Macy's is beginning to look a lot like a discount store — here's why its plan may not work
A Morgan Stanley note is questioning Macy's latest plan to revitalize its brick-and-mortar stores.
In the past two years, the struggling department store chain has launched an outlet store called Macy's Backstage, added dedicated "Last Act" clearance sections to stores, and said it would add more self-service systems to its beauty and shoe sections.
Afterall, off-price retail is one of the only bright spots in an otherwise gloomy retail sector.
This year, TJ Maxx announced plans to open 1,800 more stores globally and reported its 21st consecutive year of positive same-store sales. Macy's, on the other hand, closed 66 stores in 2016 and plans to shutter another 34 in the next few years.
But in a Morgan Stanley note released Thursday, analysts said they do not believe this off-price strategy will work for department stores.
"We believe the deck looks stacked against them," the note said.
According to the note, off-price stores such as TJ Maxx have a structural advantage over department stores by having a large vendor base, which has been built up over decades.
But most importantly, the note says, it could be more appealing for vendors to sell to off-price stores, rather than department stores' "off-price" divisions. The reason being, major off-price retailers such as TJ Maxx, Ross Stores, and Burlington Stores don't charge their vendors to sell products and advertise with them, or ask for returns. There is also no cost for the vendor when items are marked down.
"We generally do not ask for typical retail concessions such as advertising, promotional or markdown allowances, delivery concessions (such as drop shipments to stores or delayed deliveries) or return privileges," a spokesperson for TJX, TJ Maxx's parent company, told Business Insider.
Macy's did not immediately respond to Business Insider's request for comment.