Macy's (M): The Retail Universe In A Box

Macy’s (M) said it would lay off 7,000 people, cut its dividend by about 60%, and begin a tender offer for some of its debt.

After the announcement, Moody’s said it might cut Macy’s debt rating which would make capital much more expensive.

The big retailer has about 850 stores and employs 130,000 people.

Macy’s is one of several big retailers that cater to the American middle class. Shoppers with a little less money may go to Wal-Mart (WMT), Sears (SHLD) or K-Mart. Macy’s shoppers are not likely to be in high-end stores including Neiman Marcus or Nordstrom (JWN).

As Macy’s restructured itself, the company said same-store sales might be off as much as 8% this year. That is based on a forecast that no one can really make. As the recession deepens even relatively conservative estimates can be wrong.

As an industry, retail holds onto people as long as it can. A store that closes means that inventory has to be moved somewhere else. It also means real estate and rent negotiations. A closed store is hard to reopen. The customers get in the habit of going somewhere else.

Leaving aside the auto industry which may be supported by the government, no single industry is likely to lose more jobs over the next year than retail. Analysts believe that over 70,000 individual stores could be closed in the US between now and mid-year.

Retail may also be the best example of a large US industry that could get government support to save jobs, but probably won’t. While employment is being built up for infrastructure programs in alternative energy and broadband, retail firms could lay off several hundred thousand people.

How does the government help retail? It would have to offer people tax credits or tax cuts for shopping. The idea is not so strange, New York City used to have "tax free" retail days to get people to come in from the suburbs. Actitve and retired members of the military can shop tax-free on US bases.

The problem with the stimulus package as it is conceived now is that it may simply be too broad. It lets water run through breaches in the dam while hoping to strengthen parts which have not burst. It’s a hard way to keep the water out.

Douglas A. McIntyre