Under enormous pressure to salvage revenues, U.S. department stores, luxury and mainstream alike, are cautiously restarting their brick-and-mortar businesses in some capacity.
On Thursday, Saks Fifth Avenue told WWD that its stores in Houston and San Antonio, Tex., are opening Friday, and that at least six stores around the country could open in mid-May, depending on state and city officials giving the green light and Saks’ assessment of the challenges and opportunities amid the health crisis.
“There’s a four-part rubric to our approach — legal guidance, health and safety, the economics and community dynamics,” Marc Metrick, the president of Saks Fifth Avenue, told WWD.
Neiman Marcus told WWD that, starting Monday, Neiman’s in Atlanta and NorthPark in Dallas will offer private appointments to clients. “We plan to do that across other stores as we learn more in the next few days and weeks,” said Amber Seikaly, vice president of corporate communications for the Neiman Marcus Group.
Additionally, there’s curbside pickup of online orders available at all seven Neiman’s stores in Texas, as well as in the Las Vegas, Tampa and Tysons Corner units.
“All associates are wearing face coverings, we continue to do additional sanitization of high-touch areas, and we’ve started temperature checks of associates in most locations now and in all locations by the end of this week. Even during our temporary closures due to COVID-19, our store associates have continued to engage with customers remotely and digitally via our Neiman Marcus and Bergdorf Goodman web sites and apps,” said Seikaly. “And while we can’t host our customers in store for events, we’re coordinating frequent Zoom events between designers and customers that have been well-attended.”
At Macy’s, 68 stores will open Monday, though in many cases, stores won’t be entirely open for shopping. Macy’s stores, which are bigger than Saks or Neiman’s units and will be more complicated to manage during the health crisis, in some locations will have certain floors and departments closed off from the rest of the store, most likely in categories that are very depressed due to COVID-19, such as dresses, workwear and men’s tailoring. Beauty, home, active and leisurewear have been selling well online, however. Some Macy’s stores will also only be operating their “At Your Service” counters for pickups and returns.
On May 11, another 50 Macy’s will open, and all Macy’s stores are expected to be operating in some capacity in the next six to eight weeks. That of course depends on all the states giving the OK, and if Macy’s decides the costs are worth it. Macy’s will also have by Monday 466 locations fulfilling orders placed online and 100 locations providing curbside pickups.
“What’s been really challenging has been the different dates given by governors and municipalities and all the way down to the county level,” said Melody Wright, chief operating officer of the Davenport, Iowa-based Von Maur department store chain.
On Friday, Von Maur will open seven stores in Alabama, Oklahoma, Georgia and Nebraska. “We had believed we would be able to open in Indiana on Saturday, but in Marion County where we have a location, the stay-at-home order has been extended through May 15. It’s a real challenge trying to navigate this.”
Wright added that across the board, the store hours will be reduced, to be open 11 a.m. to 7 p.m., except Sundays, when the hours are noon to 6 p.m.
“Our employees will be required to wear face masks. We are going to enforce social distancing, and after every transaction, surfaces will be wiped down,” Wright said. “The shopping environment will be very different from what customers have been used to,” Wright added, citing the use of contactless payments like Apple Pay, curbside pickups, as well as offering same-day deliveries with four-hour windows.
Needless to say, the outlook on business in the near future isn’t good. Initially, Macy’s, at the stores reopening, expects 15 to 20 percent of what the sales volume would be in normal times, Jeff Gennette, chairman and chief executive officer, said Thursday during a webcast conversation with Chuck Grom of Gordon Haskett Research Advisors. He based that assessment on what he’s heard from retailers overseas that were closed due to COVID-19 but have already reopened, and from what he’s heard from “essential” big-box retailers in the U.S. that also sell nonessentials, such as apparel and accessories, and have been operating all through the health crisis. “Essential” retailers operating all along include Walmart, Target, Costco, Home Depot and many grocery and pharmacy chains.
Nordstrom Inc., Belk Inc. and J.C. Penney Co. Inc. just days before disclosed brick-and-mortar strategies and perspectives on the approach to get back into business. For the most part, specialty retailers have yet to reveal strategies, though Chico’s FAS laid out a comprehensive plan on Tuesday.
In each retail company case, it’s a gradual, cautious ramp up, and with enormous uncertainty over the consumer response. The big unknown is whether Americans come out to shop in significant enough numbers to warrant the costs of resuming the brick-and-mortar business, and there will be more than the usual costs given the safety and personal protective equipment measures, cleaning efforts, communication efforts, and all the extra labor involved in the task of operating brick-and-mortar amid the pandemic.
Complicating matters are expectations that some furloughed store associates may not be ready to return to work, fearful of getting infected. Gennette addressed that possibility by saying, “We’ve had no issue of — so far, at least, of seeing those colleagues peel off to other companies yet. We’ve had some, but not an issue in terms of being able to staff, certainly in the beginning stages of where we expect the business to be.”
Saks Fifth Avenue in Houston and San Antonio will open with hand sanitizers, associates wearing masks and undergoing health screenings, and frequent and very obvious cleaning visible to shoppers. Also, the stores will have reduced hours from 11 a.m. to 7 p.m. except Sunday, which is from noon to 6.
Metrick said in the hours preceding the openings and right after closings, there will be shopping by appointment giving people the opportunity for more personalized experience and to shop when the store is limited to just a few customers, though Metrick emphasized that even during regular store hours, the stores are spacious enough and have traffic levels to easily social distance. Since April 24, the Texas stores have been operating with curbside pickup of online orders.
“We will follow the legal guidance from state and local officials and take the necessary health and safety measures to make sure we are ready to go,” Metrick assured during an interview Thursday. “We can execute social distancing — that’s not an issue. Saks is not the type of store where people are elbow to elbow. We have the space in our stores so people can be six feet apart. We will operate our elevators just for folks who need them — the elderly, the handicapped and pregnant women. The escalators will be marked so you can only use steps marked green. Clothes when you try them on or return them will be quarantined for a period of time. For trying on shoes, we have foot coverings that will be thrown out after one use.
“In the past, we used to clean all our stores after hours overnight. Now cleaning is something people want to see happening and we are going to flaunt it during the day.”
While several store openings are contemplated during May, “Financially, it has to make sense to open. We know the volume will be significantly depressed. And there are landlord considerations. The mall needs to be open with at least a handful of stores. We can’t be the only ones there open.”
Metrick said Saks will be able to build up its Saks Fifth Avenue Club personal shopping service. “Before we couldn’t scale it up. People were intimidated to use personal shopping. They felt obligated to shop. Now, with reduced store hours that gives us more time to set up appointments,” in the before and after hours.
On Wednesday, there was a media report about a real estate entity affiliated with Hudson Bay Co., the parent of Saks, missing a $3 million interest payment. That set off rumors that Saks and HBC could go bankrupt, which Metrick flatly denied. “There’s no merit to those whatsoever,” he stated. “Right now Saks Fifth Avenue enjoys one of the best balance sheets in retail. We have zero term debt, only the ABL [asset-backed loan]. HBC, our parent, has $5 billion in real estate value. We are strong and actually look forward to emerging from this health crisis stronger.” It could also emerge as a luxury giant if Richard Baker, executive chairman of HBC, makes a successful bid to buy Neiman Marcus Group (which is expected to soon file for bankruptcy). Saks already has the rights to use the name of Barneys New York, which was liquidated.
While stating that there is no merit to the bankruptcy rumor, Metrick confirmed that the payment was missed because tenants are not paying rents to the HBC partnership, and that HBC, like other companies, is seeking to manage its costs down through a period of depressed revenues due to the health crisis. The missed payment had nothing to do with the retail operations of HBC, Metrick pointed out. HBC also owns Saks Off 5th and Hudson’s Bay in Canada.
Rumors that HBC is interested in buying Neiman Marcus continue to be out there, so there’s a chance that post-pandemic HBC is a larger company with a huge luxury market share. People close to the company say there’s a 50-50 chance of the group buying Neiman’s.
Even as HBC might grow, Macy’s will be adjusting its “Polaris” multiyear strategy for recovery, which could involve closing more than the 125 stores previously set. “We will emerge as a smaller company, but we don’t quite know what the ramp back is going to look like,” Gennette said.
Macy’s, which hasn’t had a debt problem, unlike many other retailers, is trying to raise $5 billion in debt. “We entered this crisis with our balance sheet in good shape, from a debt and asset perspective, this combination will serve us well.” To raise the $5 billion, “We have substantial assets that can be used as collateral, mostly inventory, but we also have real estate. We are well into the financing process, expected to position us well for our future needs. We have identified our lead banks and we are confident we will close (on the financing) well in advance of having any need for additional liquidity.”
It’s expected that sometime in May, Nordstrom will begin to unveil store openings, but executives are taking the position that the company does not need to be the first out with any openings. The plan is to make it apparent to the public all the health and safety measures being taken in advance of opening any stores.
“I think there’s going to be a couple of phases,” said Pete Nordstrom, chief brand officer. “We will open up in a gradual way and gain customer confidence so they feel safe. I also think we’re going to evolve into what will be a new normal. We’re going to have to be flexible because it’s impossible to predict what that new normal will be like. When we start opening stores, we will take learnings and a super humble approach in how we can be responsive to customers and allow that experience to evolve in a way that’s relevant for them. We can’t force legacy practices or things we did in the past that may not be relevant for these times. These things sound obvious, but we’re just really trying to build in that flexibility and agility mind-set to do what is in the best interest for customers.”
Nordstrom, compared to some other fashion retailers and department stores, is in a better position to navigate through the crisis considering its liquidity position. It exited 2019 with roughly $850 million in cash and has a revolver of $800 million that it drew down. Nordstrom’s market strategy has been accelerated so that in the past two weeks, all Rack stores in the U.S. started fulfilling online orders; all full-line department stores and Rack stores in Canada started fulfilling online orders, and e-commerce was launched in Canada about a month ago. In the U.S., Nordstrom has been fulfilling orders from its full-line department stores for a long time.
“Notably, Nordstrom has an e-commerce penetration of about 33 percent, one of the highest among our covered retailers, giving the company a competitive edge monetizing online consumers relative to peers,” wrote analyst Jen Redding at Wedbush. “Meanwhile, we see the off-price Rack business as an attractive channel to clear unsold store inventories in the future, particularly after the reopening of the economy, given people may have less money to spend on fashion and apparel due to furloughs.”