(M) Macy’s Ventures with Finish Line

Amidst an uneven economic recovery and cautious consumer behavior, retailers are leaving no stone unturned to keep themselves on the growth trajectory, and Macy’s Inc. (M) is just doing exactly the same, to keep up in the race of the “Survival of the Fittest.” This is evident from its recently announced venture with the premium athletic shoes, apparel and accessories retailer, The Finish Line Inc. (FINL).

Finish Line, which will become an exclusive athletic footwear partner of Macy’s, will operate through the latter’s 450 plus locations as leased departments against a licensing fee, with rollout commencing in Spring 2013 and to be finished by Fall 2014. Additionally, Finish Line would manage Macy’s footwear collections and stock across 225 outlets starting in Spring 2013.

The deal seems to be profitable for both the parties. The addition of branded Finish Line products in the kitty will assist Macy’s in becoming a favorite destination for exclusive footwear collections, apart from its apparel, cosmetics and home furnishings offerings. This would help it to attract traffic both in stores and online.

On the other hand, Macy’s presence will facilitate Finish Line to tap under penetrated markets and enhance its customer base. The deal is expected to augment Finish Line’s top line by $250 million to $350 million annually in the long run. Currently, Finish Line operates 638 stores in malls.

The store-within-store concept is not new. J. C. Penney Company Inc. (JCP) operates in-store Sephora departments, and has also incorporated stores of MNG by Mango and Call It Spring by The ALDO Group in its store suite.

Closing Comment

Macy’s departmental stores sell a wide range of merchandise. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.

In an attempt to increase sales, profitability and cash flow, the company has been taking steps such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy’s continues to focus on price optimization, inventory management and merchandise planning to drive traffic.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.

Macy’s, which competes with Dillard’s Inc. (DDS) and Saks Incorporated (SKS), currently operates approximately 840 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

Currently, we have a long-term Neutral recommendation on the stock. However, Macy’s holds a Zacks #2 Rank that translates into a short-term Buy rating, and well defines its relentless endeavors to combat an economy that still lacks luster.

Read the full analyst report on “M”
Read the full analyst report on “FINL”
Read the full analyst report on “DDS”
Read the full analyst report on “JCP”
Read the full analyst report on “SKS”
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