Macy's: Needs To Do More

| About: Macy's Inc. (M)
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Summary

Macy's image has long been undercut by following the discount practice in the retail industry, especially with the rise of off-price retailers.

Boosting foot traffic at its stores remains a challenge for Macy's and relying on cosmetics and perfume to attract women shoppers may not be enough.

Investors may have to wait and see if Macy's can come up with a strategy to rebuild a more stylish image to lure more women customers.

It used to be that if you're in New York City for the first time as a tourist, you must go to see Macy's Inc.'s (NYSE:M) flagship store, Macy's Herald Square at West 34th Street and Broadway. Unfortunately, the legendary department-store operator has been losing that powerful image as the retail landscape continues to go through dramatic changes. The class and prestige that the Macy's brand once impressed upon its shoppers' minds are hardly perceived by deal hunters of today's digital age. One after another, retailers have resorted to offering discounts as the go-to strategy to survive the competition. Macy's is right in the mix, subjecting itself to the same business practice but hurting its well-regarded image by doing so.

The sad truth is Macy's can never win the price war with off-price retailers unless the company is willing to destroy whatever is left in its image and become just another retailer on the block. But how do you restore a good old consumer brand, especially in today's digital age? Digital operations are both an opportunity and challenge for traditional retailers. The challenge, however, may be greater than opportunity if you're not someone named Amazon.com Inc. (NASDAQ:AMZN). Macy's online presence, both web-based and mobile-supported, is only a necessity to provide the access for those wishing to shop the company online. Digital operations are a nice complement, but the future of Macy's still resides in its storied physical stores.

For three consecutive years from its fiscal year 2014 to 2016, 61% of Macy's sales were made out of women's merchandises. The focus that Macy's has placed on cosmetics and perfume should help further leverage the interest of its female shoppers. The company's cosmetics selling has shifted from the behind-the-counter, sales-associate-assisted old way to an open-shelf, customer-centric new model. This should inspire and attract more shoppers to visit its stores. Perfume has always been a product that Macy's uses to lure customers. The company is the big delivery system for the perfume industry, particularly European fragrance makers. Regardless, cosmetics and perfume are only two items among the many merchandises Macy's sells to women. The company needs to do more to increase traffic at its stores.

Macy's has three existing strategies for growth: the localization/personalization initiative, the omni-channel sales practice and the Magic Selling program, all well-explained in the company's annual filings. The first two strategies are about better merchandise management and the third strategy refers to in-store customer engagement on the selling floor. None of them aims at directly boosting foot traffic. They may help secure potential sales with existing customers and improve on their shopping experience, At best, the strategies aid in building customer loyalty and hopefully maintaining the same level of sales. The sales numbers seem to be telling an even worse story: the company's revenue has actually declined for two consecutive years in fiscal year 2016 and 2017.

Investors may want to wait and see if Macy's can come up with a new initiative to get more people coming through its doors. The leasing deal with LensCrafters to house the optical chain inside Macy's is designed to bring in more traffic into its stores. But people coming in to get a pair of glasses from LensCrafters may not care about buying anything at Macy's. If someone is lured into Macy's, it has got to be something more closely related to Macy's.

Remember some of the trendy stories about the early days of department stores? Here's a classic example. Back to its popular time in Chicago, Sears Holdings Corp. (NASDAQ:SHLD) was a favored destination for housewives with the means to go to have their afternoon tea and then do a little shopping afterwards. Macy's main customers are also women, and can the company come up with something that is particularly attractive to them today? How about offering women to get their hair or nails done at a salon inside-Macy's? A LensCrafters outlet may not really help turn its customers into Macy's shoppers.

With so many retailers out there, chasing the same customers with equally discounted prices and similar merchandises can never make Macy's stand out. But it would be an enhancement to its business if Macy's could play the image card and bring back a more prestigious public face. When Macy's sells something, it shouldn't be just a piece of article. It ought to evoke a sense of trend, fashion and the Macy's image. But don't mistake Macy's consumer allure for high-end glamor. To push up its sales, Macy's has to rely on a mass-customer base.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.