Macy’s among end-of-year losers as retail’s rising tide fails to float all boats
Macy’s and other mall-based retailers said sales petered out at the end of the year as they continued to lose customers to discounters and e-commerce, highlighting how not all chains are positioned to benefit from a strong US economy.
The year-end results — and a weak profit outlook from Macy’s — clouded what have been upbeat expectations for the holiday sales season with consumers showing a hearty willingness to spend.
The news on Thursday spooked investors, who sent shares of Macy’s down nearly 18 per cent, the department store’s worst oneday decline on record. Rival Kohl’s and mall stalwart L Brands, the owner of Victoria’s Secret, also posted tepid holiday sales, triggering a sell-off in retail stocks.
“The holiday season began strong — particularly during Black Friday and the following Cyber Week, but weakened in the mid-December period,” Macy’s chief executive Jeff Gennette said.
The negative sentiment weighed on shares of discounters like Target and Costco — and yet they have posted strong holiday sales. Those chains, which are less dependent on apparel, and Amazon have been taking market share from department stores. Target cited strong demand for toys and baby products along with seasonal gifts.
“The rising tide of retail sales hasn’t floated all boats,” Neil Saunders, managing director of research firm GlobalData, said. “We are seeing a polarisation between winners and losers.”
Macy’s said total comparable sales rose 1.1 per cent during November and December. The chain lowered its sales and profit forecasts for the fiscal full year, which ends in February.
The retailer has been investing in a group of stores it calls magnets, adding new lighting, fixtures, a better assortment of merchandise and technology, while trying to shrink less-promising locations. But the changes weren’t enough to accelerate growth through what was expected to be one of the most successful holiday seasons in years.
“It’s almost as if Macy’s is two companies,” Mr Saunders said, noting that the magnet stores had been doing well while the rest of the chain had struggled. “The other stores are dispiriting and crammed with stock,” he said. “That is the issue that Macy’s has got to get to grips with.”
Kohl’s comparable sales rose 1.2 per cent in November and December, but its growth was slower than in the year-earlier period. The company also said it would close two stores and offer a voluntary retirement program for workers over 55. The company sells merchandise similar to Macy’s, though its stores typically aren’t located in enclosed malls.
“The traditional department stores’ days are numbered unless they change radically,” Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm, said. Many department stores were tied to a format established in the mid-1800s, but consumers wanted value, entertainment or services when heading to stores, he said. “If you can’t succeed in an environment like this, a strong economy, it’s a problem.”
Target’s sales, including instore and online, rose 5.7 per cent between November 4 and January 5. The result compares with 3.4 per cent growth in the year-earlier period and puts Target on track for its biggest annual sales gain in 13 years, the company said. Costco reported this week that its sales climbed 7 per cent, excluding fuel and currency fluctuations, in the five weeks ended January 6. Both retailers said strong store traffic drove growth over the holidays.
Target and Costco, as well as larger rival Walmart, have reported strong sales in recent quarters as they have benefited from low unemployment and US wage gains.
Their success suggests the retailers that worked to attract more shoppers online or invested in store operations were able to harness robust consumer spending over the holidays, even as a stockmarket swoon and a government shutdown led some investors to worry about an economic slowdown.
Macy’s lowered its sales forecasts for the fiscal year