NEW YORK — After a strong 2010, Macy’s Inc. sees no letup despite rising prices hitting consumers from all sides.
This story first appeared in the February 23, 2011 issue of WWD. Subscribe Today.
Like other retailers, Macy’s this year must contend with increasing apparel, food and fuel prices and the fragile economy. Then there’s the challenge of trying to rack up same-store sales gains this year on top of those in 2010.
But Terry J. Lundgren, Macy’s chairman, chief executive officer and president, told WWD: “I just think there are so many things working for us. We feel very comfortable we’ll be able to achieve another strong sales year. The organization is ready to take on aggressive sales growth and earnings growth and take market share.
“I think the consumer is prepared to spend as long as they believe they are getting great value, and value is determined differently by different customers. Some might feel the lowest price possible is their definition; others might describe it as the highest possible quality and fashion for a reasonable price. That’s the Macy’s consumer.”
In the quarter ended Jan. 29, Macy’s net earnings rose 49.9 percent to $667 million, or $1.55 a diluted share, from $445 million, or $1.05, in the year-ago quarter. Sales rose 5.4 percent to $8.27 billion from $7.84 billion, and comparable-store sales gained 4.3 percent. For the year, diluted earnings per share came to $1.98. Looking ahead, Macy’s projects earnings per share in fiscal 2011 at $2.25 to $2.30, comps ahead 3 percent, and gross margins flat.
“It feels very good to deliver the results we did, and we see no reason for us not being able to continue that momentum into 2011,” Lundgren said. “The recovery is in place, but I think it is going to be slow and gradual, not a hockey stick recovery in 2011.”
Accessories, jewelry, shoes, watches, beauty, home textiles, luggage and men’s wear were the strongest categories. Contemporary brands such as the proprietary Rachel Rachel Roy and INC were also strong, while traditional ready-to-wear was weak. “There’s less fashion there, less change, less interest,” Lundgren said. In addition, Bloomingdale’s had a “terrific quarter and year,” according to Karen Hoguet, Macy’s chief financial officer.
The retailer’s new Bar III contemporary private brand is also selling well, lifted by this month’s opening of a Bar III pop-up shop on Fifth Avenue and 20th Street here. There is speculation that the brand could blossom into a permanent specialty chain. “That is not really our intent at this point. We did the Bar III pop-up store just to expose the specialty store customer to the product and to learn and listen to customers. The business has been very strong there. We are very pleased with early results,” Lundgren said.
The brand is sold in Macy’s Impulse contemporary departments.
However, Lundgren suggested there could be additional overseas expansion beyond the first unit opened last year, a licensed Bloomingdale’s in Dubai. “There are lots of requests for both Macy’s and Bloomingdale’s to open stores in joint venture agreements,” Lundgren said.
Among the challenges ahead are corporate debt and rising prices on apparel. Lundgren said Macy’s debt position has “improved dramatically over the last couple of years. We have been buying back debt early.” He said Macy’s will pay back $450 million in debt due this year and will determine later how to handle the $1.5 billion in debt that comes due next year.
Apparel prices will escalate in the second half, not the first half, of this year, and not at all in nonapparel areas, such as home furnishings and cosmetics. Asked how Macy’s will cope, Lundgren replied: “We have created a dialogue with our largest vendors and most significant partners to help us think through very specific strategies, including pricing for fall. With certain categories we will hold the line on pricing, like basic children’s merchandise. We just have to work together there and make sure we remain very competitive. In higher fashion, we will be able to take on more pricing. Frankly it should because it’s been deflating for the last several years.”
By spring 2012, he said, “There could be a different picture in terms of the supply. The labor shortage issue is a real one that will continue into the future, but when you take away the impact of major flooding affecting certain countries, you might be able to see a little bit of easing in 2012.”
According to Hoguet, the 4.6 percent 2010 comp gain “was our best performance in at least 15 years. It far exceeded the 1.2 percent expectation we had at this time last year.…We are successfully establishing more of growth culture and focusing more than ever on the customer.”
Among the other growth maneuvers, three Bloomingdale’s outlets will open this year, bringing the total to seven; $800 million in capital expenditures has been designated mostly for technology and remodels and some categories previously dropped, such as lamps and bathroom scales, will be revisited.
In other Macy’s news, the retailer is launching a new marketing initiative for spring that will allow shoppers to view short videos featuring some of the store’s most famous designers when they scan a red star-shaped code message from their mobile phones.
Called Macy’s Backstage Pass, the program is rolling out to the chain this week.
“Macy’s new Backstage Pass is an exciting evolution that brings our stable of fashion experts and designers directly to the customer while they’re shopping in our store, through their handheld mobile devices,” said Martine Reardon, Macy’s executive vice-president of marketing.
The 30-second videos will provide fashion tips and advice, and the customer can then choose longer-length content from select brands including Bobbi Brown, Sean “Diddy” Combs, Tommy Hilfiger, Michael Kors, Greg Norman for Tasso Elba, Rachel Roy, Irena Shabayeva for INC, and others. In a few weeks, Martha Stewart and Madonna’s Material Girl will also be included. American Rag, the young contemporary brand, will also provide a free music download of the song “Weightless” from the band All Time Low to customers using the technology.