During times of crisis, it’s important to keep hold of your long-term strategies. As the depths of the Great Recession demonstrated, this is an opportunity for the bold to profit. At the same time, there is such a thing as being too bold. Take embattled department store icon Macy’s (NYSE:M) for example. At a different time, I would probably jump on Macy’s stock. Today, the red ink is a reflection of the broader industry’s irrelevance.
Frankly, you can replace Macy’s with any other department store brand. Whether you’re talking about discount specialists like J.C. Penney (NYSE:JCP) or premium retailers like Nordstrom (NYSE:JWN), the narrative is the same. According to a sobering story from the New York Times, very few will survive the coming massacre. Buying Macy’s stock is a gamble that somehow, the underlying company will be among the fortunate survivors.
I don’t like playing such a game because of the many variables involved. As you know, I’d rather focus on the megatrends that will define our societies and economies years down the line. Such a strategy gives you higher probabilities of success, which is really what we’re trying to accomplish.
But even if I wanted to take a shot on Macy’s stock, I would then have to ask another question: What will survival look like?
Let’s remember that department stores were beleaguered long before the novel coronavirus entered the picture. Prior attempts to spark interest for a new generation of consumers failed. It’s unlikely that the industry’s efforts will succeed following the pandemic for these three reasons.
Lingering Shopper Fears Will Hurt Macy’s Stock
Following months of lockdowns, the stay-at-home nightmare is steadily fading. As protesters demanded, states are slowly reopening their economies. But the problem is that the governmental green light hasn’t resulted in a demand surge.
According to a Bloomberg report, many shoppers are still afraid of venturing out. But this sentiment is particularly bad for Macy’s stock. While a little more than half of consumers stated that they feel safe in a grocery store, that figure drops to 37% for department stores and 33% for shopping malls. These are the two lowest-scoring retail categories that First Insight identified in its survey.
Interestingly, more men than women stated that they’ll feel safe in each type of retail outlet. I don’t find this statistic necessarily surprising. But it’s also a headwind among many for Macy’s stock. As a Psychology Today article pointed out, women tend to enjoy shopping more than men.
Honestly, no department store can afford to lose any demographic. But to take a hit on a pivotal one is disastrous.
Macy’s Has Too Many Big Stores
One of the first things any business must do when it’s facing troubling times is to cut unnecessary expenses. Thus, Macy’s has a date with the financial chainsaw. Simply put, the company’s stores are too big and there are too many of them.
To management’s credit, they’ve been hacking the store count over the last few years. Undoubtedly, many more cuts are on the horizon. But at a certain point, you can’t cut anymore before you start to impinge upon the core business model. It’s a rare entity that can cut its way to growth.
But the problem here is that Macy’s business is mostly levered to the physical brick-and-mortar platform. When it did cut in the past, revenue took a sizable hit. Unfortunately, the company’s e-commerce channel and revamped business model failed to mitigate the damage.
What this tells me is that the department store model is antiquated. Further, all the efforts to spark interest, such as adding amusement park rides and movie theaters, represent sectors that many consumers find unsafe or unpalatable.
Therefore, buying Macy’s stock involves belief in a complete transformation. That’s a gamble I’m not willing to take.
Department Stores Are Falling Like Dominoes
By now, you’ve all heard the expression, “we’re in this together.” Ironically, the same sentiment applies to department stores but without the positive implication of a return to normal.
One of the most jarring images of the decline of shopping malls is the loss of anchor stores. Without them, you immediately take a traffic hit as consumers no longer enter through the store where the anchor once was. Additionally, it has a long-term effect as smaller, neighboring stores suffer from the foot traffic drop.
As well, losing an anchor store invites social blight, which makes the entire package unattractive. Thus, other flagship stores could falter as consumers resort to more appealing options.
This dynamic was already moving rapidly prior to the pandemic. As we enter a new normal, this situation will only worsen, making Macy’s stock an untenable proposition.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.