What's Next for Macy's

Written by Eashan Trehan

Macy’s is a departmental store chain boasting more than 500 stores in the United States and employing over a 100,000 people. The company is an iconic figure in American culture and is known for conducting an annual Thanksgiving Day Parade in New York. However, in recent years the company and the offline retail industry in general has been hit hard by a shift in consumer trends in favour of e-commerce. This disruption has resulted in hundreds of store closures and several job cuts over the past years for the storied retailer. So the question that arises is - what is the company’s management doing to turnaround the departmental store chain’s fortunes?

The company leadership is betting on a “last man standing strategy,” trying to take advantage of the demise of other brick and mortar players such as Lord & Taylor to capture market share from them, as the industry consolidates. In addition to this, the company has also shifted away from malls as part of their offline retail strategy, after several years of acting as an “anchor tenant” for American malls. Recently, the company raised US$4.5 Billion worth of financing, partly in the form of Senior Secured Notes, yielding a high interest rate of 8.375% at a time when falling interest rates have sent investors into a frenzy over searching for higher yields, while the remaining majority of the US$4.5 billion raised is asset-backed. From the lender’s perspective, this appears to be a sweet deal, given not only the high interest rate which comes at a time when rates are at a historical low point, but also the fact that in case Macy’s shutters its doors and undergoes a liquidation event, the real estate owned by the company should suffice to pare back any losses that the lender might potentially suffer from if things do go awry. From Macy’s perspective, the funds will be used to stock up more inventory, as the all important US holiday season comes closer.

But the follow up question that arises is whether this is good enough? In the author’s perspective, the management’s unrelenting attitude and unshakeable belief in the value of huge departmental store chains is misguided. A cursory look at the retail industry will show that players from diverse sub-segments of the industry, such as Walmart, CostCo, Nike, Target etc. have embraced digital sales as not only a survival but also a growth strategy. Although Macy’s has witnessed a considerable spike in its online sales during the pandemic, this has not been enough to offset the losses from the company’s physical storefronts. In the face of growing e-commerce sales and a declining brick and mortar industry, Macy’s strategic plays appear insufficient and out-of-touch with the new reality.

Click below for Further Reading! Macy's raises $4.5 billion to shore up funds as stores reopen, shares surge

After decades of anchoring malls, Macy’s wants out

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