Given our recent articles on the next chapters of Macy’s, Kohl’s, and Nordstrom the release of Placer.ai Data Version 2.0, as well as our 2024 Outlook that it would likely be a better year for department stores, we thought we'd review March traffic data for the category. The chart below shows an improving trend in March, save Macy’s, compared to the known softer February period. As we wrote last week in our preview of March retail sales, that upturn reflects, in our view, improving consumer expenditure and the arrival of spring plus the early Easter, as well as easing comps. For Macy’s, the continued declines could reflect dynamics related to the discontinued 150 locations.
To our knowledge, Dillard’s isn't planning the transformational changes that Kohl’s and Macy’s are undergoing, as they have performed well since 2019. As such, we consider Dillard’s to be a reasonable benchmark for “success in department stores,” at least in an apples-to-apples geographic comparison. For perspective, Dillard’s chainwide 2023 comp was up +9% versus 2019, whereas Macy’s was down -5.5%. In prior Anchor analyses, we’ve written that one of the strategies that led to Dillard’s sector outperformance was to effectively capture more of the prestige luxury consumer. Another contributor to Dillard's success, in our view, has been focus on a tighter consumer and geographic segment. And so, let’s focus on the regions that matter to Dillard’s.
Florida, Texas, and Ohio compose over a third of Dillard’s footprint. As shown in the chart below, these states have outperformed the average, with Texas being smoother. Nordstrom has only eight locations in Texas, so we are going to leave them aside. Looking at the remaining two, we see that Kohl’s has been on a stronger trend, save in early March. Macy’s has been challenged in Texas in aggregate.
Macy’s has 30 venues in Texas. We do not know which of the 30 stores are part of Macy's 350 go-forward locations versus the 150 to be closed; however, we do have Placer data. We selected 15 from the 30 that have retained visits versus 2019 better than the aggregate. The 15 selected Texas locations produced 12% more visits than the remaining 15 (on average) and 26% more than Dillard’s. Recall that Macy’s strategy for its go-forward stores is to better assort the store to local market characteristics (curation), enhance the product offering and merchandising (including both with national brands and its only labels), enhance the service and in-stock levels, and make other tailoring/refreshing modifications. These initiatives have yet to be implemented, but management is hopeful they will produce lift in traffic, frequency, and sales. For February and March, the 15 Texas locations produced a +3% increase in visits, better than Macy’s Texas locations overall, and only slightly behind well-tuned Dillard’s at +6.5%. However, when viewed from the baseline of 2019, one can see that the traffic performance is tracking Dillard’s. And so, if the Texas-15 experience a lift from the said enhancements, that would suggest that on a multi-year basis, that they can outperform Dillard’s. That would be a provocative, non-consensus, development.
When we wrote about Macy’s next chapter, we put it in the context of the Abercrombie & Fitch turnaround. Last week, The Business of Fashion wrote a nice piece on department store repositioning called, “Innovation Won’t Save Department Stores. The Right Products Will.” That article read:
To survive, experts say, these companies need more than new owners and experiments with new retail formats, such as the dozens of “boutique-sized” smaller stores Macy’s plans to open in the next few years...What’s going to get people to go into any store? The answer one, two, three is product,” said former Macy's CEO Terry Lundgren. “You can have great service and bad product...You have to have a unique product that is Fair in value and exclusive or limited in distribution to your channel. Macy’s used to be the king of that.”...You can follow any influencer on TikTok but you still need a place to go to see a new style or brand. That’s where department stores, with their hundreds of locations in malls nationwide, have an opening. The problem is, consumers are returning to malls but often walking right past the department store with the big sign at the entrance. That’s because there’s still a sense that all department stores offer the same stale brands, many of which could be found at discount retailers or online, often at a lower price. By contrast, revitalized mall chains like Abercrombie & Fitch and PacSun lure shoppers with the promise of something unique and appealing. After all, a store that offers a large selection of products and reliable service will never go out of style. In theory. If department stores did not exist today, then some creative young people would say, ‘Hey, why don’t we invent a retail store where you can shop for multiple categories, multiple brands, in a physical space, with some big stores and some smaller stores, as well as an online presence that allows for an omnichannel experience?’” said Lundgren. “Why wouldn’t I invent that?”
The top four Macy’s locations in our group of 15 have Dillard’s in the centers as well, and the four rank in near the top for each in the state; however, as Dillard’s has 55 venues in Texas compared to Macy’s 30, the Dillard’s higher scores are against more venues (i.e., the rankings are more competitive). The Top 15 represent 51% of Macy’s Texas visits and the Top 4 represent 41% of the Top 15. These statistics are astounding in the context of marketing spend; Dillard’s spends very little comparatively on marketing and yet it produces a competitive level of traffic; moreover, it does a better job of monetizing its traffic.
2023 Visits between the two brands are very similar on a per-center basis but Dillard’s punches far above Macy’s in sales and in growth since 2019. Dillard’s has a notably higher conversion rate and higher ticket, and the gap in ticket widened between the two periods. This suggests that Macy’s has significant “benchmark opportunity” to close the gaps through its 2.0 strategies: better on-trend merchandise, more relevant merchandise, and a higher level of service/sway (i.e., conversion rate). All of this was touched upon above, save “walking right past.” Lundgren said about the chain's transformation changes, “Make appropriate investments to create a more welcoming environment.” And so, watch to see how Macy’s front entrance evolves over the next year.
