Macy’s: America’s Omnichannel Store

Macy’s isn’t a department store anymore; it’s an omnichannel store and this has big implications for competitors The J.C. Penney Company and Sears Holdings.

Jan 18, 2014 at 8:30AM

You might not realize it yet, but Macy's (NYSE:M) CEO, Terry Lundgren, is your friend. No, he's not going to come over for dinner to meet the family. However, based on his foresight, he has provided you with an opportunity to make a wise investment. The only negative to investing at Macy's at this time is that since it's a retailer that relies on discretionary spending, it's sensitive to economic and stock market downturns. On the other hand, if you're disregarding this factor and looking to invest for the long haul, and if you're looking to invest in one of the best-run retail operations on the planet, then you might want to consider Macy's. Here's why. 

Flagship store strength
The next time you're in Manhattan, visit this address: 151 W 34th St., New York, NY 10001. You will find Macy's flagship store. If you're having trouble looking for it, just keep an eye out for the enormous red banner on the corner. You know ... the one that you always see on television and is a historic landmark in the country's most exciting city.

As far as historic, the store was built in 1901. Macy's flagship store is also the largest department store in the world, taking up three acres. It's 39,000 square feet, and 7,000 people view the display windows every single hour. Do you think a retailer with this kind of brand strength and exposure would suddenly lose its way? Highly unlikely, especially with a strong leader at the helm.

This aforementioned leader, Terry Lundgren, was wise to invest in technology well ahead of most retailers. For instance, if you happen to visit Macy's flagship store, then you might want to use Macy's mobile app for in-store directions, special event listings, reservations for in-store restaurants (Macy's Cellar Bar and Grill, Cucina & Co., Steel 34 Trattoria), or reservations for Santaland. And you can check out 300 product descriptions while you're at it. In-store descriptions are available nationwide. Macy's might be using the flagship store as a testing ground for in-store directions. 

These are all impressive features, but the information you have read so far is nothing compared to what Macy's has done overall on the technological front.

Omnichannel leader for department stores 
Before moving on, first take a gander at the five-year revenue chart below for Macy's, Sears Holdings (NASDAQ:SHLD), and J.C. Penney (NYSE:JCP):

JCP Revenue (TTM) Chart

JCP Revenue (TTM) data by YCharts

Despite these three department stores catering to slightly different clientele, do you think this chart would look this way if Sears or J.C. Penney were the retailer to have been ahead of its peers in the omnichannel space? Highly unlikely. Macy's had better vision than its rivals, which has had a lot to do with its recent success.

Macy's knew that omnichannel would be the name of the game. Omnichannel pertains to in-store, online, and mobile. Macy's goal has been to cater to the omnichannel consumer, not just in the sense to cater to each type of consumer, but to integrate the shopping experience. For instance, Macy's plans to have 500 Macy's stores fulfilling online orders by the end of this year. Its ultimate goal is same-day delivery. This, by the way, would be a knockout blow to some of its competitors.

Macy's is also using digital technology for marketing purposes, so it can have a 360-degree view of customer shopping habits, and so it can collaborate merchandising strategies across all channels.

Furthermore, Macy's is working with half of its suppliers to improve inventory counts via radio-frequency identification. Macy's has already seen success with its shoe salon. Prior to using radio-frequency identification, 30% of samples were missing from displays. After implementing radio-frequency identification, sales are up. 

Other important peer comparisons
Macy's has generated $2.19 billion in operating cash flow over the past year, whereas Sears and J.C. Penney have generated operating cash flows of negative $694 million and negative $1.55 billion, respectively. Therefore, Macy's has a big advantage for technological advances to cater to omnichannel consumer going forward.  Lastly, while Macy's debt-to-equity ratio of 1.32 isn't ideal, it's more comforting than the debt-to-equity ratios of Sears and J.C. Penney, which stand at 2.02 and 2.12. 

The bottom line
There's no guarantee that Macy's will continue to see success in the highly competitive retail space. However, based on the company's ominchannel approach, that allows the company to cater to today's consumer in every way possible, upside potential appears to outweigh downside risk. As always, Foolish investors should do their own research prior to investing. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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