With consumers demanding low prices, modern stores and the ability shop on- or offline as they please, one analyst said Macy's is facing the same conundrum as Wal-Mart: The need to reinvest in its business to keep pace with changing shopper behaviors.
Cowen and Company analyst Oliver Chen on Monday downgraded shares of Macy's to "market perform" from "outperform," citing a number of external headwinds facing the midtier department store.
Among his caution flags were a further deterioration in foot traffic at malls, warmer-than-usual temperatures pressuring sales, a deceleration in women's accessories (which account for nearly 40 percent of its business) and a shift in consumer interest away from material goods toward experience and dining out.
The company is also up against sluggish international tourism, which management said earlier this year accounts for roughly 5 percent of its annual sales.
"Macy's is making the right strategic decisions to diversify long term ... however, we're cognizant these initiatives are capital intensive," Chen wrote in a note to investors.
Among these strategic decisions are its recent acquisition of beauty retailer Bluemercury; entry into the off-price market via its Backstage stores; and pouring more investments into its top-performing stores.
Still, trends at its traditional department store remain under pressure, with Chen predicting Macy's same-store sales will fall 0.8 percent in the third quarter, despite lapping a decline of 1.4 percent in the prior-year period. That would mark the company's third consecutive same-store sales decline.
The department store is also under pressure from what is already shaping up to be a highly promotional holiday season. Best Buy last week said that it will offer free shipping for no minimum purchase through Jan. 2, whereas Target has expanded its price-match guarantee. And Wal-Mart sparked concern earlier this month when it said that it would once again invest in becoming the leader in low prices.
But there is some good news for Macy's. Although department stores have been ceding share to lower-price competitors, a study released by Brand Keys on Monday found that 85 percent of the nearly 16,000 consumers it surveyed plan to shop at a traditional department store this holiday season. That's up 7 percent compared to last year.
"Even in light of the mobile shopping movement, which has grown into a $100+ billion industry, brick-and-mortar retailers still rank high on consumers' list of places they intend to shop," the Brand Keys report said.
Chen said the largest unknown for Macy's is its potential to make money off its real estate. Earlier this year, the retailer sold a building in Pittsburgh for $15 million, and the upper floors in its Brooklyn, New York, and Seattle stores for a combined $310 million gain.
The company has also said that it plans to close 35 to 40 stores in early 2016.
Shares of Macy's were up nearly 1 percent late morning Monday, at more than $48, but are down 27 percent year to date.