Macy’s, Inc. (M): Why You Should Buy This Department Store

Macy’s, Inc. (NYSE:M) has recently announced its 1Q13 results, and it has reported 20% growth in profits. It is following some key strategies for growth, such as MOM. The MOM strategy has three parts: “My Macy’s,” Ominchannel, and Magical Selling. My Macy’s is a strategy that focuses on localization and segmentation of stores, while omnichannel will be crucial for Macy’s, Inc. (NYSE:M) to increase its customer base in the next few years. Magical Selling is also part of these efforts, in which the company gives extra training to its sales associates. It is also focusing on younger and frequent buyers called “Milleninal” customers for sales growth.

My Macy’s, Inc. (NYSE:M) is one of the key strategies of the company that has helped it to succeed in the past, and it will continue to drive growth for in future. In this strategy, the company emphasizes the localization of its offerings and further segmentation of its stores. Some of the segments are warm weather, Latino, a small store prototype and extreme growth stores. Merchandising and assorting in these stores has been well received with minimal complaints. This strategy provides a competitive advantage because customers are more aware of their needs and what they want.

Expansion of “Omnichannel” network will ensure quick delivery

The Omnichannel approach to selling products will be another key strategy that will be a sales driver in the future. Online sale have been the biggest growth platform, with 40% growth last year. The company has around 292 stores to cater to orders through these channels. They are planning to expand this facility to 500 stores by fall of 2013. This will result in quick delivery of products with closer options for in-store pick up of their online orders. This channel, with its use of digital advertising, can be the key to increasing per consumer spending and attracting new customers to the stores.

Targeting “Millennial” customer base with new launches and brand extensions

Millennial customers are a $65 billion market, and they are a point of focus for the company to drive sales in FY 2013. This category is full of young, active and impulsive buyers, and the company is planning to launch 13 new brands and expand 11 existing brands by the end of 2013 for them. They recently launched two new brands named QMack and Maison Jules, and a private label called Bar III Carnaby collection, which is an extension of its brand Bar III. These launches will bring more traffic into stores of this young customer base in 2H/13.

Peer Analysis

Nordstrom, Inc. (NYSE:JWN) and Saks Inc (NYSE:SKS) are two other major retail players. Nordstrom, Inc. (NYSE:JWN) is investing around $240 million into technological enhancements in FY 2013. This investment is expected to bring better online and mobile experiences for its direct online channel customers, who contribute 30% of its sales. It is also opening 25-30 new Rack stores in 2013 and intends to increase its presence by opening a total of 230 stores by 2016. Its focus on Direct Channel and Rack stores will be decisive for long term growth.

Saks Inc (NYSE:SKS) is also moving towards Onmichannel, with Project Evolution and an investment in information technology. Its initiative of “buy online, ship from store” is part of its Project Evolution, which will increase its customer base. It has expansion plans of OFF Fifth stores, where it is moving out of conventional locations in malls to neighborhood center locations. This will help it to increase its reach to new customers with 7 new stores coming by 2013.

Source: Google Finance

Macy’s, Inc. (NYSE:M) seems to be a better option among its peers with a low forward P/E of 10.93 and a price to sales ratio of 0.75. Saks Inc (NYSE:SKS) also is a decent stock with a low price to sales ratio of 0.51, but with the highest forward P/E ratio of 23.17. Nordstrom, Inc. (NYSE:JWN) registered the highest operating margin of 10% among the peers, and also the highest P/S ratio of 1.07.

Conclusion

Macy’s, Inc. (NYSE:M) is looking for growth with its “My Macy’s” and Omnichannel strategies. It is focusing on more frequent and impulsive buyers’ category of “Millennial” customers with new product launches and brand extensions. The company is trading at a discount to its peers Nordstrom, Inc. (NYSE:JWN) and Saks Inc (NYSE:SKS). I recommend Macy’s, Inc. (NYSE:M) as a core holding for one’s equity portfolio.

Ash Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Why You Should Buy This Department Store originally appeared on Fool.com.

Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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