Dive Brief:

• S&P Global on Tuesday downgraded Macy's long-term credit rating to BB+ from BBB- and its short-term rating to B from A-3, according to an emailed press release.

• The downgrade pushes the company's rating out of investment grade territory, while S&P's outlook is stable.​ The firm also downgraded Macy's senior unsecured debt. 

• The downgrade follows the retailer's release of its "Polaris" turnaround strategy. It also comes after Fitch earlier this month downgraded its long-term issuer rating for Macy's to 'BBB-' from 'BBB,' and also downgraded Macy's short-term rating. Fitch's outlook for the company is stable, according to a note emailed to Retail Dive.

Dive Insight:

These downgrades signal the pressure that Macy's is under to find new life amid the ruins of a department store sector that for decades now has seen its market share dwindle and its customers flee.

Macy's is in a particularly tough spot, catering as it does to a shrinking middle class and working as it must to correct its early 21st century overexpansion. After shuttering about 100 stores a couple of years ago, Macy's recently said it will close another 125 over the next three years.

"Macy's faces unique challenges among the large national department stores. A long history of acquisitions and expansion has saddled it with excess stores as shoppers' shifting preferences move away from mall-based locations and toward more value oriented offerings," S&P analysts wrote. They deemed the new strategy "a necessary step toward rightsizing the enterprise" but also said that the plan indicates that Macy's "competitive advantage has diminished more than we expected."

The notes this month from both S&P Global and Fitch demonstrate that, to a great extent, the Polaris plan is a set of financial maneuvers at least as much as a retail transformation, with S&P noting that the company's ongoing free cash flow, along with the asset sales it plans, will bolster its "ability to manage credit metrics by reducing debt." Macy's executives themselves emphasized that as they presented their Polaris plan to Wall Street. Similarly, Fitch analysts noted that Macy's debt reduction to date has allowed it to hold down its debt-to-earnings metrics even as EBITDA declined.

Such declines can't continue if Macy's is to regain its footing. S&P described "an upgrade as unlikely over the next year because we believe the new strategy will take several years to implement and bear fruit." But they allowed that an upgrade is possible longer term, if they see Macy's performance stabilize, with "consistently positive same-store sales growth and margin improvement, while keeping leverage below 3x."

But the downgrades also demonstrate that Macy's trajectory will be determined at least to an extent by financial implications, and some observers don't believe that Wall Street's long view is quite long enough. 

"I think Macy's will survive in one form or another, but I don't know if they can get there without going private," retail consultant Sanford Stein, author of "Retail Schmetail," told Retail Dive in a recent interview. "They're in much better financial straits than J.C. Penney, but the changes they need to make require the kind of pain that investors won't take. Macy's has to make fundamental, transformative changes to survive, the cost of which Wall Street can't or won't stomach."