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A Retail Renaissance

0228_Macys

Image source: faithie / Shutterstock.com

What's going on?

Department store chain Macy’s – the poster child for old-school retailers’ struggles last year – reported a much better fourth quarter than Wall Street was expecting, helping its stock shoot up almost 4% on an otherwise very weak day for stocks. The price is right…

What does this mean?

Macy’s said its sales grew in its latest quarter (versus expectations that they would shrink for the 12th consecutive quarter) – and it significantly increased its expectations for profit this year. Meanwhile, Dillard’s, another department store, also reported much stronger profits than anticipated – adding to the shoptimism for retailers.

Why should I care?

For markets: Macy’s is mainly just doing a better job at the basics.

Macy’s is fond of talking up its growth as an “omni-channel” retailer (essentially having its online and physical stores work together), and it’s managed to grow its digital sales by “double digits” over the past year – but that’s hardly Amazon-type growth. Macy’s primary successes were in old-school retail basics: better inventory management, more incentivized staff and something for the cost-conscious consumer (with the expansion of its lower-priced chain Backstage). While these changes have been good for Macy’s profits, marginal improvements on a business model under existential threat (i.e. brick-and-mortar shopping) may not be enough.


The bigger picture: There’s been a renaissance for retail stocks in recent months.

Macy’s stock has now recouped almost all of its 2017 losses and various other retailers, including other struggling department stores and brands like Under Armour, have also rebounded. A confident US consumer helps (retailers clearly benefit when their customers spend more money), as do corporate tax cuts. Investors also probably got a little ahead of themselves when selling retail stocks so aggressively last year: malls aren’t completely empty yet, and Stephen Curry can still sell shoes. The question now is whether old-school retailers can keep the momentum going, or whether we’re simply witnessing a brief respite before newer entrants like Amazon take over completely.

Originally posted as part of the Finimize daily email.

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