Macy’s ( M 1.06% ) might not look like a company ready to go on the offensive. After all, the department store giant reported an adjusted net loss of $630 million for the first quarter.
However, as devastating as the COVID-19 pandemic has been to Macy’s profitability and balance sheet, many of its major competitors are even worse off. This created a golden opportunity for Macy’s to turn its short-term troubles into long-term market share gains. But to do that, the company must remain aggressive in identifying and winning over struggling department store chain customers.
A $10 billion opportunity
Last May, Macy’s CEO Jeff Gennette estimated that there could be $10 billion in annual sales to be gained in the future, due to weaker retailers shrinking or closing. Macy’s already has experience winning over customers from defunct chains, having reclaimed market share from Bon-Ton Stores, which was liquidated in 2018.
Just in the department store sector, COVID-19 has triggered a long-awaited upheaval. In May, the luxury chain Neiman Marcus filed for bankruptcy, as did the retail giant JC Penney.
Neiman Marcus is only closing four full-line stores, but it is closing nearly all of its off-price outlets. Macy’s can capture business from both sides of the Neiman Marcus operation through its luxury stores Bloomingdale’s and complementary chain Bloomingdale’s Outlet. Meanwhile, JC Penney plans to close over 200 stores (possibly many more). And while JCPenney stores generally target a lower-income demographic than Macy’s, there is an overlap in their customer bases, creating a market share opportunity. Macy’s growing off-price Backstage channel could be particularly helpful in attracting thrifty JCPenney shoppers.
Macy’s also has the ability to capitalize on some bankruptcies outside of the department store space. Especially, Tailor-made brands – owner of Men’s Wearhouse and Jos. A Bank – filed for bankruptcy earlier this week and plans to close around a third of its nearly 1,500 stores. Tailored men’s clothing is a key area of strength for Macy’s, and one where it could gain significant market share when people start needing dress clothes again.
Bankruptcy of another key department store
Lord & Taylor and its parent company Le Tote also filed for bankruptcy last Sunday. The moderately upscale chain has already announced its firm intention to close half of its remaining 38 stores. It’s entirely possible that the restructuring will eventually turn into an outright liquidation, given that Lord & Taylor has been unprofitable for years.
Macy’s may be uniquely positioned to win contracts with former Lord & Taylor loyalists. Both chains are strongest in the Northeast, and Macy’s operates locations near virtually all Lord & Taylor stores that are closing. As recently as 2018, Lord & Taylor had annual sales of $1 billion, so the sales growth opportunity for Macy’s could be significant.
Pedal to the metal
With sales under pressure due to the impact of the pandemic, Macy’s is implementing significant cost reductions this year, as it should. However, it would be a mistake to lose sight of the long-term goal of returning to growth. Macy’s should make targeted marketing investments — especially heading into the holiday season — to identify and attract consumers looking for a new favorite department store.
Macy’s is well positioned to gain market share from weaker rivals in the current environment. After all, it has the largest e-commerce business of any department store, with around a quarter of total 2019 revenue coming from digital sales. New offerings like curbside pickup are adding to Macy’s e-commerce momentum. During a presentation in early June, management noted that digital sales jumped 80% in May. Macy’s also recently started allowing influencers to create their own e-commerce storefronts with shoppable photos and videos. Program participants will receive commissions for sales made through their pages.
So far, it looks like Macy’s is taking steps in the right direction to acquire new customers during the pandemic. However, until most people feel comfortable going to stores again, Macy’s sales will likely remain depressed. This means that investors will have to be patient; we may not know for two or three years whether Macy’s has been able to seize this unique opportunity to gain market share.
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