The company reported that sales were down 2.1 percent at stores open more than a year, and these weak results contributed to its decision to lower its sales outlook for the rest of the year.
As it reported the results, which chief executive Terry J. Lundgren called “disappointing,” Macy’s also said it is forming a joint venture with Fung Retailing to create an e-commerce store for Chinese consumers on Alibaba’s popular Tmall Global shopping site. Currently, Chinese shoppers can get a limited assorted of Macy’s merchandise shipped to them from the macys.com Web site, but this initiative would mark a more full-throated effort to court this customer base.
“Millions of Chinese have come to know and love Macy’s when they live in the United States or travel to New York, San Francisco, Chicago and other American destinations. By making Macy’s accessible in China, we have an opportunity to deepen our relationship with domestic and international customers and to grow sales,” Lundgren said in a statement.
The foray into China is consistent with Macy’s goal of expanding its global presence in order to drum up more sales. The retailer announced last year that it would open its first international store in Abu Dhabi in 2018 and, in February, it named a senior executive, Peter Sachse, to lead all of its growth initiatives, including international expansion.
The joint venture is to launch this fall, though Macy’s does not believe it will materially affect its financial results this year. However, in 2016, Macy’s expects it to generate $50 million in sales. At this point, Macy’s has no plans to open brick-and-mortar stores in China, but the company hopes the joint venture will help them decide whether that would be a good idea. This latest bet on China comes as the Asian nation’s economic growth has been slowing dramatically and its stock market has recently plunged. Fresh concerns about China’s economy have emerged this week as the country has moved to allow its currency rates to more closely reflect market forces.
This is not the first time Macy’s has eyed the Chinese market: In 2012, it bought a stake in Chinese e-commerce retailer VIPStore with the intention of selling some of its private-label merchandise in China. It tabled those plans the following year, saying it needed to learn more about the Chinese shopper.
Macy’s revenue fell 2.6 percent to $6.1 billion in the quarter, while its profit slipped from $292 million to $217 million. The retailer said that a variety of factors weighed on sales this quarter: It wasn’t able to preserve the sales it typically would have generated during a Friends & Family sale in the quarter, and it saw relatively weak sales in categories such as fashion jewelry, watches, housewares and women’s petite and plus-size apparel.
Chief financial officer Karen Hoguet told investors on a conference call that Macy’s believes that some of its struggle this quarter came from the way consumers are choosing to spend their money.
“We are seeing customers gravitate to restaurants, recreational services, health care and electronics,” Hoguet said, rather than spend on apparel, home goods and other items that are core to Macy’s business.
We’ll have a better sense of whether that’s true later this week, as Macy’s rivals Nordstrom, Kohl’s and JCPenney report their quarterly earnings. The Commerce Department is set to report retail sales data for July on Thursday.
Macy’s has been taking aggressive steps to shore up its business as sales at its department stores have been lackluster. In the fall, it is set to introduce Macy’s Backstage, an off-price concept similar to TJMaxx or Nordstrom Rack. It also acquired specialty cosmetics retailer Bluemercury this year and has plans to expand the chain widely.
Macy’s stock was down more than 4 percent in afternoon trading Wednesday.
In an appearance on CNBC on Wednesday morning to discuss the quarterly earnings results, Lundgren was asked about the decision to drop Republican presidential candidate Donald Trump’s menswear line.
“If Hillary Clinton had a handbag collection, we wouldn’t be carrying that, either,” Lundgren said. “We will not carry any product from any candidate, ever. And we’ve never had this experience, this is a brand-new experience for us, and I hope it will not be something we will have to deal with in the future.”
The explanation for parting ways with Trump differs from the chain’s initial characterization of the separation. On July 1, Macy’s said the decision was based on the belief that Donald Trump’s statements about Mexican immigrants were “inconsistent with Macy’s values.”
Macy’s also revealed Wednesday that it has signed an agreement with developer Tishman Speyer to sell several of the nine floors of its Fulton Street store in Brooklyn. Macy’s will get $170 million in cash for the property and expects to record a total gain of $250 million in the fourth quarter from the deal. Macy’s said that it has considered from time to time whether it should engage in these types of deals because it has a vast and valuable real estate portfolio. In the past, their research has led them to determine it wasn’t the right choice.
But now, “real estate values are clearly nearing all-time highs, so over the past few months, we have been intensely studying the subject again,” Hoguet said.
Recently, activist investor Starboard Value has been encouraging Macy’s to spin off its real estate into a holding company, with Macy’s leasing back space for its stores. The deal announced Wednesday, however, is not a sale-leaseback agreement. Macy’s will continue to own and operate a store on the first four levels and the basement level of that building. Tishman Speyer will redevelop the other floors, transforming them into office space.