27 October 2016
Macy's, by expanding into China, may be spreading itself too thinly, according to some analysts. Photo: Bloomberg
Macy's, by expanding into China, may be spreading itself too thinly, according to some analysts. Photo: Bloomberg

Macy’s China plans draw critics who want more focus at home

US department store chain Macy’s has formed a joint venture in China with Hong Kong-based Fung Retailing that will start by selling products on Alibaba Group Holdings Ltd’s Tmall Global marketplace.

The deal comes in the wake of Macy’s plans to open off-price stores in the United States that will sell clearance products, start new stores that will sell luxury beauty products, and offer same-day delivery services in more US markets than Amazon, Reuters reported.

Macy’s also is expanding a new loyalty program, localizing store assortments and trying to improve store service.

“No one could accuse Macy’s of being a company that stands still,” said Neil Saunders, chief executive of retail industry research firm Conlumino.

“However, the question remains, Is the company biting off more than it can chew and is it spreading its management and investments too thinly?”

The China venture takes Macy’s focus outside the US, where the company has almost all its operations.

Several analysts said Macy’s US strategic initiatives are taking longer than expected to deliver and that pursuing several opportunities simultaneously is hurting the company’s ability to execute.

Sterne Agee CRT Research analysts wrote in a note that China and other strategies, including the plans for discount stores and to sell beauty products, muddy a clear strategy and raise the risk profile of the business.

“What was once a clean retail story has become far more complex (and controversial) with negative comps and an assortment of unproven sales drivers,” the analysts wrote.

Macy’s chief executive Terry Lundgren said the joint venture with Fung Retailing offers a controlled way to build gradually. It will invest US$25 million in the next 18 months.

“The best idea is to test multiple things as opposed to putting all of your eggs in one basket,” Lundgren told Reuters in an interview. “Which[ever] of these platforms works the best, that’s where we’ll invest aggressively.”

Macy’s struggles to increase its sales have pushed the retailer to look for new avenues of growth.

Sales at existing stores increased 1.4 percent in 2014, down from 2.8 percent in 2013 and 4 percent in 2012.

On Wednesday it lowered its full-year sales forecast for 2015 primarily because of a weaker-than-expected performance in the first half.

Ken Murphy, vice president and portfolio manager at Standard Life Investments, which holds Macy’s shares, said the China entry is “definitely not a must have” for Macy’s as it looks for growth avenues but he thinks the virtual store model tested by the retailer has few risks.

Virtual storefronts are becoming a preferred route for US retailers to enter China cheaply. Several early entrants including Home Depot Inc. and Best Buy Co. left the country after building stores that failed to take off, the news agency said.

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