Brick-and-mortar department stores are in a fiercely competitive environment. Even though Macy’s was able to top lowered expectations for its 4th-quarter earnings, same-store sales came up short of expectations, due to decreased tourism spending at the end of 2018.
According to the Retail Dive, 2018 was the first year since 2014 that Macy’s had positive comps for all quarters in the year, while net income came in at $740 million, down from $1.35 billion a year ago. Earnings were a reflection of the slump in holidays sales experienced by a number of department stores, along with Macy’s this past holiday system.
Macy’s CEO Jeff Gennette said during a conference call Tuesday morning that two main events occurred that didn’t help earnings during that time. First was the Nov. 24 fire in a West Virginia megacenter, which caused a portion of merchandise inventory not to be available during cyber week. The second was opening its pre-Christmas sale to loyalty members – alienated new customers. That won’t happen again, he said.
As the Chicago Tribune notes, Macy’s is not alone in questioning whether a mall-based department store can compete in the world of Internet shopping. Added to the problem is trying to figure out how to compete with the likes of Amazon.
Restructuring plan
With the restructuring plan, Macy’s will be tightening its belt and reviewing its business plan. In order to save $100 million over the next several years, the department store will cut 100 vice-president level or above roles, “to increase the speed of decision making,” reports CNBC.
“The steps we are announcing to further streamline our management structure will allow us to move faster, reduce costs and be more responsive to changing customer expectations,” said Gennette, in a statement. Macy’s shares were rising about 2 percent Tuesday morning on the news.
The big worry for investors is the poor showing in the fourth quarter numbers, along with the loss of market share across all of the categories in which it trades. Management plans to add more pop-up shops in its stores as well as 45 more Backstage locations and invest in categories where it believes it can gain market share: such as dresses, fine jewelry, women’s shoes, and beauty items.
The plan looks good at first glance, but will it work? Like Sears and J.C. Penny, Macy’s will struggle to remain relevant to shoppers that find it easier to shop online for favorite brands, like Nike, Coach or Canada Goose directly.
“While Macy’s company-specific sales drivers (i.e. Backstage, Growth 50, Vendor Direct, etc.) look good on paper … they failed to manifest when it mattered most, leaving us more skeptical that they can deliver upside in 2019,” Gordon Haskett analyst Chuck Grom said ahead of Tuesday’s report.
