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Macy's CEO: Department stores can be repositioned as a marketplace

Macy's ( M ) is trying to redefine the future of the department store as the 166-year-old retail giant attempts a comeback after years of struggles.

"If I told everyone that I had a business, that we could be in the cosmetics business, we could be in the women's apparel business, we could be in the men's business, we could be in the home business, we could be in the electronics business, you might call that a marketplace and a marketplace is very attractive to people," CEO Tony Spring said at Yahoo Finance's Invest conference on Tuesday.

Spring, who took the helm last February, said the chain can compete as a marketplace with its namesake Macy's brand, cosmetics business Bluemercury, and luxury chain Bloomingdale's. The concept of a one-stop shop is a draw to shoppers enamored with the likes of Walmart ( WMT ), Amazon ( AMZN ), Temu, and Shein.

"[Online marketplace] allows us to delve into categories like baby furniture and electronics and gaming ... That appeal in some cases to younger consumers that we haven't always had within our stores," Spring added.

Macy's has been struggling with flagging sales as consumers increasingly turn from physical retail to e-commerce. In Q2, its sales dropped 3.8% to $4.9 billion while same-store sales declined 4%, including in-store and digital.

The department store giant has been investing in its digital platform, with plans to better marketing spend and value perception and improve in-stock levels and delivery time for online orders.

Macy's CEO: Department stores can be repositioned as a marketplace

The company recently decided against a take-private offer in favor of improving its business. In July, Macy's ended talks with activist investor Arkhouse and Brigade Capital Management, who had put forth a bid of $24.80 per share.

Its stock has dropped 16% year to date and currently trades at around $15.

"The board unanimously voted in favor of parting ways from the discussions and focusing on the strategy of the company," Spring said, though he noted he's "always open" to what will bring value to shareholders.

Instead, the chain is forging ahead with its "Bold New Chapter" initiative. The plan calls for closing 55 stores in 2024 and 150 by 2026 while investing in its remaining locations.

In the first 50 locations that Macy's has prioritized, same-store sales have increased for the past two quarters, including a 0.8% year-over-year jump in Q2.

Changes include improved presentation, marketing, more sales assistants on the shoe floor, and more help in the fitting rooms. Investors will be closely watching the performance of those 50 stores compared to Macy's overall portfolio following the holiday season, Goldman Sachs retail analyst Brooke Roach told Yahoo Finance.

Spring admitted Macy's has underinvested in its stores for years and given up market share. The company is hoping a better shopping experience will help with word-of-mouth marketing, in addition to traditional marketing and deals with influencers and partners.

To understand if the strategies are working, Spring will be looking for the "golden equation" of higher traffic, conversion, and average order value.

According to Placer.ai, Macy's and Bloomingdale's are faring better in foot traffic trends than their peers. Meanwhile, Bluemercury clocked a 2.9% same-store sales jump last quarter.

But the jury is still out on Macy's new moves.

"It's tough for department stores. Over the last 20 years, they're battling a lot of long-term headwinds. They have really large stores. Macy's definitely falls under that category," CFRA analyst Zachary Warring told Yahoo Finance.

Warring added that results from the strategy should be clear in a year.

Morningstar analyst David Swartz said time will tell if this turnaround attempt will differ from strategies of the past.

"After those stores are closed, Macy's has to try to find a way to make its remaining stores more productive ... If they can't drive sales higher, then they have to find ways to operate the stores with lower costs. That doesn't necessarily mean fewer people; it means less advertising, less marketing expense, reducing inventory in the stores, because that's an expense. It's unclear that Macy's can really do that, because it hasn't been able to do that in the past," Swartz said.

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BrookeDiPalma