Macy’s chief executive Tony Spring wants to make an important distinction about his plan to turn around the ailing department store chain: He’s not rebuilding, he’s redecorating.
“People like variety, people want multiple brands, they like multiple categories [and] price points,” he told The Business of Fashion. “Our job is to be good at what we do. Our assortment has to be modern, our execution has to be better.”
Spring, who succeeded Jeff Gennette to the top job in February, is only a couple of months into executing his plan, which includes closing 150 Macy’s stores and opening more small-format and high-end Bloomingdale’s locations. Private labels will be edited down and enhanced, the in-store shopping experience improved.
First-quarter results, released Tuesday, marked the first official check-in on how that plan is going. The report contained some promising signs.
A 3 percent year-on-year decline in sales, to $4.8 billion, was a milder drop off than most analysts were expecting. In Macy’s stores that have already started receiving a glow up, dubbed “the first 50,” sales rose 3.4 percent. At Bloomingdale’s and Bluemercury, a beauty chain also earmarked for expansion, comparable sales rose 0.8 percent and 4.3 percent, respectively.
Macy’s profits fell 60 percent to $62 million, but earnings per share of 27 cents surpassed analysts’ forecasts of 16 cents. The company raised its annual outlook, now expecting sales between $22.3 billion and $22.9 billion, with earnings per share of $2.55-$2.90. Following the report, Macy’s shares climbed over 4 percent, ending the day up 5 percent at $20.10.
The mild reaction from investors reflects continued scepticism that Macy’s will be able to reverse a long slow decline, or defy the bleak outlook for department stores generally. The company is also up against a conservative outlook for consumer spending amid persistent inflation.
To sustain progress, the retailer needs to deliver on Spring’s turnaround plan and more: namely, changing perceptions, particularly among young consumers, about what it’s like to shop at Macy’s, experts say.
“They have a lot of work to do in rebuilding — you can make a store better, you can put in better product, but it takes a long time to rebuild perceptions for people,” said Neil Saunders, managing director of consultancy GlobalData’s retail division. “They’re making a start on this and it’s a long road ahead of them.”
While turnarounds can take years, Macy’s will need to quickly show the plan is working. Last month, the company settled a proxy fight with activist investor Arkhouse, a real estate investment company, agreeing to appoint two of the firm’s nominees to its board. The new directors will join a committee to review Arkhouse’s proposal to take Macy’s private.
Fixing an Image Problem
Macy’s biggest challenge today is its waning relevance among consumers, particularly younger ones who often see the store as old school, a place they walk by as they enter the mall (if they visit malls at all). That’s partly down to the retailer’s product assortment, which has failed to strike the right balance between price and quality, Saunders said.
As part of its turnaround strategy, Macy’s has been editing out “duplicative brands and styles,” especially cheaper products, Spring said. New to Macy’s brands include Donna Karan, plus an expansion of its assortment of Free People, French Connection and Karl Lagerfeld.
“If you look in the store, the presentation is a little less dense, it’s a little easier to shop, there’s a greater celebration of the product, silhouette, design [and] style,” he said.
The retailer is also investing in more highly-skilled store associates and using technology to track store traffic and measure how associates are hitting sales goals daily, Spring said.
“What I expect when I’m shopping for furniture is somebody who knows furniture … when I’m shopping for skincare, I’m expecting that beauty advisor to understand my skin tone,” he said. “We have to do a better job of having people in the different departments at the right time.”
Macy’s is also eliminating “bad stores” that hurt its image with consumers, according to Spring. However, some market observers worry that while a smaller footprint could improve profitability, it could also reduce the retailer’s visibility and relevance among consumers.
“When problems arise, people immediately flock to store closures,” said Simeon Siegel, managing director and senior analyst at BMO Capital Markets. “But all closing the store does is shrink your business. It doesn’t make the rest of your locations more desirable.”
Spring said investment in smaller format stores — the company is on track to open 11 more mini Macy’s this year, bringing the total to 24 — is one way he hopes to amplify the retailer’s presence. The stores — which are more intimate, edited and experiential — will boost its awareness in a way that’s more aligned with its new direction, he said.
“I don’t need stores that are not representative of our brand in order to have awareness,” Spring said. “I need great stores in as many places as possible that support our profitability and customer experience objectives.”
Glimmers of Hope
Bloomingdale’s and Bluemercury continue to be the brightest spots in Macy’s portfolio, which Spring told analysts is helping him refine his strategy for the mainline Macy’s stores. (Bluemercury, in particular, logged its 13th straight quarter of comparable-store growth.)
“I look at the ready-to-wear business at Bloomingdale’s, which right now is terrific, and it gives me optimism that we are in the early stages of that opportunity at Macy’s,” he said on the earnings call.
The retailer is keeping its eye on inflation, Spring said, noting that it’s caused Macy’s customers to tighten their purse strings while the higher-end Bloomingdale’s shopper is becoming more selective, with luxury handbags and footwear seeing softer sales compared with 2019.
That sales are up at Bluemercury and Bloomingdale’s is a positive indicator in its own right, though, given the broader luxury slowdown, Saunders said.
“Time will tell if [this plan is] bold enough,” Spring said. “I don’t look at it as anything more than that we are on the right track. We are not done.”
