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Macy's Inc. (M)Stock (Department Stores Industry, Fashion Industry, Retail Industry)
 Macy’s Inc. (NYSE:M), formerly known as Federated Department Stores, Inc., generated sales revenues of nearly $5.75 billion in women’s, men’s, and children’s apparel, and accessories, cosmetics, home furnishings and other consumer goods in the first quarter of FY 2008, reflecting a same store sales decrease of 2.6% from the first quarter in FY 2007.[1] Macy’s operates more than 850 stores through its Macy’s and Bloomingdale's divisions, as well as several online e-commerce channels and Bloomingdale’s mail order service. Responding to the past few years' trend of depressed comparable-store sales and lagging net sales, Macy’s merged with May in August 2005. The company acquired about 400 May department stores, almost doubling the number of legacy Macy’s stores. However, after the integration of May stores in 2006, operating results have been lower than expected--same store comparable sales have been just 0.6%. Despite swinging a profit in 3Q07, Macy's remains plagued by the problems of a sluggish retail industry, and the same quarter saw a lowering in Macy's earnings estimates for the crucial fourth quarter holiday season. Additionally, due to potential lower consumer spending throughout 2008, Macy's has projected a net earnings loss of about 1% the fiscal year. Like other retailers in the department store industry, Macy’s is susceptible to changes in consumer preferences and spending--a weak seasonal offering was one of the reasons cited for rather disappointing sales levels in 3Q07. In recent years, consumers have also increasingly chosen to shop at off-mall specialty stores (which provide a wider portfolio of unique merchandise) and at less expensive mass/discount merchandisers. To compete with these other retailers, Macy’s is focusing on a stronger program of brand exclusivity, business efficiency through system upgrades and innovations, marketing, and enhancements to the consumer shopping experience.
[edit] Business Overview [edit] History & ProductsMacy’s Inc. and its predecessors have been operating department stores since 1820. Today, its two main department store brands are mid-tier Macy's and upscale Bloomingdale’s, which accounts for 10% of sales. In 2003, the company strategically converted all of its regional store nameplates to the Macy’s brand (except for the Bloomingdale's stores). In 2005, the company acquired May Department Stores and further consolidated its holdings under the Macy's and Bloomingdale's nameplates (see below). This brand positioning has allowed the company to consolidate its advertising activities nationwide. By the end of 2006, Macy's was operating approximately 400 locations nationwide. The company sells a wide range of merchandise, including men’s, women’s and children’s apparel, and accessories, cosmetics, home furnishings, and other consumer goods. Macy's owns and operates stores in 45 U.S. states as well as D.C., Guam and Puerto Rico. In addition to its physical locations, the company also operates an online bridal registry, Macy’s.com, Bloomingdales.com, and Bloomingdale’s By Mail.  [edit] May MergerMacy's acquired rival May's department stores in mid-2005 in order to bolster its flagging same-store sales growth (growth in sales in stores open for at least a year). The $11.7 billion transaction involved 500 May’s department stores and 800 bridal and formalwear stores (operated under brands of Lord & Taylor, Marshall Field's, Filene's, Kaufmann's, Meier & Frank, After Hours Formalwear, and David's Bridal) as well as an assumption of $6 billion in debt. Since the acquisition, Macy's has divested non-core holdings formerly held by May's, including bridal and formalwear operations and Lord and Taylor department stores. By the end of 2006, Macy’s converted over 400 May’s stores to the Macy’s or Bloomingdale’s nameplates. [edit] Purchase Agreement with CitigroupMacy's sold its credit card business to Citigroup (C) over June 2005 - July 2006. The company used the proceeds of this sale, along with proceeds from selling some of its stores, to pay off debt and institute stock buybacks stock dividend payments for investors. In connection with the agreement, Macy’s and Citigroup entered into a long-term marketing and servicing partnership whereby Citigroup owns the outstanding account and any new accounts opened by Macy's customers. In return, Macy's receives ongoing payments from Citigroup for charges made to these credit cards. [edit] Result of Operations[edit] 1Q 07Macy's performance in the first quarter of 2008 has not been unduly disappointing, losses per share of $0.01 at the high end of company guidance, and quarterly sales of 5.75B at the low end of guidance. Regionally, Macy's preformed the best in the North East and Texas and the worst in Florida and on the West Coast. For sales, sales were strongest throughout the men's catagories, while in women's, sales were weaker relative to the first quarter on 2007. [edit] AnnualWhile Macy’s overall revenues have accelerated since the acquisition of May's, operating income decreased by 24% from 2005 to 2006 ($2.4 billion to $1.8 billion). This decline reflects higher May integration costs, related inventory valuation adjustments, and smaller gains on the sale of accounts receivable.  [edit] CompsComparable store sales (or "comps") are a crucial operational metric in the retail industry that measure the increase or decrease of sales at stores open for at least one year from the time period in question. Macy's comps have shown a marked increase from 2001 to 2006, when the company generated a 4.4% comps rate; this rate includes sales from retail, e-commerce and mail order (May's stores are not included). Sales were strongest in dresses, handbags, cosmetics, fragrances and young men’s wear. When the company included May’s stores in its monthly same–store sales growth in February of this year, the growth in same-store sales comps was much lower, at 0.6% for the first quarter (February-April). [edit] Business Strategies[edit] PricingPromotional strategies used by Macy’s in the past--including permanent markdowns, point-of-sale discounting and the use of coupons--were found to actually confuse the customer about product pricing. As a result, customers lost interest in Macy’s products. Macy’s has been reducing promotions and steering consumers away from waiting to make purchases with discounted pricing. In addition, Macy’s has been reducing discounts on top sellers to restore faith in the value of its products, and decreased the use of coupons by 20%. These activities have led to direct impacts on the company's bottom line. In April of 2005, the company began using the 20/20 program (similar to Profit Logic in Bloomingdale’s stores) to create the optimal product mix in its Macy's stores. The 20/20 program separates merchandise into 5 sections allowing for the quick review of the top 20 selling items and the bottom 20 (poorly) selling items. This way poor sellers become candidates for greater markdowns, and the top sellers are chosen for delayed markdowns. Moreover, this system helps management decide which merchandise to buy more of and which is not profitable. [edit] Reinvent StrategyAiming to improve the shopping experience for the Macy’s consumer, Macy’s has implemented the Reinvent Strategy in 70% of its stores. This strategy provides for price-checking machines, fashionable shopping carts, improved fitting rooms (e.g., better lighting and lounges with TV’s), and better in-store signage which are suspended from the ceiling in order to help the customer easily locate specific merchandise. Aisle width has also been increased for easy transportation of shopping carts or strollers. [edit] Brand differentiationTo compete with specialty stores and other retailers, Macy's is enhancing its assortment of private brands and exclusive brands. Private label brands are produced by wholesalers and sold under the brand name of the retailer. Exclusive brands, on the other hand, are sold under the wholesaler’s name. Private brands produce greater gross margin results and account for higher sales. In 2005, Macy’s private brand assortment was 18% in comparison to May’s 12%. By fall 2006, May’s private brands accounted for 17% of sales, compared to the 19% penetration level at Macy’s legacy stores. In addition, about 1/3 of Macy’s merchandise is what the company calls limited distribution. Macy’s widely recognized private brands, including famous brands such as I•N•C, Alfani, Tasso Elba, American Rag, Hotel Collection, Greendog and Tools of the Trade were introduced to former May stores. Two private brands, Karen Scott and John Ashford, are former May brands that have been included in Macy’s product mix. Also rolled out this spring were new exclusive brands T Tahari collection from designer Elie Tahari and the O Oscar collection from designer Oscar de la Renta. A new exclusive home brand called the Martha Stewart Collection debuted this fall to help the Home and Furnishings sales at Macy’s, which had fallen recently to 15%; a turnaround in Home's sales weakness was attributed largely to this line's debut (as well as to improved advertising). Finally, in October 2007, Macy's also disclosed a deal with Tommy Hilfiger USA to be the exclusive department store retailer of its sportswear in conjunction with an agreement to expand retail offerings in all of Hilfiger's product categories. [edit] Bloomingdale’sBloomingdale’s is more upscale than Macy's and competes at a price point similar to that of luxury department stores such as Nordstrom (JWN), especially in the contemporary sportswear department. Bloomingdale’s is also expanding its brand portfolio in women’s apparel, women’s accessories, women’s cosmetics and fragrances, men’s apparel and accessories and home furnishings. [edit] Advertising/MarketingThe re-branding of Macy’s regional stores into the Macy’s nameplate allowed Macy’s to launch its first comprehensive national marketing campaign in 2006 at a cost of $1.2 billion. The marketing campaign was meant to accompany the re-branding of May’s stores. Throughout the fall and holiday seasons, Macy’s went on an advertising streak across the country using high-impact ads on broadcast and cable television, national magazines, local newspapers and radio, most-visited internet sites, and coordinated events in stores across the country. These included the hopping “Parade of Parade’s” from state to state and the Macy’s Thanksgiving Day Parade in New York City. Macy’s is currently changing its method of advertising. Instead of focusing on promotional events, Macy’s is switching to promoting stronger product offerings on single day sale events. Macy's is also increasing its emphasis on internet advertising, as reported in its Q307 earnings report. [edit] Star Rewards ProgramStar Rewards is a loyalty program offered to Macy's credit card customers that works by rewarding them with benefits the more they spend at Macy's stores. The program was introduced to former May Company customers in 2006 and has done well, but not to the penetration level at Macy’s. [edit] Trends and Forces[edit] Consumer spendingThe fashion and retail industries are vulnerable to changes in fashion trends and consumer preferences and spending. The welfare of Macy’s depends in part on its ability to identify and respond immediately to emerging fashion trends. Forecasting a miss in a fashion trend for the summer, for example, has led to the undoing of many retail entities in the past. Consumer spending is generally related to shifts in the economy. In a prosperous or bullish market, consumers generally have more disposable income. More money in the hands of consumers means higher sales (and higher profit levels) for the fashion retail industry in general as consumers are likely to spend more. Also, in a bullish economy, consumers are more likely to “trade-up” or buy more expensive products than they would normally buy, just as in a bearish or recessionary economy, they are more likely to buy products from a less expensive retailer. [edit] ConsolidationConsolidation activity amongst traditional department stores in the past two years has increased. This consolidation of stores has caused the top 5 department stores to control over 75% of the fashion retail industry. As in the merger with May, consolidation is favorable as it has allowed Macy’s to grow its business and to get rid of unwanted stores. The expansion of businesses also allows for a national chain such as Macy’s to negotiate lower prices and favorable distribution agreements as to exclusive and private labels with its suppliers. To its advantage, Macy’s does not purchase more than 5% of its merchandise from any one supplier. Consolidation also means that department stores have been losing or gaining little square footage while specialty stores have seen a steady rise in square footage, giving specialty stores undeserved market share. Additionally, the slow growth cycle of malls (only 1-2 are opened yearly) add to this effect of losing market share to off-mall specialty stores. [edit] Off-Mall Specialty Department StoresSpecialty department stores are based outside of malls (or are "off-mall"), and consumers have shifted in recent years from shopping in traditional mall-based department stores to specialty ones. The off-mall stores cost less to run than traditional mall-based department stores and offer consumers convenience with a one stop shop. These specialty department stores typically have fewer employees and rent expenses and retailers (e.g, Kohl's (KSS)) can produce double digit operating margins. Same store sales growth--a key retail metric--has been in slow decline for mall-based department store retailers such as J.C. Penney (JCP), Sears Holdings (SHLD), as well as Macy's. It should be noted that some traditional mall-based retailers have moved towards off-mall locations. For example, J.C. Penney plans to have 90% of its store be off-mall standalone outlets.
[edit] CompetitionMacy’s faces strong competition in the retail industry from other retailers in their geographic areas, including other traditional, moderate or luxury department stores, specialty stores, general merchandise stores, off-price and discount stores and other forms of shopping including the Internet, mail order catalogs and television. Retailers competing with Macy’s include:
Below are charts comparing Macy's to the different retailers it competes with through the operational metrics of net or total sales and operating margin for the fiscal year of 2006, which is sometimes called 2007 because the period in question sometimes extends into 2007 by one or more months. Operating margin is the operating income as a percentage of the retailer's total revenue (which is not always the same as net sales) for that year. Operating income accounts for earnings before interest expenses and income taxes.
Total Sales generated by all Department Stores (not just the ones in the chart) for 2006 was 119,436.
Total sales for specialty stores in 2006 were 58,408.
Mass Merchandisers netted a total of 417,821 in sales in 2006.
 Macy's Inc.2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] Specialty StoresDepartment stores have lost favor in the recent past due to the practice of over distributing their brands to many locations of each mall. Consumers are opting for a wider portfolio of unique merchandise sold in off-mall specialty stores and less expensive mass/discount merchandisers.
 The Gap is a specialty store whose products include women's clothing. Department stores such as Macy's have been more successful than women's specialty stores, which have been facing challenges due to fashion misses. In recent years the department store industry has seen a decline in market share offset only by an increase in market share in the luxury segment and general stabilization of market share in the moderate department store segment in 2006 (as opposed to the traditional department store segment). Conversely, specialty stores have seen a steady increase in market share, with the teen sector driving the growth and the women’s sector lagging. However, department stores have been improving their store productivity through enhanced technology, newer and stronger private label and exclusive brands, and timely offerings of trendy fashions. In addition, a number of retailers, including J.C. Penney's and Kohl's are having success with new off-mall type stores. Macy's now has two off-mall type stores. Specialty store market share growth is driven by both the growth in square footage as well as the growth in sales per square footage. [edit] References
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