US department store chain, Macy’s, has posted a decline in net sales for the ninth straight quarter and a 39 per cent decrease in quarterly profit attributed to the decline in sales and higher inventory which weighed on its margins.
Macy’s reported a decrease in net income to $71 million in the first quarter ending April 29 compared to the previous year’s $116 million. Same store sales fell 4.6 per cent compared to the previous corresponding period.
The Cincinnati-based retailer’s revenue fell 7.5 per cent to $5.34 billion. Sales at established stores fell 5.2 per cent, the ninth straight period of sales declines for the important metric.
Macy’s has been closing stores as it tries to regroup.
Neil Saunders, managing director of GlobalData Retail, said the first set of results under Macy’s new CEO, Jeff Gennette, are not good and represent a significant deterioration over recent quarters.
“That this worsening comes off the back of feeble prior year numbers – when comparables fell by 6.1 per cent and net income by 40.4 per cent – only adds to the sense that Macy’s is on a slippery slope,” Saunders said.
According to Saunders, none of this is a reflection on Gennette, who has been at the helm for a very short while, but they do underscore the scale of the challenge he now faces.
Turning around Macy’s is not a venture for the faint of heart, he said.
“To be fair, Macy’s seems to be embracing this change and is actively trying to reinvent and modernise the business with an energy that was simply not present a couple of years ago,” Saunders said. “It has also recognised that painful steps – like the shuttering of underperforming stores – are necessary for longer-term survival.”
He said some of these steps are already in play.
“The program of store closures is proceeding, which is one of the reasons why total sales – though not comparable sales – have edged down at a faster pace,” stated Saunders. “Longer term, the cutting away of less profitable and unprofitable stores will aid the bottom line, although there has been no real benefit during this quarter. The property disposals will also inject cash into the business which Macy’s can use to refurbish existing stores.”
Saunders noted Macy’s has made modest progress in certain categories like women’s shoes – where it has moved some stores to an open-sell self-serve model, and home – where it has revamped and expanded the department in some stores. He said It is now starting to focus on beauty, with the aim of making its traditional beauty halls more open, allowing customers to pick products for themselves, and introducing more beauty services.
“These are all sensible initiatives, and we believe that they show Macy’s thinking is on the right track,” he said. “However, the roll out is incredibly slow as Macy’s, perhaps understandably, wants to test the new concepts before committing them to all its stores. Ultimately, this means material gains from such improvements will not come through until next year at the earliest.”
Saunders said while Macy’s is doing some positive things, there is one area of its thinking which they take issue: the view that Backstage should be added to existing Macy’s stores.
“As much as we can see the logic for this from the perspective of trying to make space more productive, we believe the strategy will ultimately fall short,” he said. “From our customer data, we see evidence that such a move pulls customers away from the full price offering at stores and ends up cannibalizing sales.”
He said it also sends confusing messages to the customer about the Macy’s brand.
“There is no doubt that Backstage is a good concept and one that Macy’s should pursue, but we believe it is better suited to stand-alone locations in units where rents are cheaper.”
Overall, Saunders said, their sense is that Macy’s now has a much clearer sense of direction and it has a rudimentary road map to help it get to where it wants to go. However, the distance it needs to travel over the next few years is enormous.
“We question whether the company is bold, nimble or healthy enough to cover such ground,” he said.
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