No-Moat Macy’s Has Made Progress Under Its Polaris Plan, but Lacks Growth or a Competitive Edge

We believe no-moat Macy’s is struggling to stay relevant, as consumers have many choices. While its revenue has recovered from the virus-related 29% drop in 2020, we think its large fleet of more than 500 full-line stores limits its options. While Macy’s operates stores in most top-tier U.S. malls, it also operates scores of stores in weaker malls, some of which are probably not viable in the long run. Macy’s does not need its vast selling space, as department stores have been losing market share to e-commerce and other retailers (outlets, branded stores, specialty stores, discounters) for years, and we think the virus may cause this trend to accelerate. As evidence of its struggles, wide-moat Nike has reportedly dropped Macy’s as a wholesale customer. Although it spiked to 9% in 2021, we forecast Macy’s operating margin (excluding real estate gains and charges) will average just 6% over the next decade. Further, due to store closures and a lack of consistent organic growth, we forecast the firm’s revenue will rise at a compound rate of less than 1% over this period.