Shares of Macy's (M) fell in morning trading after an analyst at Credit Suisse downgraded the stock to Neutral and recommended swapping into Dillard's (DDS), which he upgraded to Outperform.

MACY'S CUT TO NEUTRAL: This morning, Credit Suisse analyst Michael Exstein downgraded Macy's to Neutral from Outperform. Last month, Macy's became one of the first major retailers to announce a strategy to contend with industry-wide challenges, and the company is now in the implementation phase of its plan, Exstein noted, adding that "Historically, the stock has marked time as execution versus strategy takes center stage for investors." Exstein believes that rationalizing Macy's store base should allow the retailer to adjust its fixed cost base for lower levels of brick and mortar sales, as well as help the company to improve sales productivity and returns due to fewer assets. Exstein maintained his $40 price target on Macy's shares.

DILLARD'S UPGRADE TO OUTPERFORM: While Exstein downgraded Macy's, he also upgraded Dillard's to Outperform from Neutral based on the company's consistency in capital allocation and its valuation. Exstein, who raised his price target on Dillard's shares to $70 from $63, believes the company will continue to reduce overall debt and buy back stock, though he does not see a significant improvement in reported profitability.

WHAT'S NOTABLE: In August, Macy's said it plans to close about 100 full-line stores and will continue to seek partnerships for its flagship locations. Macy's said it will add new vendors shops, enter into more license agreements and increase the size of its staff. The company also said it is in talks to sell its Men's Store on Union Square in San Francisco for redevelopment. In an interview with CNBC at the time, CEO Terry Lundgren commented on the initiatives, saying that Macy's is a "company that doesn't sit still... We're not waiting any longer. We are taking a stance." CFO Karen Hoguet noted that closing stores is "not something we take lightly," but believes "this country is overstored." In addition to peers J.C. Penney (JCP) Nordstrom (JWN), Kohl's (KSS) and Gap (GPS), Macy's has been faced with competition from fast-fashion retailers like H&M, as well as an increase in online shopping on Amazon.com (AMZN). Macy's and other retailers are also looking to delve further into the beauty products market in a move to compete with Amazon and brick-and-mortar retailers like Ulta (ULTA), Wal-Mart (WMT), Target (TGT) and TJ Maxx (TJX). Retail competition is also more active with drugstores like CVS (CVS) and Rite Aid (RAD) expanding their beauty displays and brands opening their own stores.

PRICE ACTION: Macy's is flat near $36.62 in morning trading while Dillard's is up about 8% to $62.80.