
and last updated 2018-09-24 18:04:30-04

CINCINNATI - Macy’s Inc. may not have every problem solved but it will confront the holiday season with new coping skills this year. And that could make all the difference in January, when new store closures are typically announced.

Jeffrey Gennette

“After several years of significant downsizing, our store fleet is now well-positioned to serve our customer,” Macy’s CEO Jeffrey Gennette told Wall Street analysts Sept. 6. “2018 is an investment year for Macy's as we chart our path to sustainable, profitable growth.”

Cincinnati is still stinging from the March closure of Macy’s Fountain Place store Downtown. But the retailer has added two Backstage locations in Cincinnati this year – improving the long-term prospects of its Tri-County and Anderson Township stores.

Backstage is a discount concept that Macy’s is expanding to 120 locations by the end of this year.

Backstage store in Boynton Beach

Bluemercury, which opened inside the Kenwood Macy’s store in 2016, is another example of how the company is changing its approach to real estate. The specialty-cosmetics chain had 60 stores when Macy’s bought it in 2015. By the end of next year, that number will grow to more than 200.

Other changes are less apparent to Cincinnati shoppers.

The Market @ Macy’s is a pop-up store concept in which small brands rent space in Macy’s high-traffic department stores, like Herald Square in New York and the Fashion Show Mall in Las Vegas. Last week, Macy’s announced a new partnership with Facebook that will bring 150 new e-commerce brands to nine Market @ Macy’s locations this Christmas.

“We’ve got hundreds of brands that now want to be a part of this,” Gennette told analysts. “We're playing right now in spaces that could go up to big chunks of stores. You're going to see us experiment with that in 2019.”

Macy’s declined to comment further on expansion plans for Market @ Macy’s. Stores in Pittsburgh, Detroit and Atlanta are the closest to Cincinnati that will have the concept by year-end.

The Market @ Macy's design

These new concepts have slowed the pace of real estate shrinkage at Macy’s in recent years. Total square footage declined less than 2 percent to 128 million in 2017, when the company opened more stores than it closed for the first time since 2009. Macy’s has now enjoyed three straight quarters of comparable-store sales growth after 11 straight quarters of decline.

“It’s a little early, but thus far it’s encouraging,” said Terry Kelly, a wealth advisor and principal at Bartlett Wealth Management Downtown. “It’s still a really difficult environment. It’s highly competitive.”

Kelly said Macy’s is doing a good job of differentiating itself against online rivals like Amazon Inc. by offering new retail concepts and merchandise that can’t be gained with the click of a mouse.

“We’ve always felt Macy’s was the premier merchandiser,” he said. “That was really what has moved them through the very cyclical of impacts on the business, their ability to find goods that people want.”

But the comeback is far from certain. Goldman Sach analyst Alexandria Walvis opened her coverage of Macy’s with a sell rating in early September, saying its 2018 improvements won’t be enough to overcome “further deterioration in the mall ecosystem” as department store anchors like Sears and JC Penney keep closing stores.

Kelly said Macy’s could quiet the skeptics with comparable-store sales growth of two to four percent annually. That’s higher than the Macy’s projected growth of zero to one percent for 2018.

Still, Cincinnati shoppers like Susan Deister are cheering for a Macy’s comeback.

“We do need brick and mortar stores,” she said. “Maybe online isn’t everything it’s cracked up to be.”

Deister hasn’t tried either of the region’s new Backstage stores and finds Kenwood a “bit more inconvenient” to shop than the Downtown store she used to shop. But she still sees Macy’s as a retail option worth preserving.

“They have really good high quality brands,” she said. “So, if you go there, you’re going to find something that might cost a couple of dollars more but you know it will last a couple of years longer.”