The overall health of a given economy depends on the robustness of the retail industry which is characterized by the more than 3,000 establishments that generate over 50 billion in yearly revenues. The industry, therefore, employs more than half a million employees in both retail businesses and large chains whose ownership finds claim through multi-nationals (NASDAQ, 2016). In an analysis of the valuation trends in the retail industry, a look at the major trends affecting the retail business point to the emergence of the internet as a connector of all the key players in the retailing industry. Another major trending issue is the growth of franchise systems and lastly the existence of proliferated retail chains.
The Value Drivers in the Retail Industry:
The primary retail value drivers in the sector comprise:
Unyielding dependence of location:
A comparatively higher employee turnover, where the pay rates are lower in the manufacturing industry
A combating of "big box "competition through shifting focus on the available niche markets
Whenever business grants credit, accounts are rendered receivable.
Another, value driving agent in the economy is the increased use of current points of sale and computer management systems. The use of the implements ensures that retail operators have an improvement of their profitability.
Threats and Opportunities:
Intense Competitive Environment:
Macys Inc operates in a tight and competitive retail industry, and the threat lying here shows that the entry of new companies still finds a serene environment for operation thus threatening Macy's prospects in profitability.
Slow consumer Purchasing Habits:
The company also faces a slow industrial growth that shows characterization through a slowdown in consumer spending habits.
Rivalry among competitors:
In the retail industry, there is host of rivals to Macy's Inc and therefore form a real threat towards its economic prosperity. The companies here include Dillard's Inc, TJ Max and JC Penney.
Threat in Substitute Product:
Macy's faces a threat in product substitution where goods that are basically 'designer inspired' are offered in the most online boutique at relatively lower prices regardless of their lack of originality.
Macy's positioning in the high-end retail industry presents it an opportunity to cement its position as a major player concerning provision of quality products and hence attaining a higher competitive advantage over the other rivals in the industry.
A great opportunity for achievement of higher profits awaits Macy's with its swiftness in the implementation of the cost-control measures. The implementation would also make sure that production maintains its tempo and in the long run even achieve the highest profitability levels.
Logic supporting BW's Positive Perspective:
The closure of Macy's 100 stores would ideally impact on the company's projected sales as well as its EBITDA. On the contrary, BW asserts that the closure would come up with a lot of prospects as far as the profitability of Macy's Inc as a company is concerned. The first logical consideration focuses on the various setbacks realized with the existence of the 100 stores in place. It comes from evidence that Macy's experiences a decline in its competence as far as the number of department stores would get forced into competing for same prices with new entrants into the retail industry (NASDAQ, 2016). In addition to the various problems surrounding the stores, the fact that the e-commerce exists in an overly saturated and competitive environment, the only clear projection to realizing a change towards profitability is a reduction of the number of stores. It leaves no doubt that announcement of working capital and cash flows as determinants of the extent of the financial burden caused to the company. It portrays a particular need for an overhaul on the many stores so as to focus on increase management of a recommended number of stores. BW assures profitability of the company in case the plan ensues as it shows the commitment to the company's management to improving the profitability of the company as the company is poised for a reduction of the high operation costs. The experienced equity analyst also hints at the great opportunities that exist with the company's priority on monetization of its real estate as a successful portfolio. In following up the profitability projected with the closure of 100 stores, there is the school of thought that the strategic store closures show necessity as they would align the modern day e-commerce with the historic store base. The move would therefore, find consideration as one ensuring higher rates of return with a sharp focus on the increased investments and ultimately improvement of profits for the company (NASDAQ, 2016). BW still emphasizes the need for a continuous rethinking of the idea that top-line growth focused towards offering long-term solution would trail the overall industrial sector. She affirms that the closures would attain a leveraged upside so that any imagination that the profitability would decrease is rendered non-practical. She suggests a practical example of putting an estimated $29 fair value under review so as to assess how the announcement of the closure of the 100 stores impacts the company as one of the key players in the retail sector.
The Fundamental Approaches: 3 Different Strategies in Retail:
In retailing, franchising or owning real estates are two separate policies as far as retailing is concerned, which can get listed in the form of three fundamental approaches.
Buying an existing franchise
Buying master franchise rights
Absentee ownership and conversion franchise
The methods exhibit differences since the franchise business have unlimited opportunities in selling services or products in the different franchise locations. For the master franchise approach, it shows a faster growth rate and also allows the sale of more and various services.
The methods depict differences because they demand differences in management of time and effort and technicalities involved in running the franchises. Also, the original franchise development process follows different channels mainly due to the differences in the structures and systems that each franchise has in place (NASDAQ, 2016). In the analysis of the valuation trends in the retail industry, a look at the major trends affecting the retail business point to the emergence of the internet as a connector of all the key players in the retailing industry. Lastly, the major trending issue is the growth of franchise systems and lastly the existence of proliferated retail chains. The root of the differences exists with the fact that investors cash in a different amount of investments concerning size and quality of a franchise system.
There are significant differences between the fair value estimates between BW and BRG report:
The concept of fair value seeks to harmonize all the measurements as far as financial statements of Macy's are concerned. BW focuses on actual costs where the amount of money paid in the acquisition of an asset portrays an adjustment of figures to suit the company's budget. A look at the liabilities shows historical records centering on the amount of finances received in the fulfillment of the company's obligations.
In the case of the Buckingham Research Group (BRG), it portrays 2016 as a fiscal year that would witness a 1% decline in comparable sales. Further BRG gives indications that the total sales expected in the year would fall by a fair value of 2%, contrary to BW's projections of a decline of 6% accompanied by a 2% decline showing a significant improvement from the previous financial quarter. Additionally, BW indicates that the 100 stores set for closure accounts for 14% of Macy's store base and it then assures investors and other key stakeholders of financial stability. Contrarily, BRG asserts that the opportunities presented as a function of fairness of value through the realization of the company's synergy in the stock market. It, therefore, means that manipulation of these values would mean to portray the company's stability in considering value investors would be willing to take in a prescribed approach.
Expectation of the Evolution of Macy's Market Place:
Macy's market engagement has portrayed a worrying trend as far as its performance in the stock market is concerned. The first quarter shows a falling off more than 5% due to its miscalculated forecasts. With a lowering of its earnings and sales, the same-store sales (a measure of financial health in retailers) have continued portraying Macy's future market evolution as stagnating. Another expectation is the fact that it is slowly becoming an old franchise. With this regard, the franchise is expected to front partnerships on products such as technological gadgets, or even cloth lines (NASDAQ, 2016). From the reports by Buckingham Research Group on the prospects of the company basing on its stock performance, shows the market would have increased risks. The evolution of the market states that increased competitive pressures and stock market volatility would have the government regulating its operations incorporating aspects such as patent and corporate litigation.
NASDAQ. (2016). Macy's Equity Reseach. Retrieved 18 October 2016, from http://www.nasdaq.com/symbol/m/analyst-researchhttp://www.nasdaq.com/symbol/m/analyst-research
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