Macy's is officially becoming the new Sears

Macy’s sales are plunging.

The department store’s sales fell 7.4% in the first quarter, as customers cut back on buying apparel.

This marks the fifth straight quarter of sales declines for Macy’s.

“We are seeing continued weakness in consumer spending levels for apparel and related categories,” Terry J. Lundgren, Macy’s chairman and chief executive officer, said in a statement.

The company’s stock fell more than 8% in early morning trading Wednesday.

The issues plaguing Macy’s are the same ones that have brought Sears close to extinction: falling traffic, underinvestment in stores, and a reliance on excessive discounting to attract customers.

“The blunt truth is that Macy’s does not give consumers a reason to visit its stores,” Neil Saunders, CEO of retail consulting firm Conlumino, wrote in a note to clients Wednesday. “In many locations shops are simply not up to par: they are poorly merchandised, hard to shop, lack any inspiration, and have fairly mediocre customer service. Some of this is about a lack of capital investment, but some is about a lack of basic shop-keeping standards.”

Sears’ stock has lost 68% of its value in the last year, compared to a 47% drop for Macy’s.

In an effort to drive sales and traffic, Macy’s has launched an off-price brand called Backstage. The company is opening dozens of standalone Backstage stores, as well as adding Backstage sections to its full-price department stores.
Backstage sells Macy’s brands at steeply discounted prices of up to 80% off. This model copies highly successful brands like TJ Maxx and Nordstrom Rack.

The strategy could backfire, however, as Macy’s tries to revamp its mainstream stores around a more premium positioning with exclusive celebrity-backed brands and a new jewellery line.

“The attempt to shift perceptions are hampered by Macy’s muddying the water by including the Backstage discount concept in mainstream stores,” Saunders writes. “This serves to underline that Macy’s is both struggling to make its existing space productive, and that it still lacks the differentiation and brand strength to pull in customers on the back of its full price offer. In our view it is a move that will confuse both the proposition and customers.”

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