Macy's is coming back, shaking off several challenges competition from online retailers and the pandemic brought its way. Last week, the iconic retailer reported fourth-quarter sales and earnings that beat analysts' expectations and made 2021 the comeback year.

"Our results in the fourth quarter delivered a strong end to a solid year. I am proud that Macy's, Inc. outperformed expectations on both the top and bottom lines every quarter in 2021, despite COVID-19-related disruptions, supply chain issues, labor shortages and elevated inflation," said Jeff Gennette, chairman and chief executive officer of Macy's, Inc. "Our business has momentum and is serving more customers at more touchpoints in their shopping journey."

Wall Street is beginning to take notice. Macy's shares have gained 4.2% thus far this year, compared to a 10% decline in the S&P shares.

While it's still too early to determine whether these gains will be sustainable, it isn't too early to derive a couple of leadership lessons Macy's comeback offers for business leaders.

1. Small Is Better

In the course of the history of every great company, there comes a time when bigger is better and a time when smaller is better. For Macy's, the time to be bigger was most of the 20th century, when the company kept on adding stores to its portfolio through M&A to serve the retail needs of the rising middle class.

The time to get smaller was the last decade when the rise of online retailers turned brick-and-mortar stores from an asset to a liability, forcing them to close unprofitable stores. But it's easier said than done, as figuring out how many stores to close before losing the "scale advantage" isn't an easy task. But Macy's has done an excellent job, according to Ethan Chernofsky, vice president of marketing at (a foot traffic analytics company).

"Any rightsizing process is clearly challenging, but there are significant signs that the process that Macy's is leading is already yielding improvements," says Chernofsky. "Visits per venue metrics have significantly outpaced the chain's overall visit rates, indicating that the right stores are being closed. This is an important result as it shows that Macy's decision-making process is oriented towards a wider strategic vision on how to continue to serve its current audience even as the retailer adapts to a changing retail environment.”

2. Innovation Makes Things Better

Innovation, the development of new products, processes and business models, is what makes life better and is the key to surviving and thriving in a rapidly changing environment when today's winners can quickly turn into tomorrow's losers.

Once upon a time, JCPenney and Sears were America's iconic retailers. But they failed to keep up with the changes in the retail environment because they didn't try new concepts at the right time, alienating their customer base. JCPenney got rid of weekly specials and sales fliers that bring traffic to the store.

"Macy's has also proven willing to try out new concepts," said Chernofsky. "This push to innovate is incredibly important and combined with the retailer's strong brand and visit resilience, presents an opportunity to drive the company's continued evolution."

Macy's joined other retailers to "turn the tables" against online retailers by merging online retailing with offline retailing. Macy's site allows shoppers to buy online and pick up the merchandise the same day in its store, try it and return it on the spot if not satisfied. That's something online retailers have been missing all along.

Coming up with the right concept doesn't happen overnight. Macy's leadership took a great deal of effort, which brings the discussion to the third leadership lesson.

3. Never Give Up

Whether referring to personal life or businesses, never giving up is about perseverance and endurance, coping with the many impediments and hurdles between the decision-maker and the goal.

According to Dan Biederman, president of the 34th Street Partnership and Biederman Redevelopment Ventures Corporation in New York City, Macy's leadership has been doing just that.

"Macy's is coming back, at least in its flagship store in our 34th Street district, because, from the CEO through senior executives down to the hard-working sales personnel on the floor, they never gave up," he said. "They faced the pandemic, riots and a massive decline in the area's office and retail and tourist populations, and kept plugging away with merchandise upgrades, sales and great store design."

And they saved the neighborhood economy in the process.

"If Macy's had ever closed down, it would have hurt morale in our neighborhood badly," Biederman adds. "New Yorkers kept coming to the store, and they also visited Macy's competitors next door, so the neighborhood survived as a retail hub. Now it's coming back strongly."