With the investment in this first wave of stores paying off, Macy’s has the confidence to extend expenditure into more shops as it moves into 2019.
By Neil Saunders
After a slightly weaker prior quarter, thanks to some shifts in the promotional calendar, Macy’s is firmly back on track with a solid set of numbers. Total sales are up by a respectable 2.3%, supported by a healthy 3.1% uplift in comparables. On the bottom line, net income rose by an impressive 130%.
Last year’s dire comparative results, when total sales dropped by 6.1% and comparables fell by 4.0%, have helped to give Macy’s some uplift. So too has a strong consumer economy. However,Macy’s has made genuine progress, helping it engineer a better set of results.
Data supports ongoing recovery
Our consumer tracking data also supports the story of an ongoing recovery. This time last year, 59% of Macy’s customers rated their shopping experience as good or very good; this year that figure has risen to 67%. Our data also show that for the first time in over eight years, the number of people saying they will visit Macy’s to do holiday shopping has risen. Along with the good sales numbers, these pieces of evidence underline that Macy’s is succeeding in creating a stronger appeal.
Some success has come from the expansion of Macy’s loyalty program, which brought in many new members, especially at the entry level. This has allowed Macy’s to understand and connect with its less frequent shoppers, effectively keeping the brand on their radar. The rewards also act as an incentive for repeat visitation.
Store investments pay off
Stores have seen improvements, especially the so-called Growth50 shops, which Macy’s has targeted with increased levels of investment. We have been particularly impressed with the more edited and curated fashion offers within these outlets; this represents a step change from the messy hotchpotch that has traditionally greeted shoppers in older Macy’s stores. With the investment in this first wave of stores paying off, Macy’s has the confidence to extend expenditure into more shops as it moves into 2019. This should provide a nice tailwind to sales as Macy’s laps tougher comparatives in the new year.
But there is still work to do with physical stores. Macy’s has a long tail of underinvested-in properties, many of which are underperforming and do not reflect the company’s latest thinking. Some can be partially revived by incorporating the off-price Backstage concept. However, more decisive action is needed over the medium term, including shrinking floorspace and potentially shuttering outlets where the return on investment is not viable.
Return of energy, confidence
One factor that necessitates a reduction in space is Macy’s success in digital; online sales continue to grow at a good clip. Macy’s is an often overlooked online powerhouse. We see position this strengthening as it ramps up services like collect in store at dedicated service stations. However, the flip side of this is that, in many locations, Macy’s does not need to carry so many options and choice, especially in categories like fashion. So the right-sizing of its store estate is a natural part of this evolution.
Overall, we are pleased with Macy’s progress. The energy and confidence that have been lacking for so long now seem to have returned. That said, this is only the start of Macy’s journey. Much more work is still needed to make Macy’s a unique and compelling retail destination.
Neil Saunders is managing director of research firm GlobalData Retail.