For Macy's, going downmarket looks like the way ahead

Thu Feb 26, 2015 1:10pm EST
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By Sruthi Ramakrishnan

(Reuters) - Macy's Inc's (M.N: Quote) planned push into the off-price retailing sector, dominated by chains such as TJX Cos Inc's (TJX.N: Quote) TJ Maxx, shows the venerable department store chain has faced up to new realities of retailing in the United States.

For the past six years, Macy's has focused more on cutting costs and streamlining its operations rather than expanding as a way to fuel earnings. Now, that has changed.

Macy's said this week it would spend $1.2 billion to expand internationally and set up off-price stores, which sell items such as seconds, returned goods and off-season merchandise at prices that squeezed middle-class customers have found increasingly attractive since the 2008 recession.

"It's a new world. Since so many peoples' salaries are off-price they also need to shop that way," said Robert Brusca, chief economist at consulting firm Fact and Opinion Economics. "Macy's is bending to the reality of retailing."

The customer mindset has also changed, analysts said, as even higher income shoppers who tightened their belts and traded down during the recession have stayed with off-price retailers.

The move will give Macy's the opportunity to stake a claim on three main types of shopper - the luxury buyer, through its Bloomingdale's chain; middle-income shoppers through its namesake stores; and the more bargain-hungry crowd attracted to TJ Maxx, Ross Stores (ROST.O: Quote) and Burlington Stores (BURL.N: Quote).

TJX's sales have increased 6 percent in each of the past two years, while Macy's sales have grown an average 0.75 percent.

"If you're looking for growth vehicles going forward in this retail environment, it (off-price retailing) has to be a consideration," research firm Retail Metrics' President, Ken Perkins told Reuters.   Continued...

Customers stand outside the Macy's store in New York, November 22, 2013.  REUTERS/Brendan McDermid