Tourists can be blamed for a lot of things: pedestrian traffic jams or sold out tickets to “Hamilton,” for example. But are they also responsible for the sales decline at Macy’s Inc. during the first quarter?
The retailer, whose shares were down some 14% at one point Wednesday, is facing headwinds from a “second consecutive year of double-digit spending reductions by international visitors in major tourist markets where Macy’s and Bloomingdale’s are key destinations,” said Chief Executive Terry Lundgren in a statement.
Karen Hoguet, chief financial officer of Macy’s M, -0.76% , said sales on international tourist credit cards were down 20% for the quarter, in addition to a 21% drop last year in the first quarter, according to a FactSet transcript. A breakdown of what that translates to in dollars wasn’t provided.
Experts told MarketWatch there are issues at work beyond tourist spending.
“There’s no doubt the softer global economy and the strength of the dollar is having an impact,” said Jared Wiesel, a partner at pricing and revenue management consulting firm, Revenue Analytics. “But to say that sales dropped 7% and say that that’s the major driver, I’m a little skeptical.”
“There’s a larger fundamental weakness to the business model – to the department store model – that drives this sort of long-term weakness rather than it just being an international customer segment that’s protracting,” he added.
In the past, the company has said international tourism represents about 5% of total sales, according to a Macy’s spokesperson. That number is higher in markets like New York, Chicago and Los Angeles.
“Given that our stores are concentrated in major tourist markets, this is a big factor for us and we are no longer confident that it will improve any time soon,” Hoguet said on the call.
Total revenue for the quarter fell 7.4% to $5.8 billion from $6.2 billion year over year. Same-store sales fell 6.1% on an owned basis.
Solutions that Macy’s proposed in the earnings release include more exclusive merchandise and cost controls.
“You can’t just wait for the dollar to weaken and hope that the traffic will come back,” said Weisel. “They’re struggling with how to compete.”
In fact, the dollar was weaker over the past year, with the average daily price during the quarter for the ICE U.S. Dollar index, a gauge of dollar strength against six rivals, about 1% lower than it was the year before.
And international air traffic to and from the U.S. in January and February of this year was up 7% to 32.3 million passengers year-over-year, according to numbers furnished by the U.S. Department of Commerce’s National Travel and Tourism Office. Among the top 10 U.S. airports in terms of passenger traffic to and from foreign airports are New York (number 1), Los Angeles (number 3) and Chicago (number 8).
“We see the same economic data you all see and it would point to a customer that would be spending more,” Hoguet said on the call. “Some of it is spending in different categories: health, restaurants, travel. I’m not sure but I would say that we too are somewhat puzzled by the data that we’re seeing on the consumer and the traffic we’re seeing in the stores and on the site.”
One key piece of the puzzle is not only getting customers into the store, but making them repeat customers, said Wiesel.
“Given the environment, people just aren’t as loyal as they used to be,” he said.
Another is the “turmoil” caused by the growth of e-commerce giant Amazon.com Inc. AMZN, +0.31% , said Ken Murphy, senior vice president and portfolio manager at Standard Life Investments, an asset management services company.
“Retailers are taking actions like they’re in a recession,” said Murphy, like closing stores and aggressively cutting costs. E-commerce requires constant investment in technology at a time when sales are falling.
Murphy gives Macy’s credit for already having fewer stores and a better brand reputation than other retailers. There will eventually be a point where traditional retailers will find a balance between brick-and-mortar stores and the online component.
Until then, retailers simply have to find ways to sell things.
“When things go soft, everyone wants to buckle down with expenses,” said Wiesel. “You’re not going to cost-cut your way to growth.”