• by Sarah Mahoney  @mahoney_sarah, August 22, 2023

While Macy’s latest second-quarter financial report beat expectations, its sales decline shows how much Middle American shoppers are pulling back on spending. The company had to make plenty of promotional price adjustments in spring merchandise, biting into profits. And Macy’s expects core customers to continue cutting back, especially given the resumption of student-loan repayments.

Net sales dropped 8% to $5.13 billion, compared to $5.6 billion in the second quarter of 2022. Brick-and-mortar sales also fell 8%, while digital sales dropped 10%. Results were even worse at the Macy’s banner, with comparable sales tumbling 9.2%. Declines at Bloomingdale's were more modest at 2.7%, and Blue Mercury had a sales increase of 5.8%.

Macy’s also says it made $30 million in revenues from its retail ad business, the same as in the year-ago period.

The company posted a net loss of $22 million, compared to net income of $277 million in the year-ago period.

While much of this is bad news and had to some degree been expected, the department-store giant paints a gloomy picture of how Americans are juggling expenses.

Among the problems? A rise in credit card delinquencies caused Macy’s to lower full-year guidance for that division by about 10%. Bad debt “is a sign that its largely middle-income customer base is feeling the effects of inflation,” writes David Swartz, an analyst who covers Macy’s for Morningstar.

The company reaffirmed the previous forecast and still anticipates full-year sales falling between 6% and 7.5%.

Macy’s also announced four new small-format stores. Currently, it operates eight such stores, called Market by Macy’s. The new ones, however, will bear just the Macy’s nameplate.

The small stores are designed to deliver a seamless experience, offering name brands, private labels, convenient pickup and return services and local events.

They include fitting rooms with larger spaces and lounge areas to inspire selfie moments, create a more inviting atmosphere and encourage frequent visits.

Swartz is encouraged by these and other strategic initiatives, including Macy’s media network, new private-label offerings, cost cuts and the success of Backstage, its off-price banners. The retailer’s “ongoing transformation efforts include plenty of changes aimed at fixing core problems,” he writes.

Others are far more critical of Macy’s progress and see it as a troubled brand. “Macy’s 8.4% sales decline is significantly worse than the overall market,” writes Neil Saunders, managing director of GlobalData. “They tell us that the once iconic retailer is firmly on the back foot.” And while the company performed well during much of the pandemic, “with the advantages of a strong economy now firmly behind us, Macy’s is back to being one of the laggards of retail.”

Earlier this month, Macy’s also announced hiring Massimo (Max) Magni as its new chief customer and digital officer. He was previously a senior partner co-leading McKinsey’s NeXT Commerce.