How Macy's is clobbering the competition

The mall-based retailer's radical changes and its focus on local service in the Internet age are cleaning the clocks of players like Wal-Mart, Target and Kohl's.

By Jim Cramer Jan 9, 2014 12:51PM

The headquarters of clothing retailer Macy's © Kristoffer Tripplaar/AlamyMaybe Macy's (M) had more days between Thanksgiving and Christmas than other retailers did? Maybe its  stores had better weather than other national chains across the street?

 

You have to shake your head at first when you examine the Macy's numbers, because they, alas, seem too good to be true. That's especially given the odd contrast of Bed Bath & Beyond (BBBY), the consistently good retailer that reported disappointing earnings Wednesday night and posted comparable-store sales that were almost half of what Macy's banged out.

 

However, when you have sat down with CEO Terry Lundgren as many times as I have in the past few years, you know Lundgren saw a lot more changes coming to retail than just about anyone else.

 

Lundgren, who is one of my Bankable 21 -- the 21 CEOs in Get Rich Carefully whom I say you can bank on to win for you -- understood something crucial. Namely, if Macy's was going to be successful and prevail as a 21st-century retailer, it was going to have to change radically.

 

That's why he looked at the universe of stores and decided that Macy's could go national on purchasing clout from suppliers but that it needed to stay local when it came to customers' needs. I think a lot of the skeptical investor class didn't believe Lundgren when he stressed his "My Macy's" initiative, which entailed bolstering local sales by having the amalgam of department stores atomize into the local roots that had once predominated.

 

Remember, Macy's was initially cobbled together in an almost automaton way: A bunch of local retailers were gathered under one nationwide roof.


That was an excellent business decision when it came to the ability to wrangle with such names as VF Corp (VFC) and the PVH (PVH), but it wasn't so strong when it came to any attempt to distinguish Macy's from the pack of similarly stocked competitors.


So Lundgren reinvented the paradigm in a way that companies like Sears (SHLD) or Kohl's (KSS) or Wal-Mart (WMT) or Target (TGT) can only hope to do: Macy's has tailored the merchandise for the locale. It's working.

 

More important, perhaps, was Lundgren's very aggressive decision to go "omnichannel" and to mean it, meaning that Macy's was going to adopt a "can't beat them, join them, and then figure out a way to beat them" approach to the Web.


Now Macy's, because of all of its marketing power, offers great prices for premium proprietary products online. You can then pick it up, or Macy's can send it to you, or you can return it using the physical store presence. For those of us who shop online, we know the bane of our existence is the "return." If we don't like it, what are we supposed to do? Schlep down to the UPS (UPS) Container Store or something?

 

Macy's has a solution to that, as it does for getting the merchandise to you from another store that might have more inventory of a particular item. I'm sure the Northern stores were busy helping out the Southern stores with cold-weather-apparel inventory -- that is, if they had enough left to dole out to the South, given the brutal weather.

 

And the layoffs? As with everything Macy's does, this is about technology and streamlining trumping overhead and excess labor costs -- making tech do more with less. Oh, and just as with everything else Macy's does, the shareholders will reap the rewards. One of the best chief financial officers out there, Karen Hoguet, will be sure to plow the savings into the right portion of the capital structure, and hopefully a share buyback, given that the stock sells at only 11 times this year's number.

 

Bed Bath & Beyond, on the other hand, seems to have been caught flat-footed by the Internet, and it still has no real strategy to deal with it, as was painfully obvious from its always truncated conference call. The company's answer to the slash in comps growth? Opaque, except perhaps for a strategy of more couponing. Bed Bath & Beyond is a terrific brick-and-mortar retailer, but, as Lundgren tells you, that's not enough in a world that's so rapidly migrating to the Web.

 

How good are Macy's and Lundgren? The retailer stocks have been going down ever since Howard Schultz from Starbucks (SBUX) told us about a secular decline in shopping mall traffic that he saw at holiday time. Mall-based Macy's saw it coming, too. Like Schultz and Starbucks, it has come up with its own defense, and offense, to combat that decline in a positive way for believing shareholders.

 

Jim Cramer headshot

 

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long Macy's.

 

Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.

 


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49Comments
Jan 9, 2014 1:29PM
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where was cramer BEFORE  macy's was up big? anybody can report how great macy's is now after the fact..........this guy really hasn't a clue
Jan 9, 2014 2:27PM
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Didn't they just layoff 2,500 workers?  Oh..weren't these the same part-time, seasonal workers they hired in Nov that of course were counted in the gov sponsored job creation report?  It is all a sham with the gov manipulating all the economic numbers to give the illusion that things are greater than they really are.
Jan 9, 2014 2:12PM
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They are doing so well that they have to have major layoffs. 
Jan 9, 2014 1:33PM
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Not sure there's much competition between Macy's and Wal-Mart - 2 completely different sets of customers.

For me personally, I hate going to the mall, so I never go to Macy's.

Jan 9, 2014 2:14PM
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Bobo just likes them because all clowns love being in a parade.
Jan 9, 2014 1:32PM
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""..... but that it needed to stay local when it came to customers' needs.""

 

i'm not sure what this means without examples.

 

i recall years back i was stunned when target had things in their garden areas that i would actually buy.  truly unique and different things.  turn out thry changed their buyers and procurement sources to NICER STUFF. 

 

macy's is still a chick store, right?  i don't buy there

Jan 9, 2014 2:37PM
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"in NYC it's so cold the only place the homeless can relieve themselves in in the subways"

 

"in the summer NYC is so hot the only place the homeless can relieve themselves in in the subways"

 

I believe Steve wins the funniest post of the day award.  That was good!

 

 

 

You know how to get to the Promise Zone don't you?  Just cross over the Bikini Bridge.

 

 

Jan 9, 2014 3:09PM
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Customers don't care which retailer they go to.   They want the best deal for what they want.

Saks, Macy's, JCP, Walmart, Amazon;  it doesn't matter.

Jan 9, 2014 2:22PM
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du da dudaaaaaaaaaaa du da dudaaaaaaaaaaaaa......... BaWaaaaaaaaaa.

 

You've just entered the "Promise Zone". Where things are not as they seem. Transparency is opaque here.

Jan 9, 2014 2:13PM
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Macy's is a middle of the road store.
it's NOT top shelf
In fact you can find many of the same brands in Costco
Much less selection but half the price for same quality

Jan 9, 2014 2:32PM
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how about out sourcing some of these CEO'S who make 460 times what a worker makes........since they are all pro global free market capitalism, I am sure they won't mind losing their job to  foreign competition where CEO'S "only" make 40 times a worker's pay.



Jan 9, 2014 4:36PM
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"retailer's radical changes and its fucus on local service"

 

That about sums it up nicely...

Jan 9, 2014 1:21PM
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"How Macy's is clobbering the competition
The mall-based retailer's radical changes and its fucus on local service in the Internet age are cleaning the clocks of players like Wal-Mart, Target and Kohl's."

Freudian Slip? I think every business platform's focus is on fucus-- consumers. 
Jan 9, 2014 2:40PM
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du da dudaaaaaaaaaaa du da dudaaaaaaaaaaaaa......... BaWaaaaaaaaaa.

 

You've just entered the "Promise Zone". Where things are not as they seem. Here when you are told you can keep something it means you CANNOT KEEP IT.......... BaWaaaaaaaaaaaa !!

Jan 9, 2014 3:05PM
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Somebody call the President and tell him Macy's is closing a store in one of the Promise Zones.  He'll have Promise Zone Czar Chris Christie closing bridges before you can say boo.

 

 

Jan 9, 2014 2:17PM
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If Republicans are anointed the party of No, by the commies,  I mean Dem's
Why can't we anoint them the party of Lies/Liars ?
Lies You Can Believe In ?
BTW, anyone remember that word "transparency" used over and over and over again in 08 ?
Surprise we haven't heard that word in 6 long years
Why  ?
Because he's the least transparent , most corrupt , community organizing , Muslim Brotherhood a$$ licking , Kenyan born,  FRAUD
Impeach

Jan 9, 2014 1:27PM
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Roaches found in Foster Farms chicken Ranch in California ! Now that is what I call  QUALITY CONTROL for the American consumer ! TRUST OUR BRAND WE LOVE YOU = SCREW THE PEOPLE
Jan 9, 2014 5:59PM
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Oh boy, oh boy!  The Macy's employees who lose their jobs can start collecting their pensions!

 

 

Jan 9, 2014 5:38PM
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Someone mentioned Casinos.....Oh well, what the hell....It was a pretty good day in the Markets.
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