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Let’s face it. The retail business in the United States has turned into a sale extravaganza. Consumers don’t want to buy anything unless they think they are getting a bargain. Retailers like Macy’s have been trying to keep market share up by offering sale merchandise 365 days a year, but the sales they offer aren’t really sales. Retailers have gotten into the bad habit of putting original price tickets on merchandise that isn’t realistic, so the sale price is more like what the original price should have been in the first place. Macy’s is one of the worst offenders when it comes to assigning original prices that don’t make sense, and they are beginning to pay the price for their retail errors. Competing with Amazon and other online merchants isn’t easy, but Macy’s knows how to play the game. They just didn’t make the right moves.
The recent announcement that one of the original New York City merchants was going to close at least 100 of their under performing stores didn’t surprise anyone in the retail business. Macy’s and Dillard’s are dinosaurs. And they are facing extinction. The massive brick and mortar stores are too expensive to build and too expensive to operate. The old business model of “build it, and they will come” doesn’t work anymore. But Macy’s isn’t on its deathbed yet.
Macy’s has 728 stores right now, and that number includes 675 full-price locations. They closed 90 stores over the past six years, and they opened 13 new stores. Anyone that knows anything about retail knows those numbers aren’t healthy. The company did open six off-priced stores in 2015, and Wall Street thought that was a good idea. But Wall Street bankers aren’t Macy’s customers. Macy’s reported earnings of 54 cents a share on revenue of more than $5.5 billion. Wall Street expected earnings of 45 cents a share on $5.7 billion, so in the eyes of Wall Street Macy’s is a good stock to own. But that earnings to revenue ratio is not going to be enough to do what Macy’s needs done. And closing 100 stores won’t do the trick either. Macy’s needs to pull a rabbit out of its retail hat and find a niche that isn’t about promoting sale merchandise that really isn’t on sale.