Macy's looks to luxury for growth

Macy's (NYSE:M) reported lackluster sales and earnings for its first quarter of 2015, and while the retailer had much to blame for the poor performance, it also has a plan for the future.

Sales for the 13-week period that ended on May 2 fell 0.7 percent from last year to $6.2 billion.

"We fell short because of a confluence of factors," said Terry Lundgren, Macy's chairman and CEO. "Delayed merchandise shipments from the West Coast port slowdown and severe winter weather early in the quarter restrained business levels." Lundgren also attributed the decline to slower tourist traffic at flagship Macy's and Bloomingdales stores in New York City, Chicago, Las Vegas and San Francisco.

However, some of the damage was self-inflicted. "The omnichannel reorganization in our merchandising, planning and marketing organizations announced in January and February also caused some temporary disruption as executives in those areas learned new roles and procedures," Lundgren said. "Fortunately, most of these short-term issues are largely behind us."
Macy's CFO Karen Hoguet even blamed Netflix for slow sales at a recent conference, noting that electronics and online subscriptions are taking market share from apparel.

Macy's was hardly alone: Kohl's and JCPenney also reported weak sales. But unlike those mid-tier retailers, Macy's still has room to appeal to customers with higher incomes.

"Looking ahead, we have many reasons to be encouraged about the growth prospects for our business," Lundgren said. "We are excited by the range of new initiatives being put in place today—both organic and through our new business development organization. Within our existing business, this includes an intensification of focus in our top 150 stores, major growth trends in active categories and accelerating success in dresses, the vanguard merchandise category in our omnichannel reorganization."

Last week Macy's launched Plenti, a new loyalty rewards program, and early results far exceeded expectations, Lundgren said. And while the chain has announced plans to pursue the discount shopper with a new off-price format called Macy's Backstage, the company has also set its sights on the luxury shopper with a quick augmentation of its newly acquired Blue Mercury beauty brand.

The retailer also plans to add more upscale merchandise to the company's top 150 stores as it looks to elevate the assortment in those locations, consistent with the customer base, Hoguet said on a conference call with analysts.

"If you think about it, the top malls in the country are doing extraordinarily well, as are we, but we think we can actually push that growth farther," she said.

Macy's has invested heavily in digital initiatives but still struggles to reach younger shoppers. However, Macy's is still targeting younger consumers through social media marketing as well as partnerships with celebrities such as Thalia Sodi, whose private collection of ready-to-wear, shoes and accessories has been found to appeal to younger shoppers and Hispanics.

Adding a more upscale assortment to stores with a higher-income demographic implicitly shows that Macy's and Bloomingdales acknowledge the need to cater better to an older and more monied set of shoppers.

For more:
-See this Wall Street Journal story
-See Macy's earnings release
-See this New York Times story

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