July 15, 2008
Macy’s CEO Doesn’t Want Team Distracted by Economy
Macy’s chief executive Terry Lundgren had heard enough from the naysayers and so he recently sent a letter to company managers (the document was made public as a result of a filing with the Securities and Exchange Commission) to let them know that, while others may raise doubts about the retailer’s health, there was no reason for employees to be concerned.
Macy’s, he wrote, was paying down debt, had a strong cash flow and $2 billion in bank credit lines to help it over any rough patches it might face.
“Our cash flow remains strong,” Mr. Lundgren emphasized in the letter. “I realize how distracting the economy is. We’ll get through this difficult period. Our company will be poised to win over more customers.”
Macy’s, along with other department stores and clothing retailers, has seen its share price fall along with a string of discouraging economic reports. Many still point to Macy’s having created large numbers of disaffected consumers as a result of its closing of regional chains operated by May Department Stores, particularly Marshall Field’s.
Mr. Lundgren got some backing on Wall Street for his view on Macy’s health.
Charles Grom, an analyst with J.P. Morgan, upgraded Macy’s stock to neutral from underweight in a report to investors. In it, he dismissed concerns about liquidity as being “unwarranted.”
Mr. Grom said, however, that Macy’s had a number of issues to deal with moving forward. “In addition to tough macro conditions, we believe a number of other challenges remain for Macy’s, at least through spring 2009. Macy’s decision to forego both monthly [same-store sales] and quarterly guidance has clearly backfired. Transparency is paramount in today’s market and (we) hope that management reconsiders its decision.”
Discussion Questions: Is Macy’s in a better or worse position than its competitors when it comes to the current economic environment? From a retailing standpoint, what challenges do you believe Macy’s has to face to become stronger? Has the chain’s decision not to regularly release financial data hurt its capitalization and in the process its ability to run its business?
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Macy’s needs to concentrate on their customer IN STORE experience!
This is a REALLY hard thing for Macy’s to do because they are a middle tier department store — the very worst place to be — forced to mark down and end up with low margins to attract back customers who are trading, in hard times, to Target or Walmart.
This is (one reason) why Gimbals is gone and so many other retailers — and let us not even broach the discussion of the loss of the “dependable known trusted comfortable familiar ‘go to’ hometown retailers” that Macy wiped away.
The past decade is rife with executives who reassured their stockholders and employees that all was well even as things were crumbling behind the scenes. Several of those companies are gone completely, their employees laid off, their stockholders poorer, and their executives in legal trouble. (Enron to name just one.)
After those high profile and well publicized examples, Lundgren is foolish to think people will hear his reassurances about Macy’s and say, “Oh, OK, Terry, we feel better now.” For a healthy company in a healthy economy not to release monthly SS sales figures is one thing. For Macy’s, who have lots of disaffected customers, poorly shopped stores, and a falling stock price to fuel further rumors (and raise suspicion) by ceasing its monthly same store sales results was a very poor move.
In some core markets like New York, New Jersey, and a few others, Macy’s MAY be able to sustain itself through the weakening economy better than some of its competitors, but in markets like Chicagoland, Metro Detroit, Twin Cities, etc, it is still losing its profitable customers.
During a rough spot in the economy people seek out “comfort.” To many shoppers, stores like Marshall Field’s, Strawbridge, and Filene’s equaled comfort; Macy’s does not.
Terry’s orders for his team not to be distracted by the economy, could be a huge disaster in the making. He might as well just say, stick your heads in the sand.
Macy’s was fine with reporting SSS when consolidation and closure of (acquired) stores was pumping SSS up.
I’m sorry to disagree with another commentator. In my view, real executive leadership would’ve been to continue reporting in the bad times (just as you did in the good) while letting your store teams know the strategy is right; I’ll deal with Wall Street, you deal with the customers.
The interesting question will be once things turn around (and I believe at some point they will), will we see Macy’s SSS being reported again?
God bless Terry Lundgren. Finally, we see an executive that’s willing to focus on long-term strategy instead of short-term crisis.
I don’t think Macy’s can win the discounting frenzy that will dominate the fourth quarter and come out clean. It needs to focus on its brand, selection and pricing. It needs to focus on a differentiated online experience, which it doesn’t have at this point. And it needs to focus on customer experience. By focusing employees on the customer, Macy’s is executing the best kind of financial positioning.
Didn’t Bear Stern’s executives provide assurance that everything was fine?!
Macey’s is in trouble. At least in Detroit, it’s become a discounter ala Marshall’s. The company seems to have lost the brand equity it had with consumers in its expansion markets. Yes, the economy is bad for everyone but it’s worst for those suffering from an identity crisis.
Macy’s has created a group of disaffected consumers by buying local or regional stores and changing the policies that had created loyal consumers. In addition, economic issues are hitting consumers hard. Many are likely to abandon more expensive department stores like Macy’s in favor of stores like Kohl’s, Target, and Walmart. Macy’s management has been following a strategy of creating a national strategy. This approach ignores local differences and does not lure disaffected consumers to come back. This strategy does not appear to be effective in this market.
Not releasing monthly sales figures may have helped Macy’s management team be less focused on ultra-short term results…quarterly sales and earnings releases are short-term enough. However, in today’s hypersensitive investment climate, where any rumored perception of weakness can turn into a downdraft, this decision may have backfired on Macy’s.
Assuming (as Terry Lundgren says) that the company does have its financial house in order, despite the looming costs of divisional consolidation, Macy’s focus needs to be on content, store experience and marketing. Their first-quarter comp sales were the best of a bad bunch (traditional department stores), and it’s hard to see how Macy’s will gain long-term share until their women’s apparel offerings become more compelling.
Macy’s, of course, has two levels of a problem: one is the short-term concern that it’s (in some way) financially unsound; I don’t know whether this is true or not–I suspect not–but it’s a straightforward question relatively easily answered; the other problem, of course, is the long-term one that its business model might not work. I’m not optimistic on this one (I’m one of the 150% of people who doesn’t think much of the Macy’s-ization of America).
As for the SSS comps, I’d like to suggest a compromise: they should be made available at meetings…but only dispensed through “self service kiosks.”
While Macy’s decision not to release monthly same-store sales figures certainly did not help the company’s stock price, its problems go far deeper (and I won’t even mention that former store in Chicago). Simply put, Macy’s – like Sears – does not know who it is or wants to be. First there was the message of the national Macy’s, the sensation across the nation. Macy’s floods the business press with cost-saving consolidation plans and national brand messages. When customers defect in droves, then there was the local Macy’s, my Macy’s. Again Macy’s floods the business press with reorganization plans and stories about localized merchandise. Then there were the exclusive agreements with FAO Schwartz and Tommy Hilfiger, two somewhat tired brands that are anything but exclusive. Finally, there isn’t even agreement on who Macy’s competes with. JC Penney? Kohl’s? Nordstrom? Target?
I think it is telling that there are only 9 responses to this discussion question so far. It seems that RetailWire readers – like shoppers and Wall Street – simply don’t care about Macy’s any more and THAT is Terry Lundgren’s problem. Public companies that don’t have a clear message, mission, direction and plan will be punished. Add Macy’s to the list of GAP, Sears and Circuit City.
In the past 12 months, Macy’s stock declined 50% while the S&P 500 Index declined 20%. It’s not easy to reassure your investors, suppliers, and employees when your stock declines so much compared to other large American firms. Generally, folks feel better when they get up-to-date, reasonably frequent facts. Keeping the comp sales trends secret might be hurting Terry Lundgren’s and Macy’s credibility.
Compare Macy’s to Progressive. Progressive reports sales and earnings monthly, about 2 weeks after the end of each month. Given today’s computer systems, all national publicly-held retailers should be able to match Progressive’s monthly schedule. Not just comp sales. Earnings too. It’s been a horrible stock market for insurers, yet Progressive declined only 12% in the past year, 8 percentage points better than the S&P 500 Index.
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Macy’s needs to concentrate on their customer IN STORE experience!
This is a REALLY hard thing for Macy’s to do because they are a middle tier department store — the very worst place to be — forced to mark down and end up with low margins to attract back customers who are trading, in hard times, to Target or Walmart.
This is (one reason) why Gimbals is gone and so many other retailers — and let us not even broach the discussion of the loss of the “dependable known trusted comfortable familiar ‘go to’ hometown retailers” that Macy wiped away.
The past decade is rife with executives who reassured their stockholders and employees that all was well even as things were crumbling behind the scenes. Several of those companies are gone completely, their employees laid off, their stockholders poorer, and their executives in legal trouble. (Enron to name just one.)
After those high profile and well publicized examples, Lundgren is foolish to think people will hear his reassurances about Macy’s and say, “Oh, OK, Terry, we feel better now.” For a healthy company in a healthy economy not to release monthly SS sales figures is one thing. For Macy’s, who have lots of disaffected customers, poorly shopped stores, and a falling stock price to fuel further rumors (and raise suspicion) by ceasing its monthly same store sales results was a very poor move.
In some core markets like New York, New Jersey, and a few others, Macy’s MAY be able to sustain itself through the weakening economy better than some of its competitors, but in markets like Chicagoland, Metro Detroit, Twin Cities, etc, it is still losing its profitable customers.
During a rough spot in the economy people seek out “comfort.” To many shoppers, stores like Marshall Field’s, Strawbridge, and Filene’s equaled comfort; Macy’s does not.
Terry’s orders for his team not to be distracted by the economy, could be a huge disaster in the making. He might as well just say, stick your heads in the sand.
Macy’s was fine with reporting SSS when consolidation and closure of (acquired) stores was pumping SSS up.
I’m sorry to disagree with another commentator. In my view, real executive leadership would’ve been to continue reporting in the bad times (just as you did in the good) while letting your store teams know the strategy is right; I’ll deal with Wall Street, you deal with the customers.
The interesting question will be once things turn around (and I believe at some point they will), will we see Macy’s SSS being reported again?
God bless Terry Lundgren. Finally, we see an executive that’s willing to focus on long-term strategy instead of short-term crisis.
I don’t think Macy’s can win the discounting frenzy that will dominate the fourth quarter and come out clean. It needs to focus on its brand, selection and pricing. It needs to focus on a differentiated online experience, which it doesn’t have at this point. And it needs to focus on customer experience. By focusing employees on the customer, Macy’s is executing the best kind of financial positioning.
Didn’t Bear Stern’s executives provide assurance that everything was fine?!
Macey’s is in trouble. At least in Detroit, it’s become a discounter ala Marshall’s. The company seems to have lost the brand equity it had with consumers in its expansion markets. Yes, the economy is bad for everyone but it’s worst for those suffering from an identity crisis.
Macy’s has created a group of disaffected consumers by buying local or regional stores and changing the policies that had created loyal consumers. In addition, economic issues are hitting consumers hard. Many are likely to abandon more expensive department stores like Macy’s in favor of stores like Kohl’s, Target, and Walmart. Macy’s management has been following a strategy of creating a national strategy. This approach ignores local differences and does not lure disaffected consumers to come back. This strategy does not appear to be effective in this market.
Not releasing monthly sales figures may have helped Macy’s management team be less focused on ultra-short term results…quarterly sales and earnings releases are short-term enough. However, in today’s hypersensitive investment climate, where any rumored perception of weakness can turn into a downdraft, this decision may have backfired on Macy’s.
Assuming (as Terry Lundgren says) that the company does have its financial house in order, despite the looming costs of divisional consolidation, Macy’s focus needs to be on content, store experience and marketing. Their first-quarter comp sales were the best of a bad bunch (traditional department stores), and it’s hard to see how Macy’s will gain long-term share until their women’s apparel offerings become more compelling.
Macy’s, of course, has two levels of a problem: one is the short-term concern that it’s (in some way) financially unsound; I don’t know whether this is true or not–I suspect not–but it’s a straightforward question relatively easily answered; the other problem, of course, is the long-term one that its business model might not work. I’m not optimistic on this one (I’m one of the 150% of people who doesn’t think much of the Macy’s-ization of America).
As for the SSS comps, I’d like to suggest a compromise: they should be made available at meetings…but only dispensed through “self service kiosks.”
While Macy’s decision not to release monthly same-store sales figures certainly did not help the company’s stock price, its problems go far deeper (and I won’t even mention that former store in Chicago). Simply put, Macy’s – like Sears – does not know who it is or wants to be. First there was the message of the national Macy’s, the sensation across the nation. Macy’s floods the business press with cost-saving consolidation plans and national brand messages. When customers defect in droves, then there was the local Macy’s, my Macy’s. Again Macy’s floods the business press with reorganization plans and stories about localized merchandise. Then there were the exclusive agreements with FAO Schwartz and Tommy Hilfiger, two somewhat tired brands that are anything but exclusive. Finally, there isn’t even agreement on who Macy’s competes with. JC Penney? Kohl’s? Nordstrom? Target?
I think it is telling that there are only 9 responses to this discussion question so far. It seems that RetailWire readers – like shoppers and Wall Street – simply don’t care about Macy’s any more and THAT is Terry Lundgren’s problem. Public companies that don’t have a clear message, mission, direction and plan will be punished. Add Macy’s to the list of GAP, Sears and Circuit City.
In the past 12 months, Macy’s stock declined 50% while the S&P 500 Index declined 20%. It’s not easy to reassure your investors, suppliers, and employees when your stock declines so much compared to other large American firms. Generally, folks feel better when they get up-to-date, reasonably frequent facts. Keeping the comp sales trends secret might be hurting Terry Lundgren’s and Macy’s credibility.
Compare Macy’s to Progressive. Progressive reports sales and earnings monthly, about 2 weeks after the end of each month. Given today’s computer systems, all national publicly-held retailers should be able to match Progressive’s monthly schedule. Not just comp sales. Earnings too. It’s been a horrible stock market for insurers, yet Progressive declined only 12% in the past year, 8 percentage points better than the S&P 500 Index.