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Macy's Inc. (M)Stock (Department Stores Industry, Fashion Industry Industry, Retail Industry)
 Macy’s Inc. (NYSE:M), formerly known as Federated Department Stores, Inc., is a national clothing retailer. It sells men's, women's and children's clothes and accessories. The company is divided into mid-tier Macy's and Bloomingdale's, an upper-tier store that sells more exclusive items. In 2005, Macy's nearly doubled its stores by acquiring rival May's Department Stores, reflecting an industry-wide trend of Department Store Consolidation. However, the 2007 Credit Crunch has also led to a decrease in consumer confidence, causing decreases in store sales and profits for this fiscal year. The credit crunch has also led to an increase in credit card balances and subsequently delinquent accounts. Macy's, as one of many retailers that extend a line of credit to their consumers, is thus susceptible to the risks inherent in a higher percentage of delinquent credit card balances. However, in October 2005 Macy's sold its credit business to Citigroup (C). As part of their agreement, the companies share any profits and losses related to the credit business. Therefore, Macy's exposure to increased credit card debt is mitigated through its partnership.
[edit] Business Overview  Macy's and upscale Bloomingdale's sell men's, women's and children's apparel and accessories, cosmetics and home furnishings. Aside from its brick-and-mortar stores Macy's also operates macys.com, bloomingdales.com and Bloomingdale's by Mail in addition to an online bridal registry.[3] Macy'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[4] 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)[5] as well as an assumption of $6 billion in debt. Since the acquisition, Macy's has disposed of May's bridal and formalwear operations as well as 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.[6] [edit] Purchase Agreement with CitigroupMacy's sold its credit card business to Citigroup (C) over October 2005 - July 2006.[7] The company used the proceeds of this sale, along with proceeds from selling some of its stores, to pay off debt related to the acquisition of May's Department Store.[8] 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. Also, Macy's and Citigroup share profits and losses arising from the use of the credit cards. [edit] Result of Operations[edit] Fiscal Year 2008Fiscal year 2008 has been a disappointing one for retailers. The volatile United States economy, influenced by the 2007 Credit Crunch and the flagging housing market have made consumers very reluctant to spend money on unnecessary goods such as fashion. The company reported losses of $44 million in the third quarter alone[9], a considerable drop from last year's profit of $33 million.[10] Macy's has also decreased its projected 2009 capital spending from $1 billion to between $550 and $600 million.[11] The volatile stock market, coupled with job losses and the 2007 Credit Crunch have caused many consumers to rein in their spending on nonessential goods such as clothing. Despite its 3rd quarter losses, Macy's maintains its earnings projections for the fourth quarter at $1.10 to $1.30 per share.[12] [edit] Trends and Forces[edit] Macy's Suffers from Decrease in Consumer SpendingThe 2007 Credit Crunch, followed by the bankruptcy of Lehman Brothers (LEH) and the stock market plunge, have had an adverse effect on consumer confidence.[13] Consumers have curbed spending on any item considered to be a luxury, and clothing is often one of the first to go. Macy's third quarter sales have declined by 6.9% since the same period last year.[14] In the second quarter of its fiscal year, Macy's same store sales decreased by 2.1%.[15] Poor store sales have caused Macy's to lower its earnings forecast from $1.70 to $1.85 per share to $1.30 to $1.50 per share for fiscal year 2008.[16] According to a Goldman Sachs Group (GS) survey released on November 5, 2008, 37% of Americans have mentioned they will decrease their spending for this holiday season, 10% more from last year.[17] This trend does not bode well for the holiday season, which is an important time of the year for retailers--many make a large amount of their revenue from the holiday season. [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] Credit Card Losses Mitigated Through Partnership With CitigroupThe 2007 Credit Crunch has made it increasingly difficult for people to secure financing through methods such as borrowing against their homes. Therefore, many consumers have resorted to credit cards to make purchases. As of the third quarter of 2007, credit card balances rose by 7%, compared to an average of 2% a year for the previous six years.[18] In addition, delinquency rates for the same period were 4.47%, compared to 4.24% during the same period the previous year.[19] As credit card balances rise, so do the proportion of delinquent balances. This is bad news for retailers that extend lines of credit to their consumers. Macy's, however, has an advantage in the sense that it shares profits and losses with Citibank, meaning it does not suffer the full blow from an unpaid credit balance. In addition, Macy's benefits from letting Citibank--which has more experience in handling credit--deal with its credit cards, allowing Macy's to focus more energy on its retail business. [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 net income for fiscal year 2007.
 Macy's Inc.2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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