In sync with the consumers it serves, Macy’s Inc. is holding back on the buying.
“When you think about how we’re looking at 2023, we’re going to be more conservative with our receipts, and we’re holding back a healthy open-to-buy reserve to be able to respond as the customer does, by category, in the season,” said Jeff Gennette, Macy’s Inc. chairman and chief executive officer, during his presentation at the ICR Conference in Orlando, Florida, on Monday.
The message didn’t go down well with Wall Street. By midday Monday, Macy’s stock price was down 7.5 percent, or $1.66, to $20.47.
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Gennette said Macy’s is “taking a cautious view” but “will be ready if the customer pivots,” meaning the company will be in a position — and is agile enough — to chase brands and items as trends emerge.
He said that the $24 billion Macy’s Inc. has “a very strong balance sheet, which gives us the flexibility and the agility to be able to respond as the customer goes.” The company is “developing a stronger prowess with inventory freshness and really just being laser-focused on inventory control and inventory productivity,” Gennette said.
He said Macy’s is focusing on “fashion and trend that isn’t necessarily dedicated to a particular brand,” but is oriented to how customers might see themselves dressing and how they might be inspired to dress.
A big element of Macy’s merchandise strategy entails a three-year program to reinvent all of its private brands, “either refreshing existing ones or developing new ones, and really looking at the life stages of our very diverse, multigenerational customer base and ensuring that we have the right content that we uniquely control.”
Gennette said the company’s private brand business, as a percentage of the total business, will go up. “You’re going to see the (cost of goods sold) improvement in that and the profitability opportunity that’s going to come from that. And a testament to that is what’s been happening with the INC brand, which is our number-one women’s sportswear brand. That has been under development over the past year, and you really see it in the comps that we’re now getting.”
In an interview with WWD last October, the CEO said private brands represented 16 percent of Macy’s total business and that of all the businesses at Macy’s, private brands would grow at one of the fastest rates. Another 10 percent-plus of Macy’s volume is generated by exclusive merchandise from brands that aren’t exclusive to the store, bringing Macy’s level of merchandise exclusivity to more than 25 percent of the assortment.
Macy’s move into an online marketplace format has enabled the company to offer, so far, 400 brands it didn’t offer before. “The big hallmark there is the amount of tangential categories that we’re now in and categories that, frankly, from an owned and licensed model was not profitable for us to carry,” Gennette said. “Now with marketplace, we have a new model that gives us lots of leverage in categories that customers expect from us and trust us to carry at profitable levels. In the holiday timeframe, you saw that in the electronics business, in the game business, with the Xbox business. Those were all the bestsellers for us,” during the holiday season.
Later this year, the Bloomingdale’s division of Macy’s Inc. will begin to phase in its own online marketplace model.
Macy’s media network, Gennette added, also helps the company attract new brands “with a new profit pool…It’s becoming marked in terms of its contributions to our overall profitability.”
Last Friday, Macy’s issued preliminary results for the fourth quarter, which ends Jan. 28. Macy’s fourth-quarter net sales are now expected to be at the low end to midpoint of the previously issued range of $8.16 billion to $8.4 billion. Adjusted diluted earnings per share are expected to be in the previously issued range of $1.47 to $1.67.
The company expects to report full results for the fourth quarter and fiscal year 2022 in early March. The guidance for the period was provided during the company’s Nov. 17, 2022, earnings call on the third quarter.
On a percentage basis, total end-of-quarter inventories are on track to be slightly below last year and down midteens relative to 2019.
During the ICR presentation, Gennette said his team “did a good job of executing a very competitive quarter. It was particularly competitive all the way through.”
Gennette said that similar to 2019, in 2022, peak sales periods occurred during Thanksgiving week, the week after which included Cyber Monday, and weeks four and five of December. However, he also cited “deeper-than-expected lulls” in weeks two and three of December as well as weeks one through three of November.
On the positive side, “all through the holiday season, both Bloomingdale’s and Bluemercury and the luxury sector was quite healthy and they outperformed.”
“Overall, we’ve responded quite well to what we needed to do with planned promotions to respond to the competitive environment. What we saw was occasion-based shopping was robust as was gifting as we got into the balance of the Christmas-Hanukkah timeframe. And that was fortified through what we are doing with pricing science as well as our commitment on newness.”
Gifting and occasion-based shopping have been strong since the first quarter and through the fourth quarter, in particular dress-up shoes, men’s suits and luggage, Gennette said.
On the other hand, “When you look at the self-purchase, [with] a lot of the sportswear businesses, casual apparel, and some of the home categories, that lull was deeper than we expected. We’re thinking about self-purchase as a more fundamental part of the first half of ’23 as a percent of our overall sales,” said Gennette.
Adrian Mitchell, Macy’s Inc. chief financial officer, added: “Clearly, for the holiday season, folks were buying toys. They were buying occasion-based items, they were buying gifting. But for things for themselves and their homes, that’s where we saw the drag.
“We look at our credit card data; there are some indicators that continue in a direction where payment rates are deteriorating, debt balances are higher. And that’s an indication that the consumer just has less capacity to spend,” Mitchell said.
“As we look at the macro factors, we see that inflation continues to outpace wage growth; wage growth is beginning to slow down. Inflation is beginning to slow down, but the capacity to spend is really under pressure, and we believe that’s going to continue into 2023.”