Don't call it a comeback.
But back when JC Penney was melting down under the failed leadership of former Apple superstar Ron Johnson, no one would have believed that, just three years later, the struggling retailer would herald the start of holiday season by announcing a 6.4 percent quarterly increase in sales at established stores. Even more unbelievable would be the thought of Macy's CEO Terry Lundgren on the same day bemoaning a 3.9 percent quarterly sales decline at established stores and promising to "right this ship."
Still, that's exactly what happened on Wednesday after Macy's kicked off the retail sector's third-quarter earnings reporting season. Macy's shares plunged by nearly 15 percent at one point, hurt by the sales decline and a trimmed profit outlook.
Things are looking bleak indeed for Macy's: It took 175 days to sell through its inventory in the quarter, the most in 10 years. Macy's is selling off prized real estate and buying back billions of dollars in shares to juice EPS -- a losing proposition as the stock price keeps falling.
Macy's blamed sluggish sales on temperate fall weather ("It's too warm outside, people aren't buying coats!") and fewer international tourists ("The dollar is too high!").
Macy's might count more foreigners among its shoppers compared with other store chains. But it's also struggling to differentiate its offerings from rivals like JC Penney. The latter, under new leadership, has revived sales by restoring its promotions, bringing in better private brands and offering more beauty products through a partnership with Sephora.
Also mounting a challenge is Kohl's, which under new chief merchandising officer Michelle Gass is offering more high-margin beauty products and loyalty programs that lure more shoppers.
Both JC Penney and Kohl's are also catching up to Macy's operationally, giving customers a better online shopping experience and the ability to buy things online and pick them up in-store.
Macy's had pulled ahead of its competitors in these areas following the recession. JC Penney was grappling with a failed strategy of axing promotions. Kohl's was suffering the consequences of pursuing a store-expansion plan even as shoppers pulled back spending. For years after the 2008 recession, both left the door open for Macy's to grab its customers while they struggled to keep up with retail basics, like stocking the right items at the right prices.
That's not the case anymore. JC Penney and Kohl's have posted positive sales growth at their existing base of stores for the past few quarters, and analysts expect the growth to continue into the all-important holiday season.
It's worth pointing out that Penney's net income is still negative, and its $12 billion in revenue last year is a shadow of the $20 billion in revenue in 2006.
But catching a falling knife is no easy feat. Penney's executives have figured out how to push sales in the right direction, even as it closes locations, revamps stores, and balances a precarious cash position.
So while Macy's tries to "right this ship" during its worst performance since the last recession, it faces much tougher competition this time around.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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