Macy’s Inc., transforming into a “smaller, more leveraged” company, warned Wednesday that stores are likely to re-close where coronavirus cases are increasing again.
Since temporarily closing all of its stores in mid-March, Macy’s has been able to reopen all but six, but as its chairman and chief executive officer Jeff Gennette said Wednesday, “The COVID-19 pandemic is still in full swing in some parts of the country. And while we do not expect another national shutdown, we do anticipate a regional impact as consumers are encouraged to stay home. We do expect regional flare-ups that we don’t know fully where they’re going to go yet.
“Most of our stores are currently on reduced hours and will remain flexible to meet demand,” Gennette said during a conference call. “The health and safety of our colleagues and customers is our top priority, and we have a resurgent game plan in place that will guide us if we need to close a single store or a regional group of stores.”
On Wednesday, a coronavirus-impacted Macy’s Inc. reported a first-quarter adjusted loss of $630 million, compared to a profit of $137 million in the year-ago quarter.
Including pretax, non-cash goodwill and long-lived asset impairment charges of $3.1 billion and $80 million, respectively, the net loss soared to $3.58 billion for the first quarter ended May 2, compared to a profit of $136 million in the year-ago period.
Macy’s first-quarter sales were down 45.4 percent to $3 billion, compared to $5.5 billion in the year-ago period. Beauty, furniture, soft home, active and casual ready-to-wear, clearance, and luxury have been strong, while dress up, career, and luggage categories have been weak. “We’re seeing big surges in the luxury business as Bloomingdale’s reopened,” Gennette said.
Currently the department store chain is tracking 35 percent down, and large urban and flagship stores have been hit the hardest since they’re in dense areas most affected by the pandemic, and because international tourism, which last year accounted for 4 percent of Macy’s Inc.’s volume, has vanished due to the outbreak. With the U.S. seeing more cases of COVID-19 than any other country, international tourism to the states is not expected to recover anytime soon.
Moreover, Macy’s overall selling trends aren’t seen returning to any level of normalcy until late 2021 or 2022. For the third and fourth quarters of this year, total company comps are seen down in the low to mid-20s range.
In the meantime, Macy’s is likely to disclose additional permanent store closures on top of the 125 revealed earlier this year. Retail experts expect the number will exceed at least a couple of hundred in total. Macy’s currently operates 841 stores in total, including 550 Macy’s department stores, 36 Bloomingdale’s department stores and 171 Bluemercury stores. The corporation also operates other Macy’s and Bloomingdale’s formats including Macy’s Backstage, Bloomingdale’s outlets, and furniture locations.
“At the moment, there’s really too much uncertainty to commit to any definitive level of store closings,” said Felicia Williams, Macy’s Inc. interim chief financial officer, during the call. “We are modeling all of our store closing metrics. And really, all of our stores are part of those performance metrics’ watch list and closing model decisions. As we think about 125 announcements, probably we have about another 95 to close against our original timeline.”
On the bright side, digital sales are seen generating gains in the mid to high teens this fall, and currently represent 43 percent of the total business, helping to offset the shortfall in brick and mortar. Also, earlier this year, Macy’s raised $4.5 billion in new financing for sufficient liquidity to manage operations and debt, and executives said the company is entering the second half with fresh, clean inventories after successful clearance efforts.
“We think this is going to be the most powerful digital fall ever,” Gennette said. “We’re going to do more business on digital than ever, and it’s going to test our entire fulfillment network, and that’s what we’re laser-focused on right now. But I do believe brick-and-mortar will come back.
“Newly acquired customers coming into the brand through dot.com are younger and more diverse than our core customer,” Gennette added. “We’re working hard at strategies to retain these new customers and over time, convert them to omni shoppers, which are our most valuable customers.”
Last March, Macy’s named former Walmart executive Matt Baer chief digital officer and has been seeking to fill vacated positions related to product, user experience, analytics, site merchandising and strategy resulting from relocating macys.com from San Francisco to New York last February, while also integrating certain Bloomingdales.com positions into Macy’s dot.com structure.
Last week, Macy’s Inc. revealed plans to cut 3,900 jobs on the corporate, management and support levels. There were additional reductions in staffing in the stores, customer service and supply chain network. In February, 2,000 corporate jobs were cut, so at present over 20 percent of the corporate headcount has been cut this year.
With the state of the brick and mortar business precarious, Macy’s is focused on accelerating digital sales by investing in programs revolving around personalization, loyalty, curbside pickups and store fulfillment, while putting a halt on off-mall expansion and new formats. Gennette said Macy’s checkout experience, click-through rates and sell-through rates are getting better.
Interim cfo Williams underscored the concerns over COVID-19 cases spiking. “While we are not planning for a severe lockdown if COVID-19 were recur in the fall, we are mindful of what we are already seeing in certain parts of the country,” Williams said, referring to such states as Texas, Florida, Arizona and Georgia. “As such, we have planned for an ongoing but slow recovery that may be impacted by regional flare-ups here and there. And while we have been pleased with our store performance as they have reopened, we remain cautious about unpredictable headwinds in the back half of the year. For example, our flagship and urban center stores, which have only recently reopened, are at higher risk for limitations on operations. And these doors are disproportionately impacted by the decline in international tourism.”
Stores in the heartland are seeing the strongest selling trends, while stores on both coasts are coming back more slowly.
“Stimulus checks have helped our business, both online as well as in our stores as they reopened,” Gennette said. “So we’re watching that carefully. We’re obviously watching the unemployment rates carefully. We’re watching all the customer behavior. One of the encouraging things about what’s happened to our business during COVID is the amount of new customers that are coming into our brands, particularly online. We’re seeing a younger, more diverse customer that has slightly lower income than our core customer. So our big opportunity is how do we hold on to those customers beyond that first transaction, how do we get them to be an omnichannel customer.”
For holiday 2020, social distancing in the stores is “a big concern” for Macy’s, Gennette acknowledged. To moderate the store traffic, “We’ll do a lot of business on our web site,” the ceo said. “We have a very strong game plan about how we’re going to keep this trend of digital going.
“But when you think about a Black Friday, if you think about the 10 days before Christmas, what does that mean in terms of traffic if people are nervous about gathering with crowds. Everything is on the table right now. We’re working with our merchant and our marketing teams on options within the marketing calendar to reduce pressure points on big volume days. And we’re learning a lot from the reopening of our stores. Most of our stores will not have any issues. But our biggest magnet stores during the Black Friday time frame is the piece that we’re looking at…How do we even out demand? What does that mean for the whole Cyber Week time frame? Are there opportunities for us to pull some of that demand earlier? We do think that people are going to jump on Black Friday earlier in the calendar and so we expect it to start in full force after Halloween.”
Store hours are also being re-examined, but the “safety valve” is maximizing the digital business,” Gennette said. “Curbside pickup is going to be a big secret weapon for us this holiday season.” For those customers entering the stores to buy gifts, “We’re going to be able to protect even the most nervous customers,” Gennette said.
Macy’s will report its second quarter results on Sept. 2.