Macy's' Goodwill Is a Red Flag 21 comments
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Macy's (M) reworked its $2 billion credit facility with JPMorgan (JPM) and Bank of America (BAC) so that its covenants will not be tripped by its weak balance sheet. Rather, the credit facility will depend on Macy's EBITDA.
Investors breathed more than a sigh of relief, sending the stock up to over $10 from $8 on the news (it was at $5.73 a month ago).
Is Macy's out of the wilderness on this news? I don't think so. Macy's cannot wiggle its way out of its varied dilemmas. Its balance sheet is weak. Look at goodwill and other intangibles in the table below. As of 11/1/2008, they come to $9.87 billion. Most occurred when Macy's bought May's Department Stores. That goodwill, in reality, has little if any value (try zero).
What value is left in the Filene brand that Macy's purchased? Can Macy's bank on that goodwill? No, the change in covenants from equity to EBIDTA attests to that. Goodwill is a red flag. A third of Macy's assets are goodwill and intangibles - quicksand for the investor. Take away that goodwill and Macy's equity is less than zero.
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Disclosure: Author holds a short position in M
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This article has 21 comments:
Here in Chicago, Macy's has "negative good will". Chicago is still angry with Macy's for destroying what was its third most popular destination, the retail equivalent of Wrigley Field and the Cubs. (Of course, Field's was a consistent winner in the eyes of Chicagoans--and shoppers the world-over for that matter--where the Cubs are lovable losers with an amazing park.)
For most retail chains, their flagship store builds good will and positive shopper experience that inspires customers to shop the local store nearby. Here in Chicago, we have the opposite effect: the former Marshall Field's flagship, now called "Macy's on State", is to many an "anti-flagship". People refuse to shop their local Macy's, be it in Chicagoland or elsewhere in the USA because of what Macy's has done to the former Marshall Field's flagship and a few other choice locations like Old Orchard, Oak Brook, etc.
A great way for Macy's to instantly build value, good will and cash would be for it to either bring back Marshall Field's to State Street, or at least sell the State Street flagship and certain other key former Field's locations to someone who will bring back Field's in quality and service as well as name. Those people are surely out there.
As for Filene's, that fine store's flagship is effectively gone, save for it's façade. As such, Macy's has basically thrown away the great value stored in that revered brand and the sense of place that was associated with Filene's. Marshall Field's could come back; sadly, I don't think the good will of Filene's can be resurrected.
Jim McKay
co-Organizer,
www.fieldsfanschicago....
That being said; it does have the chance to take advantage of several of the nameplates it trashed, such as Field's, Filene's,and Kaufmann's to name a few. If there were downtown emporiums re-established I believe Macy's could differentiate themselves from all the other department store and discounters that just do nothing but take marketshare away from each other. There isn't any growth happening here until some company actually thinks outside the box.
Had macy*mart retained and strengthened the regional department stores, the management could rightfully claim the goodwill earned by Filene's, Burdine's, Marshall Field's, Kaufmann's, Famous-Barr, Lazarus and the original macy*s. By ignoring the wishes of customers and attempting to save a few cents on shopping bag, macy*mart has earned negative reactions from shoppers.
We are currently in an economic tailspin. These are not ordinary times and to still be blaming the May purchase for Macy's current position is preposterous. Considering the times, and how much better Macy's is doing, relative to its competition, speaks volumes that Macy's is on the right track.
As far as the past is concerned, the May Company had stores that were uninspired and in line with Kohl's and Penney's. Yes, I will grant that Field's sold some higher priced brands and were a step above Macy's, but still far below Nordstrom and Bloomingdale's. Unfortunately, sales at Field's had been on the decline since 1999 (Ironically, Target's decision to rebrand all it's department stores- Dayton's and Hudson's to Field's --was a failed attempt to save the chain.) The move upscale for Field's proved disastrous. It also had a pretty poor history outside Chicago. Stores were opened and closed in Texas and Columbus, Ohio and all but one location closed in Milwaukee. The converted stores in Minnesota and Michigan (Dayton's and Hudson's) were also a drag on the chain.
As far as the future, Macy's will be reducing it's regional divisions even further in 2009 as is it works to have a structure that is required of a national chain. Unfortunately, the May Company wasn't constantly pruning it's store base of dead wood as Macy's, Dillard's and others do regularly, so look for 10 to 20 Macy's store closings in early 2009. All in dead malls that have been taken over by gangbangers. Macy's is doing fine in Chicago...despite what Jim says, so none will close there but look for 1 (possibly 2) to close in Minneapolis (both stores were poor performers under Field's---google: "Brookdale: A ghost of its former self" --click "news"-- to see about one of the possible closures.) and 1 in Michigan.
As far as whom the Grinch will steal...the owner of Carson’s, Bon-ton is in dire straights. Look for their bankruptcy in 2009. And Sears too.
Once the economy improves, a new Macy's store is planned to open in Chicago's northern burbs. As of right now it is set to open in 2011. Macy's is in Chicago to stay. Field's is 6 feet under and is staying there.
Not to burst your bubble, but here are a few verifiables:
1. Field's was not losing money. In fact, most analysts say Target Corp. used Field's profits to finance Target's national expansion. Target Corp (unlike shady Macy's) made financial statements public. Check them out, and quit repeating tired and easily disprovable lies.
2. Macy's has negative goodwill in Chicago, if not throughout much of the country. Over 60 thousand people signed a petition to keep Field's name. Field's Fans Chicago have handed out well in excess of 100,000 buttons and bumper stickers, and continues to get a warm and supportive reception every time they're handing out stuff. The Chicago Tribune poll showed that 94% of Chicagoans would be "less likely to shop" at the stores once the name changed. All you need to do is mention "macy's" in a crowded room, and most people will either say they don't shop there, or they only shop there for super discounted merchandise. If that's "goodwill," I pity their investors.
3. Macy's is one of a handful of public companies that refuse to break out store sales by location. They claim that sales are up in old May locations, but without breakouts, and with all the various write-offs, it's nearly impossible to tell how they're really doing in any given market. The sales tax returns for Chicago storesmake it very clear they're not doing so well.
4. Anecdotally, many store employees and mall operators have stated that sales at Macy's are way down since Field's reign. Yes, we're in a recession, but Macy's North sales plunged in 2006 after the name changes, while most of the other upscale department stores were reporting up to double-digit sales increases.
5. Bottom line--Macy's lies. Drink the Kool-aid if you wish, but check your facts before you spout off in a public forum.
These people have already voted with their wallets and said NO to Macy's!
I will tell you this, if I had a dollar for every angry Field's Fan I have talked to, maybe I could bail out Wall Street or the big 3!
My- and thousands like me- personal experience with Macy's has been unpleasant. What's the saying..."Lots of hat, no cattle"? The Chicago stores are poorly staffed, poorly maintained and "junkie" in presentation- especially once you leave the main floors. Many people have had their credit messed up by Macy's during it's conversion from Marshall Field's because Macy's attemepted not to honor extended payment plans established under Field's. None of this is to mention to downgrading of merchandise and local flair- or pride!
Goodwill? Please. These folks could only buy it by selling their losses and packing up and returning to from where they came. Like Bush, they should return to their proverbial "Crawford" and let someone, please return Marshall Field's. It is that for which Chicago has "hope" and is "change WE can believe in".
I was at a large Macy's store in the Chicago area yesterday. Clothes strewn on the floor, clothes dumped on top of the racks. Typical from what I have seen before at other Macy's. Mismarked signage (well almost everything had a red "sale" sign on it anyway). Basically a red hot Christmas mess.
Macy's, compared to Marshall Field's (we seem to be focusing on Field's), is nothing but a vulgar, lower class dump, stuffed with overpriced knock-offs and other assorted rubbish. Not a single Chicagogan (Or Minneapolis-St.Paulian... I know would even dare give a Christmas gift from that hated store. Nordstroms, Lord & Taylor, Von Maurs, and Carsons/Bergners are now the place to be, along with Penney's, Niemans, Saks, etc.
They will be talking about Macy's spectacular business failure for years to come, in business classes all over the world. How a company could willingly squander the deep goodwill of thousands and thousands (dare I say millions?) of loyal former customers, is beyond me. There hasn't been such a blunder since New Coke.
If Macy's refuses to undo, at least partially, its re-naming mistake, then fine. Let them hopefully just go out of business. We'd rather see them completely fail, then continue to desecrate the Temple.
And as for that Bozo poo-pooing the anti-Macy's crowd, does he consider Roger Ebert a nobody? Ebert has publicly come out against Macy's ruining Marshall Field's, as had over 60,000 petition signers, and hundreds of people who attend annual Field's Fans protests in front of the occupied Marshall Field's store downtown Chicago.
Merry Christmas and Happy Hanukkah to all!
More likely, EV/EBITDA goes to $13.24/$2.4 = 5.5 (dismal compared to current 4.2).
The Macy's store on State Street is a ghost town. The boycott is working. When will shareholders demand a change in leadership of Macy's?
Bring back Marshall Field's!
Macy's other lie is that traditional regional luxury department stores were dinosaurs that needed to be saved by Macy's national mid-tier expansion. In fact, the revenues at former Field's locations took a nose dive only after Macy's name went up. Other traditional high-end ddpartment stores, Field's peers Saks, Nordstrom, Neiman's and Barneys, all posted growth each and every month after Macy's expansion while Macy's posted declines, particularly during the first 6 months after replacing Field's. It's only recently as the economy has worsened that all stores, including the high-end stores, have shown declines. Fortunately for the traditional high-end stores, their recent declines come on the heel of strong growth during recent years, while Macy's declines merely compound their previous declines.
If Field's had been retained and had Macy's built upon Field's good will, the stores would certainly have outperformed their dismal declines as Macy's. Not only would local customers have continued to share generational shopping traditions with Chicago's most prized stores, but also tourists would have continued to make FIeld's the iconic Chicago destination it has been for more than 154 years. Prior to Macy's takeover, Field's State Street store was Chicago's 3rd most popular tourist destination, attracting more than 9 million customers each year. According to Crain's Chicago Business, analysts and in-store vendor reports that number dropped by more than 40% the month that Macy's moved in and replaced Field's.
On Dec 24 09:11 AM FredMertz wrote:
> It seems like there are more people complaining about the demise
> of the Marshall Field's on State Street than there were people actually
> shopping there. That store lost money for at least 5 years in a row
> prior to the acquisition by Macy's, whereas the Herald Square store
> in NY is a money machine.
The protesters, whether showing up for rallies or posting to FieldsFansChicago.org, represent thousands upon thousands of former Marshall Field shoppers who were both insulted and shocked when Macy's decided to ditch the goodwill and name of Marshall Field & Company. Here in Michigan, Macy's looks like a ghost town most of the time. Actually, on one of my investigative visits, I felt like I was in the retail equivalent of a morgue. While the rest of the mall was buzzing with business, including JCPenney, Kohl's, and Sears, Macy's was all but deserted except for a few employees who looked like they wondered why they even came to work.
Unfortunately, there are more people who do NOT know about Fields Fans Chicago, our protests, nor our website. However, due to the diligence and persistence of Jim McKay and others who faithfully pass out leaflets in front of the store on State Street in Chicago, more and more people are becoming aware (two years later) and visiting the website, adding their voices to ours. People from Texas, Pennsylvania, California, New York, Michigan, Minnesota, Florida, Ohio, Nevada, Kentucky, and other states write in to the website and voice their support of our cause to bring back Marshall Field's in name, quality and service. These people also represent thousands who do not, and will not, shop at Macy's or Bloomingdale's because of the contempt that Macy's showed not only for the City of Chicago and its iconic regional store, but for the contempt Macy's showed to other communities in the same manner. Others simply gave Macy's a fair try and have come away disgusted and disillusioned after having been promised many things falsely, all under the PR umbrella of "the magic of Macy's."
I, and many others with me, would like to see Macy's do the magic trick of DISAPPEARING. Until then, we will continue to boycott Macy's and Bloomingdale's. Knowing firsthand that Macy's doesn't care about us, why should we care about Macy's? To the return of Marshall Field's and other fine stores, I wish everyone a wonderful holiday and very happy and prosperous new year.