Marc Lichtenfeld
To drive traffic, the company said it will place more ads promoting sales and discounts in the media, including television, newspapers and the Web, instead of sending them via direct mail. Federated said it is seeking to create a sense of "urgency" with shoppers to get them into the stores.
But the way to create that urgency is through promotions. That, in turn, likely will lead to deteriorating gross margin as the company is forced to sell marked-down merchandise. And while the new advertising strategy may be correct -- especially since the company is still building its database of May customers, so direct mail isn't as effective -- there's no evidence that the marketing initiative will carry any oomph. Management didn't discuss any new exciting campaign that would make the brand stand out above the rest. And with many retailers struggling and competing for traffic, Macy's certainly won't be the only store ramping up marketing and offering discounts to entice shoppers. The scary thing is that this can become a slippery slope. If traffic doesn't pick up, either due to company-specific or macroeconomic issues, the competitive landscape will become even more intense, and Federated will have to further boost spending to ensure it captures market share during the critical back-to-school and holiday periods. The company seems optimistic that things won't get much worse. Federated reiterated its earnings expectation for the year of $2.45 to $2.60 a share. While that is still below Wall Street's estimate of $2.68, it doesn't take the above scenario into play.
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