Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Gross Margin Sets Macy's Apart From Its Peers

Retail is a tricky business, especially when it comes to making a profit. Retailers such as Macy's, (NYSE: M  ) , J.C. Penney (NYSE: JCP  ) , Dillard's (NYSE: DDS  ) , and Nordstrom (NYSE: JWN  ) purchase goods for a certain price from distributors and then strategically price each item much higher in order to make a profit off of it when it sells. The tough part is selling an item for its listed price without having to do any large discounting.

Often times, sales and discounts are OK as long as consumers are purchasing more items as a result, causing sales revenue to climb higher and higher. So, why is gross margin so important to a business' ultimate success, and which retailer is doing the best at keeping its gross margin strong?

Importance of gross margin
Making a profit is extremely important with any company. Being able to sell goods or services at a higher price than what a company purchases those goods or services for is key to not only thriving but simply surviving. Furthermore, a high gross margin is important because it shows how successful a company was at making sales off the listed selling price along with affording the costs for all goods sold to the company for a particular period. The amount leftover is the gross profit, which is then used to pay for other company expenses such as general, selling, and administrative costs as well as paying company shareholders and in the end, wind up with a solid net income.

Companies operating within the retail industry have different gross margins based on several factors: marketing their products through store displays, listed selling price, sales volume, desired brands available, and quality of the items. With all of these factors in mind, which retailer has consistently posted the highest gross margin over the last three years?

Company Name

Gross Margin
FY 2012

Gross Margin
FY 2011

Gross Margin FY 2010





J.C. Penney 












Macy's earns the gold star
Despite fierce competition from its peers, Macy's has consistently produced the best gross margin in the industry. Unlike the other three retailers, Macy's has kept its gross margin above 40% for the last three years, which means that once the company's costs of goods sold have been subtracted from its total revenue, Macy's ends up retaining about 40% of each sale's earnings.

What's surprising is that Nordstrom has a slightly lower gross margin than Macy's despite offering high-end brands as well as higher prices for those items. Dillard's gross margin has shown steady improvement over the past three years, which is a good sign, while J.C. Penney's gross margin has fallen dramatically, making it even harder for the company to pay off its many operating expenses and earn a net profit. So, what is it about Macy's that stimulates a consistently high gross margin?

Enhancing the shopping experience
For most consumers, Macy's is seen as "fairly priced," well-organized, and having a wide assortment of mid- to high-end brands for the average consumer whereas Nordstrom is labeled as expensive and high end. Both retailers, though, provide excellent, attentive customer service in order to give shoppers a more personalized shopping experience that they will never forget. So why does Macy's boast a higher gross profit margin?

The first reason that Macy's has a higher gross margin than, say, J.C. Penney is because of its large selection of private labels. J.C. Penney lacks popular brands such as Ralph Lauren, Nautica, INC, Alfani, and Michael Kors, to name a few. Instead, J.C. Penney provides lower-end, less-popular brands, which could be why Macy's has higher sales and gross margin. Thanks to its wide assortment of popular brands, Macy's is able to attract more customers seeking the latest styles who are also willing to pay slightly more, as they believe the quality to also be better.

The second, and possibly even more important reason, is that Macy's is simply better at managing promotions than its peers. Macy's structures sales and coupons for certain products in such as way as to maximize customer traffic and purchases. Customers walk away feeling like they are getting what they want for less, and thus, shop more. Working in tandem with various promotional initiatives, Macy's products are well displayed throughout its stores with separate sections for each category.

Foolish takeaway
It is clear from these results that Macy's is exceptionally good at managing its gross margin. It is for this reason that Macy's has had consistent profits and shareholder returns while fellow competitors like J.C. Penney have struggled to make ends meet. Retail is extremely competitive, and for an organization to accomplish a consistently high gross margin is a sign of excellent management and a strong brand.

Foolish investors considering adding Macy's to their portfolio should do additional research on what else Macy's is doing to continue growing its gross margin and overall business before diving in. That being said, the company's gross margin gives it a great advantage over its retail competitors and is a sure sign that Macy's is worth a closer look.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2804911, ~/Articles/ArticleHandler.aspx, 8/28/2015 11:06:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Natalie O'Reilly

Today's Market

updated 1 hour ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:01 PM
DDS $92.74 Down -1.67 -1.77%
Dillard's, Inc. CAPS Rating: *
JCP $8.94 Up +0.47 +5.55%
J.C. Penney Compan… CAPS Rating: *
JWN $73.36 Up +0.04 +0.05%
Nordstrom CAPS Rating: ****
M $59.00 Down -0.05 -0.08%
Macy's, Inc. CAPS Rating: **