Merchant Innovation

Low Sales Push Macy’s Big Bet On Backstage

Recently, it hasn’t been easy being Macy’s. Once growing consistently, the firm now faces sharp declines and worried investors who are wondering just how low Macy’s sales figure can still go.

On Wednesday, Macy’s announced that sales dropped 5.2 percent last quarter – a worse result than expected.

“The retail industry is going through a tough period,” said Macy’s Inc CEO Terry Lundgren on a conference call with analysts. He further noted “I’m certain we will come up with some creative ideas that will surprise people.”

And while the CEO’s optimism is encouraging, analysts have their doubts.

“Macy’s has been so successful for so long with its core format that it blinded them to the ways that consumer shopping behaviors were changing,” says Craig Johnson, president of Customer Growth Partners, a research firm. “Terry and the board have since had a ‘come to Jesus’ moment, the fix isn’t going to happen overnight.”

But pressure is mounting  — particularly from Starboard Value LP, an activist investor outfit that has been pushing Macy’s to spin off its lucrative real estate holdings and by doing so boost stock price. So far Macy’s has resisted that idea, noting a lack of enthusiasm for extra debt and expensive lease payments.

An official at Starboard declined to comment.

Lundgren has the support of his board, who believes his plans will work, given time.

“The fact that Terry has had one bad year is not an indication that he’s been in the job too long,” said Allen Questrom, who has run Macy’s, J.C. Penney and other retail chains and helped recruit Mr. Lundgren to his first retailing job, at Bullock’s. “What Terry is doing, unlike a lot of people, is trying different things as the market changes.”

And one of those changes is Macy’s Backstage, the department store’s off-price wing intended to compete with T.J. Maxx, Marshalls and similar chains.

They are not the first to this party. Nordstrom Rack, Neiman Marcus Group’s Last Call and Saks’ Off 5th locations are all variations on the no-frills stores that sell brand name goods at deep discounts.

Lundgren and his lieutenants had thought about jumping into the fast-growing market back in 2009 — but stalled the move.

“Macy’s didn’t need a new concept at that time,” recalls Peter Sachse, the retailer’s chief for innovation and business development. “We had plenty on our plate.”

Now the plate is ready — and there are five Backstage stores open for business in the U.S., with plans to open 50 more over the next two years. Meanwhile, Macy’s is also looking for a toehold in China and expanding Bluemercury, a successful chain of high-end beauty stores the company bought earlier this year. productive.

“You can’t just stop and assume that growth will continue without doing things differently,” Lundgren said in an interview earlier this year.

 

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