Macy’s, Inc. (M): The “Magic” Is Still Driving Results

Macy's, Inc.Macy’s, Inc. (NYSE:M) and The Walt Disney Company (NYSE:DIS) both have something magic going on. And it’s all about customer service. It’s why these two companies succeed where others struggle, and why both should be on your wish list.

Magic Selling

Macy’s, Inc. (NYSE:M) operates over 800 Macy’s and Bloomingdale’s stores across 45 states. These two nameplates are legendary in the brick and mortar world. As customers have shifted more and more toward the Internet, however, Macy’s, Inc. (NYSE:M) has found a way to thrive.

For starters, the company has embraced online and started to think of the selling process across channels rather than in store only. Secondly, it works to tailor its stores to the regions they serve. And, perhaps most important, the company initiated its Magic Selling program.

Magic Selling is intended to improve customer engagement. Sales associates are trained to make customer connections, ask questions and listen, give options and advice, and inspire customers to buy. At the end of the day, the goal is to “celebrate the purchase.” That’s pretty compelling, but sounds a little ethereal.

Impressive Results

After bottoming out in 2010, Macy’s, Inc. (NYSE:M) top and bottom lines have grown steadily. Same store sales have been growing reliably, with the first quarter marking the 13th consecutive quarter of 3% or better growth. That’s an impressive string for a retailer operating in a historically slow economic recovery following the deep 2007 to 2009 recession.

With such strong financial results, it shouldn’t be surprising that the stock is near its highs reached prior to the recession. Momentum and growth investors should be interested. Although the results of the company’s initiatives are impressive, the real magic is customer service. Macy’s realizes that it needs to treat its customers better than the competition by “celebrating” them.

Magic of a Different Sort

Another company that understands magic is The Walt Disney Company (NYSE:DIS). The best place to see this is at the company’s theme parks, though customer service pervades the entire organization. In the parks, all employees are cast members and have to play their role until they are in non-customer areas. Part of the role is to be pleasant and nice to everyone. On a more mundane level, the parks are kept immaculately clean.

Service doesn’t start and end in the park, however. The Walt Disney Company (NYSE:DIS) provides free bus service to and from the Orlando airport to its hotels. It also has agreements with airlines to take hotel customers’ luggage from the airplane and deliver it directly to their rooms. All of this makes a trip to Disney easier and helps to justify the premium price tag.

Of course The Walt Disney Company (NYSE:DIS) is more than just parks, it also makes movies, owns ABC, ESPN, and the Disney Channel, runs a cruise line, and has a chain of retail stores. But it works hard to spread the magic of impressive customer relationships across all of its businesses. The parks are just among the most obvious examples.

The Results

Aside from a one year drop in 2009, the tail end of the recession, the company’s top line has grown steadily for a decade. The bottom line, meanwhile, fell notably in 2009 and then started on a recovery path. By 2011, earnings were above pre-recession levels.

And, despite the focus on quality service, the company’s profit margins have improved from the low teens to the high teens/low twenties. You can charge more for good service.

The Walt Disney Company (NYSE:DIS) shares are rarely cheap. So growth investors might like the stock. Income minded investors, meanwhile, should keep Disney on the wish list for a price pullback.

Why is this Special?

Taking a moment to compare the experience at Macy’s, Inc. (NYSE:M) and The Walt Disney Company (NYSE:DIS) to a company that doesn’t focus as much effort on customer service helps show why this pair is so special. Wal-Mart Stores, Inc. (NYSE:WMT) is the largest retailer in the world. Its entire business is based on ruthlessly low prices. That is and will remain a powerful business model.

However, Wal-Mart Stores, Inc. (NYSE:WMT) stores are cavernous and impersonal. Employee relations seem to be a constant issue, spilling over into customer relationships. Sure, cheap prices brings customers in the doors, but low-end service has given competitors an in.

For example, Target Corporation (NYSE:TGT) focuses on the customer experience with chic stores. It charges more than Wal-Mart Stores, Inc. (NYSE:WMT), which helps explain why Target’s profit margin was a full percentage point higher in 2012. That may not sound like much of a difference, but in an industry with notoriously thin margins its huge.

That said, Target Corporation (NYSE:TGT)’s margins have compressed a full percentage point since peaking in 2007. A continued push into lower-margin grocery items to compete with Wal-Mart is partly to blame. However, the company’s push into Canada also opens up the company’s growth prospects, particularly if this winds up being the first step toward a broader international push. Based on the company’s U.S. expansion, though, it will likely progress at a conservative pace on this front.

There are reasons to like Wal-Mart Stores, Inc. (NYSE:WMT), including its size and global reach. However, for investors looking for companies that excel because of customer service, Target Corporation (NYSE:TGT) is the better choice. Growth investors should like Target as it begins to expand internationally, while income investors should watch for a pullback.

Service, Service, Service

Macy’s, Inc. (NYSE:M), Disney, and Target Corporation (NYSE:TGT) all prove that treating customers well is good business. Its exactly the type of distinction that investors should be looking for. The unfortunate part is that investors see the results that these companies have achieved and generally afford the shares premium prices. That said, they are exactly the types of companies to keep on a wish list for a broad market sell off.

The article The “Magic” Is Still Driving Results originally appeared on

Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.