Macy’s Lacks a Competitive Edge but Is Taking Bolder Action to Improve Efficiency and Sales

We believe no-moat Macy’s is struggling to stay relevant as consumers have many choices. The firm recently announced the closure of about 150 of its lower-performing stores over the next three years as part of its “A Bold New Chapter” plan. We think this move is long overdue as department stores have been losing market share to e-commerce and other retailers (outlets, branded stores, specialty stores, discounters) for at least 15 years. Other parts of the new strategy include investments in continuing stores, new smaller-format stores, cost reductions, supply chain investments, and luxury expansion. Even so, due to store closures and a lack of consistent organic growth, we forecast yearly revenue and operating margins will stay well below historical highs for the foreseeable future. Specifically, we estimate long-term operating margins at just over 5% on annual revenue growth below 1%.