Retail

Macy's Dropped To Junk-Bond Status

S&P Drops rating

Macy’s credit rating has been downgraded to junk by S&P Global Ratings, just weeks after the former department store juggernaut released a cost-cutting measure to trim billions, the Financial Times reported Tuesday (Feb. 18).

The move came after Macy’s announced a $1.5 billion cost-cutting plan to try and combat decaying revenues and the general stagnation of mall traffic in recent years.

Macy’s rating was lowered to BB+ from its former BBB- status by S&P on Tuesday. BB+ is just one level below investment grade. While S&P thought the company’s cost-cutting plan was a step in the right direction, it also said it was a sign that the chain’s competitive advantage had eroded more than S&P thought.

The agency did attach a “stable” rating, indicating that Macy’s cost savings should do some work in offsetting sales weaknesses.

Macy’s, facing the same kinds of difficulties as fellow department stores that were also once titans of the mall business, announced earlier this year that it would be laying off 2,000 corporate employees and closing another 125 stores. It would also be closing its Cincinatti headquarters. The turnaround plan is code-named “Polaris,” and would account for $1.4 billion in combined annual sales.

Macy’s still operates 680 stores under its own name and Bloomingdale’s, but has struggled with the challenges that have become endemic to large brick and mortar retailers — namely that people don’t want to shop at those locations as much as they do online. Thousands of retail locations have closed nationwide after trying and failing to meet the new trends of the day.

Macy’s previously forecast a decline in sales in 2020 and said it would be a period of transition.

S&P said Macy’s faced unique difficulties due to its extensive history of acquisitions and expansion. Because of that, the company has excess stores that serve as dead weight in the wake of customers’ move onto the web.

Shares in Macy’s fell 4.7 percent on Tuesday afternoon.

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