Macy’s is getting ready for the holidays, with plans for its Thanksgiving Day parade newly unveiled.

Getty Images for Macy’s

Macy’s Inc. M, -1.41% is putting a new spin on its iconic Thanksgiving Day parade this year, and one analyst says the retailer should be giving its stores a revamp, too.

This year’s parade will do away with the traditional 2½-mile Manhattan route in order to avoid generating a large crowd. Viewers will only be able to experience the event on television, through streaming platforms and, for the first time, with audio description for the blind and visually impaired. Staff and performers will be socially distanced and tested for COVID-19, and the number of participants has been cut by 88%.

The event will still feature the familiar array of balloons, floats and performances. Santa Claus will make the traditional appearance.

Earlier this week, Macy’s reported third-quarter sales that exceeded expectations a loss that was narrower than forecast. Though the results were ahead of the Street consensus, GlobalData said Macy’s has major challenges to overcome, starting with its stores.

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“[T]he shop floor is nothing short of a shambles — a messy jumble of product that is chucked on fixtures with no flair or care,” wrote Neil Saunders, GlobalData’s managing director, in a note.

“Sometimes garments fall to the floor, where they can remain for days. More than occasionally, displays are dirty with dust accumulation like a winter snowfall. Frayed carpets. Peeling walls. Damaged displays. Random bits of trash. These are not exceptions; they are now the typical state of all too many of Macy’s shops.”

Saunders said the situation at store locations is a product of “inertia and incompetence … not a word we use lightly.”

Saunders, like others, said that the issues confronting Macy’s and the department-store category predate the coronavirus pandemic, when consumer behavior shifted, notably toward online shopping. But Macy’s is also faced with challenges to its merchandise lineup, GlobalData said.

And while Macy’s ended the quarter with $1.6 billion in cash and $3 billion available in its asset-based credit facility, Saunders highlighted the $4.88 billion operating loss rung up over the first 39 weeks of the year.

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Other analysts aren’t nearly as pessimistic.

Cowen has taken note of the 7 million online customers added over the last two quarters. “These shoppers are younger and more diverse than typical Macy’s shoppers, and Macy’s has a major opportunity to turn them into productive omni-channel shoppers,” wrote Cowen analysts led by Oliver Chen.

Cowen rates Macy’s stock market perform and has a $10 price target for the stock, up from $9.

“We see this as a major catalyst to re-accelerate relevance and comp trends. Third-quarter comps and margins are above expectations, and inventories are clean, setting up a better-than-feared holiday quarter.”

While November might be going all right, UBS analysts are still cautious. “We think the Street underestimates the pressure on [Macy’s] earnings from share loss as consumers migrate to online pure-play channels, retailers with better value-for-money propositions such as TJX, and brands’ own stores and websites,” wrote UBS analysts led by Jay Sole.

“Plus, COVID-19 has changed fashion trends away from work, dressy, and event items, three important categories for Macy’s. We also believe many underestimate how difficult it will be for Macy’s to re-leverage fixed costs.”

UBS rates Macy’s stock sell with a $3 price target.

Macy’s shares rallied nearly 23% this week but are down nearly 47% since the start of the year. The ProShares Decline of the Retail Store ETF EMTY, +0.47% is down 27.4% for 2020. And the benchmark S&P 500 index SPX, -0.67% has gained 10.5% for the period.

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