It’s been a long and painful road for department store Macy’s Inc (NYSE:M), but the firm looks like it is finally making its way back on to firm footing. After a bumpy 2017, M stock looks like it might be able to start turning things around this year, as it’s new, leaner organization works to carve out a place in retail.
The death of middle-class malls has been a real thorn in Macy’s side, but the company’s decision to narrow its store footprint, coupled with a few new initiatives, could be enough to revive the beleaguered department store.
#1 Real Estate Gold Mine
There’s no arguing that Macy’s is struggling in what has become a very challenging retail environment. However, one thing the company has going for it is its massive, and very valuable, real estate portfolio. Its asset sales helped the firm raise nearly $1 billion in just 2 years — and that was after selling only a small fraction of the company’s overall real estate holdings.
Although its true that shopping malls have seen traffic fall dramatically in recent years, M has been able to sell off its stores at desirable locations for between $40 million and $50 million. Add that to the firm’s partnership with Brookfield Asset Management, which has been working to develop Macy’s locations to offer office space or residential units, and the company is sitting on some pretty valuable properties.
Not only is Macy’s selling off some of its locations, but the firm is also working to redevelop its current stores in order to generate new revenue sources. The company’s massive Manhattan and Chicago stores are in desirable locations that drive quite a bit of traffic. Selling those locations would put a major dent in the firm’s already lagging store traffic, so, instead, the company is working to re-develop some floors of those stores to bring in new revenue streams.
#2 New Initiatives
All brick-and-mortar retailers have been struggling to drive store traffic now that online shopping has picked up momentum — and Macy’s is no exception. Mall traffic used to be a huge source of shoppers of Macy’s stores, but now that the trend is faltering, M needs to find new ways to get bodies into its stores.
One of the ways Macy’s is hoping to do that is with Backstage, it’s off-price brand. Retailers like TJX Companies Inc. (NYSE:TJX) have been able to thrive despite the retail apocalypse because the firm offers shoppers a “treasure hunt” experience. Macy’s Backstage concept is hoping to achieve a similar shopping experience, but the location of the off-brand stores — inside regular Macy’s stores — is giving shoppers the ability to shop both price points.
Adding to the idea of uncovering new items while shopping, Macy’s has also introduced “The Market @ Macy’s,” a pop-up shop for brands to showcase their products for short periods of time on the company’s ground floor. M execs are hoping that the pop-up shops will give customers a reason to visit stores in person, as the brands on display will not only change every few weeks, but they will be unique to the city the store is based in.
#3 Winning Online
Another reason to keep M stock on your radar is the fact that the firm has been relatively successful in shifting alongside the online shopping revolution. Its digital presence is nothing to sneeze at — Macy’s has had an online presence since 1997 and generates around $5 billion in online sales. At the moment, Macy’s is the No. 6 online retailer in the US.
The firm has successfully created an online presence that is working alongside it’s brick-and-mortar operations, which is an important feat considering the current landscape in retail. A big part of its store closure decisions were based on how online sales would be impacted, so you can expect that its sell-offs will have a minimal impact on overall online sales.
Bottom Line on M Stock
M stock certainly isn’t flawless — Macy’s carries a lot of risk. Operating in the retail industry alone is a red flag these days, but Macy’s is also struggling to come out from under the collapse of shopping malls across America.
That said, the firm’s turnaround efforts have been nothing short of valiant, and it looks like Macy’s stock is ripe for a comeback. With the firm’s fourth quarter results expected to drop at the end of February and many analysts predicting an uptick, it’s worth keeping M stock on your radar.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.