After a few years of strong growth, Macy’s announced a significant slump in third quarter earnings. For more than 10 years, Macy’s Terry Lundgren has defended the company’s way of life, however, it may be time for a change.
On Wednesday, Macy’s announced a decline in sales of 5.2 percent. The decline is worse than most analysts feared the company would see. Despite there best efforts, it seems Macy’s is going through a tough period.
Macy’s has conquered other retailers, tested new selling formats and even tried to put more discounts into play. However, it seems these tactics have not benefited the company enough. The company has seen years of growth, but it is now in a downward spiral heading towards the ever-important holiday season.
The company is heading into one of the largest seasons for retailers with piles of unsold goods and they are predicting sales will decline this fiscal year. Previous analyst guidance said that sales would likely not change, but many of the company’s officials fear the worst.
Wednesday afternoon, shares of Macy’s dropped 14 percent, dropping the company’s shares nearly 40 percent for the entire year.
Lundgren attributes the downward spiral to people being money conscious after the recession. “The retail industry is going through a tough period,” he said. “I’m certain we will come up with some creative ideas that will surprise people.”
With the stock prices for the company at its lowest in years, many stockholders are wondering what Lundgren could have up his sleeve to bring the company back.
The company’s boss also went on to say that consumer spending seems healthy, but many are not buying things that department stores carry. Most people are buying larger purchases like cars, electronics and home improvement items.
Because many people aren’t going into department stores for what they need, some researchers are wondering why Macy’s hasn’t changed their sales plan yet. “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.” Johnson added that the change Macy’s needs will not occur overnight.
Real Estate Investment Trust
Macy’s, much like McDonald’s, announced that it would not be placing any of its real estate into an REIT, even though making such a move could raise share prices to $125. The company said this is because it did not want to be burdened by extra debt or any expensive lease payments.
Macy’s Board Members
Macy’s board members are not backing away. In fact, they are rallying around Lundgren and many believe that the company just needs time for his plans to implement themselves. One person close to the situation said, “It’s a tough time. It’s a reboot time,” and that is exactly has the board members are treating it.
“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 and other retail chains. “What Terry is doing, unlike a lot of people, is trying different things as the market changes.”
The New Business
Macy’s new business, Macy’s Backstage, is Lundgren’s attempt at changing the company to better suit its customers. The new business is supposed to compete with retail stores like T.J. Maxx and Marshalls and other off-price retail chains. The company hopes that Macy’s Backstage will not only bring additional revenue to Macy’s, but it will also address the overflow of excess goods on the floors in the department stores.
Many believe this move is late in the game. Many retailers have embraced the idea of an outlet store, Nordstrom Rack, 90 Saks Off 5th and Neiman Marcus Last Call, just to name a few. The first five Backstage stores opened this fall and the company plans to roll out another 50 over the next two years. Hopefully, it will be enough to end the department store’s spiral.