Macy’s is redirecting its spend and has “rewired” its cost base.
The retailer will continue to “lean in” on digital growth; enhance service; build smaller-format Macy’s and Bloomingdale’s locations; add Backstage off-price units; develop a new sourcing model; beef up loyalty and personalization efforts, and focus on capturing sales from down and out competitors.
Those were among the several opportunities and areas of investments cited by Macy’s Inc. executives at the Goldman Sachs annual Global Retailing Conference on Wednesday. They cited “a pause” in investing in existing Macy’s and Bloomingdale’s department stores, a reduced capital budget “in the medium term,” and stressed that while its digital business is profitable, it’s imperative to improve margins for greater profitability.
They said Macy’s has the wherewithal and liquidity to make it through the pandemic and recession, thanks to the $4.5 billion in financing obtained early this year. The company is also closing 125 stores over three years, and has consolidated its workforce, twice this year.
“When COVID-19 hit, we accelerated everything on our digital agenda. We focused on investing in the fundamentals of our digital platforms to improve customer end-to-end experience, including a better browsing experience, smooth checkout and confirmed delivery dates,” Macy’s chairman and chief executive officer Jeff Gennette said during the conference.
He said that with 4 million new customers shopping Macy’s digitally this year, “We’re using loyalty and personalized communications guided by advanced data analytics to drive engagement and ensure these new customers come back to Macy’s and migrate up our lifetime value curve.”
Regarding the pandemic-induced wave of retail bankruptcies and store shutdowns, Gennette said, “With many competitors closing or struggling, we have an aggressive, intentional plan to bring new customers into the brands and gain market share.” The ceo sees Macy’s and Bloomingdale’s each picking up $200 million in sales from primarily mall stores being closed by J.C. Penney, Lord & Taylor, Pier 1, Neiman Marcus and Nordstrom.
“I certainly believe that digital will remain in that 40 percent or higher range, and we were fortunate to head into the pandemic and the store closures with a strong digital business already,” Gennette said. Last quarter, digital sales grew 53 percent, representing 54 percent of total owned comparable sales.
“But the growing digital profitability is imperative, and that is within our line of sight,” Gennette said. “So the increased focus on digital, it was top of mind really as we rewired our cost base and making sure that we could maximize getting SG&A as low as it could be to ensure that we could be profitable as an overall company.”
The company reported a $431 million net loss in the second quarter ended Aug. 1, compared to an $86 million gain a year ago, and 35.1 percent decline in net sales to $3.56 billion, from $5.55 billion in the year-ago period. The results sparked analysts’ fears over Macy’s turnaround, particularly given the additional debt it has taken on during the pandemic.
Felicia Williams, Macy’s interim chief financial officer, cited “location-level pricing to get real clear visibility of our pricing and our value to our customers,” and optimizing POS.
She said “hold and flow,” an inventory strategy enabling Macy’s to have merchandise on hand and ready for quick store and online replenishment, will be “a huge component to ensuring that we have the right inventory in the right channel and really in the right location to meet the customer demand.”
With private brands, “We are working on a new sourcing model to grow our gross margins,” Williams said. Private brands represent 20 percent of Macy’s business, and is seen rising to about 25 percent by 2024.
“And lastly, we integrated our planning functions under supply chain,” Williams added. “This allowed us to create one business team to partner with the merchandising organization. And this has allowed us to better consolidate responsibilities. It reduces handoffs. We’ve expedited decision-making. It is really about getting the product much closer to the customer demand. And I think we’re seeing the early benefits of this integration through our second-quarter results, where we ended the second quarter with much leaner inventory, which are down 29 percent to last year, and higher sell-throughs.
“So while we have shifted investment from the physical building, we are leaning really heavily into technology, particularly the technology that is required to ensure our omnichannel capabilities and to continue to satisfy the customer demand,” Williams said.
The interim cfo also cited investments in technology geared to simplify and speed the return process for customers, improve hand-held and self checkouts, and improve the delivery experience for big-ticket customers.
“And then finally, and as important, our capital investments will be in new avenues of growth like Backstage and freestanding smaller-format stores. By the end of 2021, we will open several smaller-format, off-mall Macy’s, and we will test a smaller-format, off-mall Bloomingdale’s. In every off-mall store, we’ll have full service for pickups and returns.
“And so we are keenly focused on these core priorities, digital, supply chain, technology and growth in the freestanding, smaller formats and Backstage,” Williams said. “It’s a mix.”