Macy's (NYSE:M) shares are up 4.5% since reporting earnings on Nov. 21, but if you zoom out, shares are down a gigantic 47.6% year to date. It has significantly underperformed the S&P 500, which returned 29% and the SPDR S&P Retail ETF, which returned 11%. Its two most recent growth strategies are working well. First, in 2015 with its off-price concept Backstage, then in 2018 with its growth 150 initiative. The success of both projects suggests it's aligning with the preferences of retail shoppers. Here's a look at the progress of each individually and how they'll impact the consumer discretionary stock's future.

Macy's Department store exterior

Source: Macy's

Will Macy's keep expanding in the off-price category?

Backstage is Macy's off-price brand which began in 2015, first with stand-alone locations, and then management changed course and built them inside Macy's stores. It opened 50 Backstage stores year-to-date and now has 215 locations within Macy's stores nationwide and seven freestanding locations.

Thriftiness was one of the hottest trends of the decade, according to the Wall Street Journal. Retailers that were already in position for this trend like TJMaxx, owned by TJX Companies, and Ross benefited considerably. Since Macy's only entered the off-price category in 2015, it is just starting to enjoy the benefits of the shift in consumer tastes and habits into thriftiness.

Backstage stores are a hit with customers, growing mid-single-digit percent from the year prior. Going into 2020 with 215 locations fully operational will boost its sales. At its investor day on Feb. 5, shareholders hope to hear more about expanding Backstage into more locations. Its off-price store concept is already driving growth in sales. Expanding into more locations will also increase foot traffic into its main store as 15% of customers cross-shop between both in a single visit.

Should Macy's invest to expand store upgrades or close stores more aggressively?

In 2018, Macy's decided to test a pilot strategy to upgrade 50 of its stores, and the results were positive enough to convince management to modify another 100 stores in 2019. In the Q3 conference call, management said, "its upgraded stores are outperforming the rest of its fleet." Target also saw success in updating stores, as its multi-year $7 billion investment is bearing fruit. After the success of Macy's initial store upgrades, and witnessing Target's progress in doing the same, management would not be faulted if it chose to expand enhancements to more of its fleet.

Closing its weaker stores puts Macy's in a stronger position to survive for the long-term. It has a mix of stores it purchased and ones it leases. If it closes a store it owns, it sells the property. In the last three years, those sales have led to substantial cash injections totaling $1.56 billion. Additionally, a closure lowers expenses and the inventory required to stock the store. It does not lose all the sales that would have occurred at the location as some customers will move online or shop at the next closest Macy's. Closure of a store it leases provides similar benefits with one significant difference. Instead of a cash injection from the sale, it benefits from the reduced rent expense, helping improve its margins. Whether it owns or leases the store, a closure increases its long-term survivability by raising cash and cutting costs.

What impact will this have on investors?

The retail apocalypse is a challenging environment for all stocks in the category. In 2019, there will be more than 9,300 store closures in the U.S. After a store closure announcement, a liquidation sale usually follows. If the surviving stores want to compete by offering promotions, their margins will suffer. In the long-term equilibrium, the surviving stores are in a better position because there's less competition. However, there's no end in sight for store closures, and Macy's could be competing against liquidating retailers for the foreseeable future.

On its investor day, Macy's will share details on its growth strategy and reveal a three-year plan. Investors who want to buy shares will be better informed once specifics are given on its plans for growth. During the Q3 conference call, management deflected several questions about expanding Backstage into more locations and upgrading more of its fleet, telling analysts it will provide more detail on investor day. Interested investors should be looking for guidance on its plans for its lower-performing establishments and whether it will upgrade more stores or close more locations. It will also be important to receive information on its plans for expanding Backstage stores.

The depressed valuation for Macy's reflects its dismal performance of 2019, including missed targets and lowered guidance on sales and earnings, and the poor outlook for the retail apparel industry. Macy's shares are selling at a P/E ratio of 5.3 compared with Nordstrom's, which is trading at a P/E ratio of 11.8 and that of the retail apparel industry of 20.8.

Investors looking to accumulate shares who can tolerate more risk for more reward have an opportunity to buy shares before its investor day presentation, which may provide information that causes shares to pop on the expectations of progress. A lower risk approach is to wait for the information provided in the investor day and then buy shares on the adjusted information and price. Whether purchasing before or after investor day, investors who buy Macy's shares will get a high-quality brand for a discounted price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.