Macy's Profit Jumps 20 Percent, And It Won't Slow Spending On Omnichannel

Macy's (NYSE:M) said on Wednesday (May 15) that it kicked its profits up by 20 percent for the first quarter, which ended May 4. That bodes well for other chains struggling to get sales traction with consumers. But Macy's numbers got some help from JCPenney's (NYSE:JCP) now-abandoned no-sales strategy.

The second-largest U.S. department-store chain said its profits rose to $217 million from $181 million a year ago. Sales were up 4 percent to $6.39 billion. Analysts said sales would have been even better if not for the cool weather that lingered into April. Macy's was also a prime beneficiary of the decline of JCPenney, which tried to get rid of sales and coupons under CEO Ron Johnson, but instead mainly shed customers. Johnson was replaced on April 8 by Mike Ullman, who has restored the chain's promotional pricing.

It's worth digging a little more deeply into the parts of Macy's strategy that aren't Penney-foolishness. Some of the improved results are driven by omnichannel, especially fulfilling online orders from stores, according to Macy's CFO Karen Hoguet. The chain is also beginning to invest more in in-store technology for omnichannel, and won't be reducing its relatively heavy omnichannel investments, Hoguet told analysts on an earnings call Wednesday. That comes to "$925 million to $1 billion for the next couple of years," she said.

Another effective tactic is fine-tuning assortments at the local store level—"whether it be inseams of pants, colors, size offerings, and even some brands and products," Hoguet said. In addition, "sometimes the customers change. If we look at the number of stores that are Latino-influenced, it's growing significantly since we started four years ago. So we also have to be nimble."

Hoguet credited some of the ability to make the omnichannel investment to the fact that the effort started when the chain had just eliminated its regional divisions, so it could tap into both the cash saved and the employees who could be repurposed in the new organizational structure. That's not something other chains could afford to duplicate, she said.

But a much more important element of Macy's omnichannel buildout may be one of style. Macy's built its ship-from-store capability inexpensively. The chain took its time, built slowly, experimented cheaply, learned from its mistakes and didn't lock itself into a rigid plan. That early experience meant the chain's later omnichannel investments were much less risky.

The comparison with JCPenney's big-bang approach to revamping its business seems inevitable. That really was an investment that no one else in retail could afford to do. In fact, neither could JCPenney.

For more:

- See this Dow Jones story
- See this AP story

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