All through the 1980s and ’90s, as U.S. mall-building boomed, the so-called “anchor” stores drove the business model, drawing in traffic for the speciality shops around them. Sears (SHLD)
, Macy’s (M)
and J.C. Penney (JCP)
were the center of the mall-anchor pack. Then two big disruptors challenged the order of things: big-box, standalone stores in niche areas such as books and electronics began to eat into specific categories, and online retail became a reality.
The aftermath hasn’t been pretty. Sears, Roebuck, the storied catalogue retailer that onced helped outfit the American West, bulged into Sears Holdings after merging with Kmart. It also took on the Land’s End catalogue apparel line in a bid to secure brand-conscious shoppers.
Merger complete, the new company reorganized in order to better compete with Wal-Mart and Target. But its critics noted that the firm operated more like an investment fund than a focused retailer, an unsurprising outcome considering that the chairman of Sears Holdings is billionaire hedge fund investor Eddie Lampert.
At J.C. Penney, meanwhile, the problem seems to be getting caught in the middle. As the economy ground to a halt, consumers have begun to self-identify either as price-insenstitive or inordinately frugal. Discounters, warehouse clubs, and aggressive online retailers have taken their toll. J.C. Penney found itself losing steam as customers deserted the big malls.
“While we expect the company to benefit in the long run from restructuring, given a tepid economic recovery, a cautious moderate-income consumer, and intense competition, we do not see business materially improving until FY 14 at the earliest,” note Standard & Poor’s analysts in a recent report on JCP.
The winner in the race to escape the death of the American mall has been, so far, Macy’s. Part of the reason, analysts note, is that the apparel and housewares retailer managed to retain its aspirationally upscale clientele.
Part of the success story, too, has been customized shopping experiences at each store, focused on the local client base and its needs. Analysts now see same-store sales on the rise at Macy’s and its sister operation, Bloomingdale's. Macy’s also managed to turn online into an asset, fulfilling orders via its stores.
“The My Macy's localization initiative was developed with the goal of accelerating sales growth in existing locations by ensuring that core customers surrounding each Macy's store find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs,” Macy’s managers explained in a recent filing.
In addition, an “omnichannel strategy allows customers to shop seamlessly in stores, online and via mobile devices,” management said.
Bear or bull
Sears and J.C. Penny have consensus ratings near the bottom of bear territory. Macy’s, however, is at the opposite end of the spectrum, garnering buy or outperform ratings from a range of banks, including from Deutsche Bank, Citigroup, JP Morgan, and Friedman, Billings, Ramsey & Co.
Macy’s is a $16.71 billion market cap firm in a sector, multiline retail, where the average company size is $2.17 billion. It has a trailing 12-month P/E of 13.73 and a projected five year price-to-earnings-growth (PEG) ratio of 1.12, compared to 0.97 for the sector.
Macy’s next reports on May 9.
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