Macy's (NYSE:M) might not look like a company ready to go on the offensive. After all, the department store giant reported a $630 million adjusted net loss for the first quarter.

However, as devastating as the COVID-19 pandemic has been for Macy's profitability and balance sheet, many of its main competitors are even worse off. This has created a golden opportunity for Macy's to turn its short-term pain into long-term market share gains. But to do so, the company needs to stay aggressive to identify and win over troubled department store chains' customers.

A $10 billion opportunity

Back in May, Macy's CEO Jeff Gennette estimated that there could be $10 billion of annual sales up for grabs going forward, due to weaker retailers either shrinking or going out of business altogether. Macy's already has experience in winning over defunct chains' customers, having picked up some market share from Bon-Ton Stores, which liquidated in 2018.

The exterior of a Macy's store

Image source: Macy's.

Just within the department store sector, COVID-19 has sparked a long-awaited shakeout. In May, luxury chain Neiman Marcus filed for bankruptcy, as did mass-market giant J.C. Penney.

Neiman Marcus is only closing four full-line stores, but it is shuttering almost all of its off-price outlets. Macy's can capture business from both parts of Neiman Marcus' operation through its Bloomingdale's luxury stores and the complementary Bloomingdale's Outlet chain. Meanwhile, J.C. Penney plans to close more than 200 stores (possibly a lot more). And while JCPenney stores generally target a lower-income demographic than Macy's, there is overlap in their customer bases, creating a market share opportunity. Macy's growing Backstage off-price chain could be especially useful for attracting thrifty JCPenney shoppers.

Macy's also has an opportunity to capitalize on some bankruptcies outside the department store space. Most notably, Tailored Brands -- owner of Men's Wearhouse and Jos. A Bank -- filed for bankruptcy earlier this week and plans to close about a third of its nearly 1,500 stores. Men's tailored clothing is a key area of strength for Macy's, and one where it could make significant market share gains when people start to need dressy clothing again.

Another key department store bankruptcy

Lord & Taylor and its parent company Le Tote also filed for bankruptcy last Sunday. The moderately upscale chain has already announced firm plans to close half of its 38 remaining stores. It's quite possible that the restructuring will eventually turn into an outright liquidation, given that Lord & Taylor has been unprofitable for years.

Macy's could be in particularly good position to gain business from former Lord & Taylor loyalists. Both chains are strongest in the Northeast, and Macy's operates locations near virtually all of the Lord & Taylor stores that are closing. As recently as 2018, Lord & Taylor posted annual sales of $1 billion, so the sales growth opportunity for Macy's could be significant.

Pedal to the metal

With sales under pressure due to the impact of the pandemic, Macy's is implementing big cost cuts this year, as it must. However, it would be a mistake to lose track of the long-term goal of returning to growth. Macy's should make targeted marketing investments -- particularly as the holiday season approaches -- to identify and attract consumers looking for a new favorite department store.

Macy's is favorably positioned to gain market share from weaker rivals in the current environment. After all, it has the biggest e-commerce business of any department store, with about a quarter of total 2019 revenue coming from digital sales. New offerings like curbside pickup are adding to Macy's e-commerce momentum. During a presentation in early June, management noted that digital sales surged 80% in May. Macy's also recently began allowing influencers to create their own e-commerce storefronts with shoppable photos and videos. Participants in the program will receive commissions for sales made through their pages.

So far, it looks like Macy's is taking steps in the right direction to acquire new customers during the pandemic. However, until most people feel comfortable going to stores again, Macy's sales will likely remain depressed. That means investors will have to be patient; we may not know for two or three years whether Macy's was able to seize this unique opportunity to gain market share.

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.