Will Kris Kringle perform a retailing miracle on 34th Street this year? He may have already delivered a package of good cheer. Last week Macy’s said sales at established stores were up more than 5 percent in October, the third monthly rise in a row. But the good news was tempered by a growing angst among analysts and vendors that the 144-store chain’s long-term outlook is cloudy. Though the last quarter showed a modest improvement, net year totaled $263 million . With the economy stumbling, industry experts fear a bleak holiday season could spell trouble for the legendary $6.7 billion retailer. “Macy’s is a well-captained ship,” says Bud Konheim, president of Nicole Miller Ltd., one of Macy’s clothing suppliers. “But the company is in the middle of a big storm; whether it survives depends on how long the storm lasts.”
Macy’s has been battling the elements for nearly half a decade. The company, which operates in 18 states, was saddled with close to $5 billion in debt after management took it private in 1986 and acquired I. Magnin, and Bullock’s, a California chain, two years later. Then, in early 1990, other debt-laden merchants entered Chapter 11, and vendors feared that Macy’s might do the same. To reassure the industry, Finkelstein took out a full-page ad in Women’s Wear Daily saying Macy’s had no plans to close its stores or sell divisions. But as the economy soured, Macy’s troubles worsened.
This year Macy’s is taking steps to make sure the Grinch doesn’t steal Christmas. “A flat holiday season is a foregone conclusion,” says Richard Hastings of Solo Credit Service Corp., a credit-reporting company. “But they’re prepared for that.” For instance, the company has raised more than $200 million from investors and sold some real-estate assets. In May, Macy’s sold its credit-card operations, making a significant dent in its debt load. It later announced plans to consolidate three regional divisions into two this February. This week the chain expects to open the first of five outlet stores designed to help purge its main stores of marked-down merchandise. Says Pam Stubing, a bond analyst for Moody’s Investors Service: “They’ve done a good job restructuring; now they have to concentrate on running their business.”
If customers aren’t convinced that Macy’s is part of their life, the department store is angling to leave no doubt. In May it launched a $150 million TV ad campaign by Lintas, Inc. featuring warmhearted images of Macy shoppers. Macy’s unveiled the ads with a black-tie gala at the flagship store in Manhattan, only to announce a week later that it had suffered the largest quarterly loss in three years. Another misfire occurred with Macy’s decision to sponsor last season’s New York Mets baseball telecasts. The Macy’s sign over Shea Stadium was often seen against a backdrop of empty seats. So eager were store executives to attract customers that two months ago they extended a heavily promoted one-day sale to two days, citing inclement weather. The move elicited snickers from some industry insiders, who say bad weather usually helps business. Says one buyer at archrival Bloomingdale’s: “It was a major-league chuckle.”
Promotions may bring in customers, but they don’t necessarily boost the bottom line. Some analysts speculate that this season’s promotional blitz, while stimulating short-term sales, could erode profit margins. Macy’s officials insist that won’t happen because the company has carefully controlled inventories. But analysts still fret that if the economy continues to falter, Macy’s may try to sell the 24-store I. Magnin chain or some of its specialty stores. The worst-case scenario, they say, would be to file for protection under the Chapter 11 bankruptcy laws. Finkelstein calls such notions “ridiculous and irresponsible.” To make his point, he doesn’t rule out the possibility of a public stock offering, a long-awaited move that could take place only if the selling season proves particularly jolly. Says Alan Millstein’ editor of a monthly retail-trade letter: “They just have to hope Santa hasn’t been on Slimfast.” And that all shoppers want for Christmas is a present from Macy’s.
