Macy’s Likely to See Market-Share Gains

Macy’s has established itself as one of the top department stores for both consumers and investors. This trend should continue but not just because of Macy’s initiatives. There’s an even more important trend taking place.

Jan 25, 2014 at 10:00AM

One company's loss is another company's gain. And Macy's (NYSE: M) is likely to gain from recent store closures for J.C. Penney (NYSE: JCP) and Sears Holdings (NASDAQ:SHLD). This isn't the only reason why Macy's is likely to outperform J.C. Penney and Sears going forward. 

Sears divesting
Sears has closed 300 locations since 2010. This is expected from a retailer that has suffered 27 consecutive quarters of sales declines. In addition to closing stores, Sears is spinning off Lands' End and selling its auto centers. This is expected to free up $2.5 billion in capital. It's unknown how Sears will use that capital, but Sears will likely use it to reinvest in the form of innovation and to pay off debt. However, that's just speculation and is not a guarantee. What is a guarantee is that Sears consistently closing its underperforming locations leads to consumers spending their money at other retailers. One such company that's likely to benefit is Macy's. 

Macy's stands to gain ... again
Macy's recently announced the closure of five underperforming locations, which was done in an effort to maintain profitability. Macy's also cut its headcount by 2,500. Considering how Macy's has performed on the bottom line over the past year and recent initiatives, the bottom line should be in solid shape going forward: 

M Revenue (TTM) Chart

Macy's revenue (trailing-12 months) data by YCharts

Macy's top line has also held its own in a difficult consumer environment. That top-line growth, however, isn't overly comforting. Fortunately, Macy's omnichannel leadership in the department-store space, as well as recent store closings by peers, should help maintain top-line momentum. Note: If you would like to read more information on Macy's omnichannel initiatives, you can read, "Macy's: America's Omnichannel Store." 

If you're not a believer in omnichannel being a growth catalyst, then at least consider that in addition to Macy's likely to see market-share gains from the consistent closings of Sears locations, it will also gain market share from the closings of J.C. Penney (NYSE:JCP) locations. 

J.C. Penney recently announced the closing of 33 underperforming stores. In addition to slashing 2,000 jobs, this is expected to lead to annual savings of $65 million. J.C. Penney currently has 1,100 locations and 116,000 employees. Therefore, more store closures and job cuts are possible in the future. They're likely if J.C. Penney has trouble turning itself around. If this happens, then it will further benefit Macy's, as consumers will spend their money elsewhere. Some of these consumers will opt for Macy's. 

J.C. Penney is still attempting to recover from CEO Ron Johnson's time at the helm, which ended last April. Johnson went with the everyday-low-prices approach and designed the store to attract younger consumers. This plan failed. J.C. Penney lost its core customers, the ones looking for promotional discounts. The redesign of the stores didn't help either, potentially making loyal J.C. Penney customers feel alienated. 

Whatever the case may be, J.C. Penney's store closures should lead to market-share gains for Macy's. 

The Foolish bottom line
Macy's should see market-share gains thanks to consistent store closures for Sears and J.C. Penney. Macy's leadership in the retail omnichannel category is also a big potential catalyst. Macy's ability to target all types of consumers through various means is yet another positive for Macy's and its long-term growth potential. Conclusively, if you want to invest in retail, then Macy's is likely to be one of your better options. However, please do your own research prior to investing. 

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