Macy's holiday performance better than last year despite sales decline, job losses

Amazon impact growing
Macy's holiday performance better than last year despite sales decline, job losses
Posted at 8:06 AM, Jan 05, 2017
and last updated 2017-01-05 08:39:41-05

CINCINNATI - Christmas 2016 was bad enough for Macy’s Inc., where a 2.1 percent sales decline triggered the loss of 10,000 jobs and 68 new store closures.

But here’s a holiday result that’s even more frightening for Macy’s: Amazon sold millions of new voice-controlled Echo devices. Analysts say it’s now in nearly 5 million homes.

“When you can say, ‘Alexa, please send me X,Y and Z,’ and it’s shipped to you in one day, that’s difficult to compete with,” said Ken Perkins, president of Retail Metrics Inc. “What can Macy’s or Kohl’s or anyone do to combat the ease in which that sale can be made?”

Perkins was among the first to predict that Macy’s would fall short of expectations for the holidays, even though he thought the Cincinnati-based chain did a good job of using promotions to increase store traffic.

“Among the department stores we visited throughout the holiday season, they were definitely the busiest, along with Kohl’s,” Perkins said. “Sears was a ghost town throughout the holiday.”

But the ghost of Christmas 2016 will forever sport an Amazon logo on its frock. The online retailer shipped more than a billion items for the first time in its history and it outflanked its brick-and-mortar rivals with a new shift in media spending.

Amazon spent $135 million on TV ads, according to Media Radar. That's $16 million more than Walmart and $32 million more than Target. All three increased their online ad spending by more than 150 percent. Macy’s, by contrast, increased its TV budget by 24 percent and online ads by 34 percent, according to Media Radar.

“It’s very clear here that everybody is in the race to be relevant with the consumer,” said Steven Barr, a San Francisco-based retail consultant for PriceWaterhouseCoopers. “The retail store is not dead. But the retail store of the past is dead.”

The PwC consultant expects department stores to perform best in large urban markets, while exiting smaller, rural locations. He also expects retail chains like Macy’s to use websites and mobile platforms to strengthen their ties with consumers. That’s one reason a website glitch on Black Friday was a big problem for Macy’s.

For a few hours on Nov. 25, Macy’s shoppers were greeted by a “temporary shopping jam” message that asked visitors to exit the site and refresh their web browsers.

“This is an environment that is challenging enough without any self-inflicted wounds,” Barr said. “Every interaction and transaction is important. Anything that drives a wedge between the consumer and the retailer is a loss for the retailer.”

Despite all the bad news, Macy’s actually improved its holiday sales performance over last year, when a 4.7 percent sales dip led to a $400 million cost-cutting effort and a mid-summer announcement that up to 100 stores would close.

Perkin said Macy's did a good job of driving traffic to its stores with timely discounts on outerwear and promotions in beauty, handbags and licensed brands like Finish Line. It also recovered from the web site snafu to post a double-digit gain in digital sales.

“They were busier than many locations throughout the malls,” Perkins said. “They were aggressive on promotions and I think it was helpful to them in terms of being competitive and driving traffic.”