Macy’s Inc. reported a drop in second-quarter sales and earnings, which the company attributed to both internal and external factors including the lingering impact of the West Coast ports shutdown and a strong U.S. dollar.
For the second quarter ended Aug. 1, the company’s net profit declined to $217 million, from $292 million in the year-ago period. Sales fell slightly to $6.1 billion from $6.26 billion in the year-ago quarter.
“We are disappointed in our second-quarter results, which were impacted by a variety of factors, both internal to the company and in the macroeconomic environment,” said Terry J. Lundgren, Macy’s chairman and chief executive officer. “We expect an improvement in trend beginning in the second half of 2015 based on a range of promising new strategic initiatives, including those initially announced in January, which we believe will transform our company in the years ahead.”
In two other major announcements, Macy’s said it will begin “exploring” retailing in China through a joint venture with Hong Kong-based Fung Retailing Limited, starting with e-commerce, and that the flagship store site in downtown Brooklyn, which was formerly Abraham & Straus, will be redeveloped. Macy’s and Tishman Speyer signed an agreement whereby Macy’s will continue to own and operate the first four floors and lower level of the Brooklyn store on Fulton Street which will be remodeled, while Tishman Speyer will buy from Macy’s the rest of the store and develop it into ten floors of office space.
Macy’s will receive $170 million in cash from Tishman Speyer for the real estate and an additional $100 million over three years so it can renovate the store. The news about China and Brooklyn confirmed past WWD reports about the projects.
Discussing the second quarter, Lundgren said a friends-and-family promotion was removed from the calendar. He also said due to the West Coast ports slowdown, planned markdowns in many departments were delayed into the second quarter to clear merchandise that arrived late. “Moreover, throughout the first half of the year, overall consumer demand has been restrained in many of the categories of merchandise we sell, and the strong U.S. dollar has led to significantly lower international tourist spending,” Lundgren added.
The company expects improvement in the second half due to more omnichannel buying and planning of merchandise, as well as “more strategic placement of inventories in stores and online fulfillment centers.” Macy’s and Bloomingdale’s are also expanding same-day delivery service to additional markets, and the first six Macy’s Backstage off-price stores in the metro New York City area are expected to be operating in time for the holiday season. Additional Backstage stores will be rolled out next year.
The China joint venture, which is 65 percent owned by Macy’s and 35 percent owned by Fung Retailing, will start with an e-commerce pilot. Macy’s hopes to learn much on Chinese-Americans and Chinese visitors to the United States, and the joint venture is expected to develop significant new learnings on customer preferences and buying patterns within China.
Under the joint venture, Macy’s plans to begin selling in China in late 2015 through an e-commerce presence on Alibaba Group’s Tmall Global, a marketplace that connects overseas retailers to Chinese consumers. To be based in Hong Kong and called Macy’s China Limited, the Macy’s-Fung joint venture will offer a Macy’s online merchandise assortment geared for Chinese customers and fulfill Tmall Global orders from Hong Kong through local logistics channels, including LF Logistics, an affiliate of Fung Retailing. Alipay will be a primary payment channel for Macy’s e-commerce offerings in China.
“Millions of Chinese have come to know and love Macy’s when they live in the United States or travel to New York, San Francisco, Chicago and other American destinations. By making Macy’s accessible in China, we have an opportunity to deepen our relationship with domestic and international customers and to grow sales. We have been closely following the development of the Chinese marketplace for many years and have learned that success requires that we have the right partners to help us navigate the unique needs and characteristics of consumers in China,” said Lundgren. “Fung Retailing has deep experience and expertise in Chinese retailing, and the Macy’s-Fung partnership will be instrumental to helping set up and operate our test.”
Peter Sachse, Macy’s Inc. chief innovation and business development officer, said, “We have had initial success in partnering over the past year with Alibaba on various projects, including accepting Alipay on macys.com and conducting a special promotion during Black Friday 2014. We believe that, through the joint venture, Macy’s online presence on Tmall Global will give us insight that will serve us well in evaluating future international initiatives.”