Macy’s (NYSE:M) has emerged from the ashes of the financial crisis as the clear leader in big name retail. With strong brand equity and a revitalized operational strategy, Macy’s, unlike its competitors, has figured out how to capitalize on renewed consumer confidence. Macy’s share price—currently trading at around $48.50—is up 41 percent in the past year. Can it maintain its lead in the highly competitive retail industry? Let’s use our CHEAT SHEET investing framework to decide whether Macy’s is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.
C = Catalysts for the Stock’s Movement
Macy’s substantial investment in its technological infrastructure seems to be paying off as it has added at least $1 billion to its top line in each of the past three years. The company has increased its IT spending in order to reduce inventory costs. For example, Macy’s can now optimize its inventory distribution so that an online order will be filled at the store least likely to sell through its supply. It has also focused on strengthening its omnichannel retail strategy: integration of physical store shopping and online and mobile shopping. Macy’s CEO Terry Lundgren says that Macy’s is focusing on developing its business with the millennial generation. Macy’s strong investment in its omnichannel retail strategy has struck a cord with millennials who enjoy the flexibility of being able to shop online or in a physical store.
After a huge restructuring program back in 2009, Macy’s eliminated around 4 percent of its personnel, cut its dividend by more than half, and changed its operational structure. While the news was not popular with investors initially, it now appears to be paying off. From this restructuring effort came My Macy’s. The organization changed from seven operating divisions operating 50 to 100 stores in multiple states to one centralized ‘control center’ and 69 divisions operating 10 stores within close proximity of one another. First off, this initiative greatly increases economies of scale for Macy’s by establishing one central hub. Secondly, divisions can now tailor its product offerings to suit local preferences. The new operational structure gives Macy’s a distinct competitive advantage over its competitors—at least until they can replicate it. So far, the results have been overwhelmingly positive.