Things looked a little better for Macy's Inc. in its latest quarter -- but only because the bar for the beleaguered department-store chain had been set so low.
The company reported on Thursday that comparable sales, a figure that includes online sales and same-store sales, fell 2.8 percent year-over-year. That's not quite as big a drop as analysts had expected, but it still makes for the tenth consecutive quarterly decline on this measure.
Stuck in a Rut
Macy's has been struggling for more than two years to achieve comparable sales growth
Source: Bloomberg, Company Filings
No matter what, such a pattern would be discouraging. But it is especially alarming when you consider how aggressively Macy's has been fighting for its life as consumers shift to digital shopping. Macy's has already pulled a lot of the levers that might give it fresh momentum. It simply doesn't have many left to pull.
Of all the major department stores, Macy's, I'd argue, has the firmest grasp of just how existential the digital threat is.
Terry Lundgren, the longtime Macy's CEO who recently retired, spoke candidly of the industry being "overstored" long before many other retail leaders did. Jeff Gennette, the current CEO, sounds the same notes on this topic. Gennette told investors back in May that a question guiding Macy's most recent round of store closures was, "If we were building the Macy's brand from the ground up, what [market areas], what major cities would we be in?"
No Sacred Cows
Macy's has been more proactive about closing stores than some of its competitors
Source: Company Filings
*Macy's data is for Macy's only, not Bloomingdale's.
While Kohl's Inc., for example, has convinced itself its portfolio of more than 1,000 stores doesn't need much pruning, Macy's gets it: Most legacy retailers will need fewer locations as more shopping moves online.
Macy's has also been creative in freeing up cash. In 2016, it appointed Doug Sesler to a newly created senior leadership role designed to explore ways to get value out of its real estate portfolio. The company says it got $877 million from selling such assets in 2015 and 2016. Those results offer hints about why an activist investor is now encouraging Dillard's Inc. to do something similar.
Through store closures and efforts to strip out layers of management, Macy's is axing about 10,000 jobs this year. That suggests the retailer knows modest, incremental steps aren't enough in a moment calling for decisive, sweeping change.
Along with these demonstrably helpful steps, Macy's has taken some other bold tacks for which the outcome is still uncertain.
Macy's acquired Bluemercury in 2015 for about $210 million, adding a brand that is especially well-positioned for the current retail environment. The beauty category is generally one of the few bright spots in retail, and Bluemercury's spa services are a good fit for consumers choosing to spend more often on experiences.
At the time the acquisition was announced, Bluemercury had about 60 locations; Macy's has roughly doubled the fleet since then. But in the past two years, Ulta Beauty Inc. has moved even faster, opening about 200 stores.
Macy's has also added Bluemercury shop-in-shops to 20 of its department stores, but it is getting outflanked there, too. JC Penney Co. Inc. has rapidly expanded its Sephora shop-in-shops, with at least 588 open and more on the way.
Bluemercury is a great brand, but Macy's may be moving too slowly to maximize its potential.
Then there's the Macy's off-price concept, known as Backstage. Macy's continues to say its tests of this idea are "successful," and it may have made the right call by not trying to open many standalone Backstage stores, because the off-price business is rapidly getting crowded.
Some of the biggest names in off-price retail have big and steadily growing store fleets, potentially making it difficult for a new concept from Macy's to get traction
Source: Bloomberg, Company Filings
But if Backstage is largely just an area within existing Macy's stores, it is hard to see how it does much to attract new customers. And it is hard to see how it is meaningfully distinctive from Last Act, the name for Macy's new clearance areas.
Add all of these efforts up, and one thing is clear: Macy's has already taken an abundance of steps to improve its business, and it hasn't been enough. So even though Thursday's results showed some improvement, it's still hard to see how Macy's turns itself around.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.