Top names including Walmart Inc., Nordstrom Inc., L Brands Inc. and Capri Holdings Ltd. logged on to Morgan Stanley’s virtual Global Consumer and Retail Conference on Wednesday to detail how they’re navigating the holidays during the pandemic, and offering hints about what 2021 could bring.
Here, a look at what the sales pitch to investors looks like now.
Walmart has had a banner year so far marked by record sales during a pandemic in which it was deemed an essential retailer. As customers flocked to the chain for groceries and loungewear as well as supplies for new hobbies and home improvements to stay busy while restricted from socializing, the retailer saw soaring e-commerce demand and also launched its Walmart+ membership service.
On Wednesday, the company said it would be dropping its $35 shipping minimum for online orders for Walmart+ members. Addressing the move at the Morgan Stanley conference in the afternoon, Doug McMillon, Walmart’s president and chief executive officer, said the company was simply responding to customer demand.
“As we launched Walmart+, we heard loud and clear from customers that had purchased a Walmart+ membership that they didn’t expect to have a minimum for e-commerce orders,” he said. “So we were pleased, as we got through the month of November, that we had the outbound shipping in such a place that we felt comfortable we could remove it and still deliver with speed between now and Christmas.”
The move also points to the company’s significant hiring efforts this year — it brought on some 500,000 more workers this year, mostly in the U.S., and many at e-commerce fulfillment centers and picking orders inside stores — which boosted its capacity, McMillon said.
The surge of demand during the pandemic also highlighted the need for the company to maintain more robust inventory levels and to continue to build up that capacity for pickup and delivery orders through its stores, he said. The retailer is continuing to address those areas as COVID-19 cases spike around the U.S. again in what’s described as a second wave, he said.
“We weren’t able to sustain in-stock levels, and that not only harmed our store experience in the early stages of the pandemic, but it harmed our ability to do pickup and delivery,” McMillon said, reflecting on the company’s inventory levels over the spring. “We’ve improved as we’ve gone through the year. [But] there were times when you couldn’t find an adult bike, times where the beef counter was really pressured. We obviously saw that in sanitizers and paper goods and some other dry grocery categories,” he said. “As we sit here today, that’s in much better shape.”
For Nordstrom, the pandemic sped up changes that the luxury retailer had already started implementing, said Nordstrom ceo Erik Nordstrom. The company is continuing to emphasize digital sales, which he noted accounted for 54 percent of its business in the third quarter.
The retailer also defines its identity around customer service, Nordstrom said, observing how in the pandemic era that has meant catering to shoppers through store pickup and curbside services. But the retailer also leans on its legacy services such as providing alterations, he noted.
“We’re the biggest employer of tailors in North America,” he said. “It’s a skill we’ve had for decades, and we’re good at it.”
Over the course of the pandemic, the retailer kept its eye on the balance sheet, reducing its overhead and working on expense savings measures that the company expects will set the tone going forward, said Anne Bramman, chief financial officer.
Bramman said the company entered the year from a place of strength in terms of cash on the balance sheet, which she said supported the retailer’s relationship with vendors through the economic uncertainties of the year. Last month, Nordstrom said in its third-quarter earnings report that it wound up with $1.5 billion in liquidity at the end of the quarter.
“The team was busy the first half of the year, that is for sure, and we used the opportunity really to think through what we wanted to be, how to be a more of a leaner organization,” said Bramman.
“We had a lot of internal discussions about, you know, that we would ultimately be a majority digital business,” she said. “It got accelerated, and so we used this opportunity to really step back and think about what we want to be as an organization, and what did that look like, and how do we need to structure ourselves in order to really drive that flexibility.”
John D. Idol remains optimistic about the future of Capri Holdings Ltd.
The company’s chairman and ceo spoke to analysts about the power of a multibrand fashion house — in this case the combination of the Michael Kors, Versace and Jimmy Choo brands — along with Capri’s future as a luxury name in a post-COVID-19 world.
“Our growth trajectory has actually changed in the company [by] operating a multibrand company,” Idol said. “We can probably grow 2 percent, or 3 percent, or 4 percent by having these two extraordinary assets; [the addition of the Jimmy Choo and Versace brands]. We could probably be looking at very high single-digit or double-digit growth in the future, especially when we get some of our initiatives in place.”
The strategy varies for each brand — increasing store count at Versace, while raising prices and expanding the accessories business at Jimmy Choo, and adding back more signature bags at Michael Kors, for example. The result has been a reduced assortment across the portfolio by about 30 percent, better full-price sell-through at all three brands and improved margins.
“All these things that we kind of set out to do in the beginning [of the pandemic], now we’ve got this added benefit that we know we can do it with less product and that gives us an opportunity to be much more focused,” Idol said.
“So, I think with COVID-19, if there is a silver lining out of this — and I don’t want to ever pretend that there’s any silver lining — but it is that we are more focused on the breadth and the size of the product offering and we’re creating better engagement with our customers by having a clear vision of what it is that we think is important in each season for fashion, and interestingly, that’s exactly the conversation.”
So far the plan seems to be working. Capri turned its first profit (to the tune of $121 million) last quarter, the first in three consecutive quarters.
Idol said the company will need to continue to position itself with better product, omnichannel capabilities and a more strategic store fleet for the long term.
“We [have] said we have to focus on that because the world will heal and if it heals and we didn’t do the things that we started out strategically saying we were going to do, we won’t get to our objectives,” Idol explained. “So, we stayed very, very laser-focused on that.”
Bath & Body Works and Victoria’s Secret will likely make their separation official in early 2021.
That’s the latest from Andrew Meslow, ceo of parent company L Brands Inc. and ceo of Bath & Body Works.
“From a timing standpoint, I would just say that what we and that team are focused on is delivering the best possible fourth quarter that we can,” Meslow said. “And then coming out of that, we would expect to be ramping up pretty significantly with our internal management team as well as our external advisers — J.P. Morgan and Goldman Sachs — that we’ve hired to help us look at options.”
Meslow said the team plans to separate the businesses in 2021 and that the board continues to believe the businesses would work best separately, in light of their different business models.
“And so the strong perspective has been that shareholders will be best served by unlocking the value that we believe exists in Bath & Body Works as a stand-alone, while also doing all the work that we’ve been doing around turning around the Victoria’s Secret business to maximize value there as well.”
L Brands revealed plans to spin off the Victoria’s Secret business — which includes the lingerie, beauty and Pink divisions — into a private company, allowing Bath & Body Works to be a stand-alone firm on the public market earlier this year after the deal with Sycamore Partners fell through.
L Brands has closed hundreds of Victoria’s Secret stores this year, including the Hong Kong flagship, sold a majority stake of Victoria’s Secret U.K. business to Next plc, added multiple members to Victoria’s Secret’s c-suite, and trimmed $400 million in expenses by reducing the corporate headcount.
Shares of L Brands are up more than 110 percent, year-over-year, as a result.
“Anything and everything is on the table,” Meslow said. “Meaning, again, we’ve hired external advisers [for the separation]. We think they’re the best in the business. They will help us understand what are the pros and cons of any of the different options that are out there. And we’ll go with the one that is the right combination of unlocking the most value [and] obviously not creating a level of complexity that puts the deal itself at risk.”