Retail has always been a hard nut to crack. But these days, the continued shift in consumer tastes, preferences for omnichannel, mobile shopping and “click & collect” has really turned the sector on its head. The chief causalities? Department stores.
Perhaps none have been hit harder than Macy’s (NYSE:M). Macy’s stock has crated about 80% over the last five years as the department store continues to fight an uphill battle versus discount retailers and online giants like Amazon (NASDAQ:AMZN).
Macy’s latest numbers underscore just how difficult the fight has been. But there may be some hope on the horizon for long suffering Macy’s stock investors.
A new way to shop could bring some glory back to the brand and give consumers a reason to shop at the flagship department store once again.
A New Store Concept
One of the problems with traditional department stores is that there’s almost no reason to shop at them anymore. A long time ago, Sears, Macy’s and J.C. Penny’s (NYSE:JCP) were the Amazon’s and Walmart’s (NYSE:WMT) of the day offering a broad basket of clothing, home goods and other merchandise. That mix is still there, it’s just the convenience of Amazon and low prices of Walmart have pretty much eliminated the need for going to the mall, wandering around a Macy’s, and buying a diverse basket of goods.
And you can see that trend in Macy’s latest results. Back in January, the firm reported year-over-year comp sales for November and December were lower by 0.7%. That’s a big red flag when retail had one of its best holiday seasons in decades and saw sales jump 3.4% during the period.
To wit, Macy’s is once again back to closing stores, cutting costs, and removing jobs in an effort to save face. One-fifth of its current locations in weaker regional malls can’t compete with online shopping rivals. But as Macy’s is closing stores, they’re opening a new concept that could actually give consumers a reason to consider shopping at the retailer once again.
Taking some elements from now-defunct Story brand of locations, Macy’s has unveiled a new state-of-the-art store in Texas dubbed “Market by Macy’s.” Located in a more affluent Dallas suburb and clocking in at just 20,000 sq. ft. — about an eighth of the size of a traditional Macy’s store — Market is more of a boutique-style location.
Featuring a more locally curated collection of merchandise, the store is not set up like a halogen-lighted department store. Moreover, it features a beauty shop, a café and bar and community-oriented events. The Dallas store even features murals painted by local artists.
It’s a complete departure from Macy’s mall-anchored locations. And it’s a good thing.
A Focus on Lifestyle Centers, Repeat Customers
The key for Market by Macy’s is the lifestyle and repeat consumer aspect of the locations. It’s no secret that malls are dying. However, so-called lifestyle centers — often in upper middle class or better demographics — are thriving. These shopping plazas are reimagined versions of the old-fashioned strip mall with curated themes, restaurants, gyms, stores and other entertainment options.
The focus isn’t just on shopping, it’s a about spending time at the location. You can visit the salon, get some lunch, and have the kids play at a LEGOLAND Discovery center. You make a day of it. The various services and retailers in these lifestyle centers are able to play off each other and thrive.
And it’s working. According to a survey by the International Council of Shopping Centers (ICSC), people do visit more stores and spend more on average at a lifestyle center than they do at a mall. Looking at five lifestyle centers to five malls in similar areas and demographic locations, the ICSC found that consumers visited an average of 2.9 stores and spent $75.70 per visit in the lifestyle centers. This compares to just two stores and a spend of only $73.30 when it comes to malls. The best part is the survey doesn’t include food or services spend, which lifestyle centers also beat regular malls on.
All of this is what Macy’s is hoping to tap into. Thanks to every evolving mix of merchandise, food and local products, the hope is that people add Macy’s to their lifestyle shopping habits. There’s a good chance they will. The Market concept has a very similar feel to old school Macy’s when shopping at a department store was a destination and full day event for consumers.
By doing this, Macy’s should be able to tap into changing shopping trends. When you add in store closures in class B, C and D malls, you get a real revitalized picture for retailers. Especially considering that its these under-performing locations that really hurting Macy’s bottom line. Flagship and so-called growth locations are doing well, as is its off-price stores and Bluemercury salon locations. By shifting its under-performing retail footprint to an over-performing segment, Macy’s should be able to get its growth back on track.
Still Early Innings For Macy’s Stock
The Market by Macy’s concept has a lot of potential. But right now it still is only one store in one neighborhood in Texas. It really is too early to tell that the concept is a success. However, it is a step in the right direction for the struggling firm. It gets Macy’s out of the dying mall business and into locations that are thriving. As the concept takes form, we really could see a new era at the department store. The question is whether or not Macy’s stock is a buy on this front.
With a P/E of 7, the stock certainly is cheap and there’s some margin of safety there. That just might be worth a gamble on the new concept. Truth be told, if the concept doesn’t work, Macy’s will probably die anyway as online rivals keep eating its lunch. As a speculative play, M stock is quite interesting given the recent moves and changes.
All in all, time will tell if Market by Macy’s is a hit. I suspect it will be. If Macy’s plays it right, keeps it coastal and in affluent areas where its brand still has plenty of cache, we could see the firm regain its mojo and bounce back. This makes shares an interesting buy at these levels.
At the time of writing, Aaron Levitt held a long position in AMZN.
