Macy's

In today’s tough retail climate, Macy’s Inc. sees some light: Inventories are in a good position, with customers taking to Macy’s new in-store clearance format called Last Act; the fourth quarter ahead should beat last year’s; apparel is picking up, and Apple is coming to the store.

This story first appeared in the September 9, 2016 issue of WWD. Subscribe Today.

The company is also contemplating bringing more food and beverage offerings to its stores to augment the little that’s there already and make shopping more experiential.

The brighter outlook — after over a year of declines and the recent announcement of 100 stores closing next year — came Thursday from Macy’s chairman and chief executive officer Terry J. Lundgren, and Macy’s president Jeff Gennette, at the Goldman Sachs annual Global Retailing Conference.

“Denim is driving a lot of the apparel interest right now. That is the headline here,” said Gennette, who will succeed Lundgren in the first quarter of next year as Macy’s ceo. “When you get into a denim trend, people need shoes, new tops to go with it. People have not replenished their denim wardrobe in years. Men’s, women’s and kids are all strong in denim.”

Though some retailers have told WWD that the active/ath-leisure trend has plateaued, Gennette said active remains a “standout” performer. He also said that with back-to-school business, “through July, we were very pleased with the results.”

On food and beverage: “We need more of that in our stores and we are working hard on that,” Gennette said. The challenge is to obtain “a scalable model” for the stores with the possibility of building food and beverage offerings adjacent to Macy’s own food operations that are up and running. At the Bloomingdale’s 59th Street flagship, executives have been working hard to find a partner and the right financial terms for a food hall operation, comparable to Eataly.

Regarding inventories, “We are in a good inventory position. We are able to react in the market to anything we see,” Gennette said.

The inventory situation has been helped by Last Act clearance areas, which Gennette characterized as “a big success.” Under the format, merchandise tagged with second and third markdowns are shifted to Last Act, enabling the main selling floor to improve with a higher percent of regular priced merchandise and items with just an initial markdown.

Based on current selling trends and inventory management, “We are in a position where we are able to be pretty confident about our sales projection,” Lundgren said, although the projection isn’t robust, calling for 2016 comparable sales to decrease in the range of 3 percent to 4 percent. Total sales in the second quarter dropped 3.9 percent to $5.87 billion, and were down 2 percent on a comparable basis. Last year, Macy’s closed 40 stores, affecting sales results.

Gennette outlined five “pillars” of his agenda, which include:

• Reimagining and repositioning the Macy’s brand, involving intensified consumer research, and reinvesting in core customers and signature businesses;

• Fortifying the “only at Macy’s” strategy for reinvigorating private brands and exclusive offerings;

• Striving for “friction-free shopping” to create simple and easy experiences and “knock out those pain points.” (Macy’s counts those long lists of products excluded from coupon deals as among other customer frustrations.);

• Eliminating costs that are not productive;

• Monetizing real estate.

Gennette also cited fine jewelry, gifts, special occasion and “all things wedding” as among the categories getting beefed up. In fine jewelry, Macy’s has intensified the commission structure, traded up with products, added more marketing and training and almost doubled the number of sales associates. It’s led to higher expenses, which are paying off, the executives said. Concepts and changes implemented in fine jewelry are being applied to women’s shoes. In handbags, Gennette said he sees an opportunity to do more full-price selling as the supply comes more in line with the demand. This move comes as handbag brands such as Coach and Michael Kors have revealed plans to cut back on department store distribution because of the promotional environment at those retailers.

According to Lundgren, “The company clearly is in that setup stage now for a comeback” to grow again. “We are seeing the fruits and benefits of some of the decisions” made during the fourth quarter of 2015 and the first quarter of 2016, he said.

Lundgren said last year the company did better in the third quarter than the fourth, which means it’s likely Macy’s will do better in the fourth quarter ahead than the current third quarter. “Clearly, there is a stronger opportunity in the fourth quarter,” Lundgren said.

Macy’s will open the first Apple shop in a U.S. department store at its Herald Square flagship in New York in October. In addition, more than 180 Macy locations and macys.com will carry Apple Watch products. The Apple shop at the Herald Square flagship, according to Tim Baxter, Macy’s chief merchandising officer, will offer a wide selection of Apple products including the iPhone, iPad, MacBook and accessories.

In a statement, Macy’s said the collaboration is “further evidence of our commitment to enhancing the everyday lives of our customers through technology.”

Macy’s has formed other collaborations in categories where it does not have expertise, such as with Best Buy, LensCrafters, Sunglass Hut, the Finish Line and Starbucks to offer customers an expanded assortment and new experiences.

The fashion watch category has been challenging at Macy’s, contributing to the decision to start selling Apple Watches.

Lundgren said that during his transition period with Gennette, one of his areas of  focus will be on Macy’s real estate. He’s already hired Doug Sesler, former president of True Square Capital LLC, as executive vice president of real estate. He is overseeing the company’s real estate function and leading initiatives to increase shareholder value through real estate strategies, including creating potential joint ventures or other partnerships involving the company flagship locations and mall-based properties.

“Frankly, Doug brings a thought process not just new to our company but unique to our industry.

“We know we have too much real estate,” Lundgren said. America is “way out of proportion in terms of real estate per capita, compared to Europe and Asia. Some rationalization is going to happen. We are taking the first step in getting out in front of the curve. My suspicion is that others will follow.”

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