Macy’s Lacks a Competitive Edge, but Its Strategy Could Bring Profitable Growth

We believe 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 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. The firm is also building out a media network to monetize its e-commerce traffic. Even so, due to store closures and a lack of consistent organic growth, we forecast Macy’s revenue and operating margin will stay well below historical highs for the foreseeable future. We estimate its long-term operating margin at 5%-5.5% on annual revenue growth below 1%.