Macy’s revamped half its stores and customers followed

Dive Brief:Macy’s Inc. on Wednesday reported overall Q1 net sales rose 1.8% year over year to $4.7 billion, with positive comps across Macy’s, Bloomingdale’s and Bluemercury. Overall comps rose 3%.Investment in customer service and merchandising improvements paid off at 200 Macy’s stores, about half its fleet, where comps rose 2.4%; overall Macy’s comps rose 1.6%. At Bloomingdale’s comps rose 10.2% – its seventh straight gain – and at Bluemercury 6.4%.Tariffs accounted for the entire 30-basis-point contraction in gross margin, which reached 38.9%. Net income rose 66% to $63 million.Dive Insight:Macy’s is not too worried about the economic backdrop, increasingly tenuous due to rising fuel prices and falling consumer confidence. Two-thirds of consumers say they’ve cut back spending due to inflation and sentiment has grown more pessimistic.The department store caters largely to middle- to high-income households, which are somewhat shielded from rising costs, but Macy’s Inc. CEO Tony Spring said there is another reason why customers showed up in Q1.“We found that when the product and the experience are differentiated and compelling, engagement and spend increase,” he told analysts Wednesday. “During the quarter our customer appreciated the assortments, marketing, and events that supported key holidays, including Valentine's Day, Presidents Day and Easter.”Macy’s flower show drew 800,000 people this year, in part because the event, an annual spectacle at Herald Square in New York for years,expanded to Chicago.Some would argue that “differentiated and compelling” are basic requirements for a department store’s product and experience and that Macy’s ignored that for too long. In Q1, though, the difference between the comparable sales at the fleet overall and the retailer’s reimagined stores was the result of “putting in considerably more effort across many dimensions of the shopping experience,” according to GlobalData Managing Director Neil Saunders.GlobalData has measured improvements in customer satisfaction scores at Macy’s, which is helping drive conversion and average spending.“There have been remodels of key departments, categories like home are displayed with more inspiration and flair, and private labels have been strengthened and clarified,” Saunders said in emailed comments.Spring, who spent three decades at Bloomingdale’s, including as CEO, before taking the reins at Macy’s Inc., said cooperation between the sibling retailers is helping foster Macy’s turnaround. The company is viewing the two businesses “in a comparable fashion and trying to better understand underlying trends, geographic trends, sharing where we see brand opportunities, where things overlap, and at the same time making sure that we can learn from each other without becoming one another.”An effort to bring new brands to Macy’s aims to “preserve the specialness and uniqueness of Bloomingdale's” and its top-line strength “and at the same time make Macy's more fashionable,” Spring said.Economic volatility is likely to continue to challenge Macy’s, so its progress won’t be a straight line in the near term, according to a research note from Fitch Ratings Senior Director David Silverman. The company is well set up to continue to “defend share in a tough department store space” and “generate at least flattish revenue and EBITDA.”“The company benefits from its customer connections and strong cash flow, which allows it to invest in in-store enhancements, omnichannel initiatives and burgeoning technologies like AI to differentiate itself vs. peers,” Silverman said. “The retail industry is characterized by intense competition and there remain a number of smaller and weaker players in the apparel, accessories, and home space that are likely to continue donating share to stronger competitors like Macy’s.”