Macy’s Inc. sees digital sales this year accounting for more than 40 percent of its total sales, a big leap from 25 percent in 2019.

Additionally, the retailer intends to resume its off-mall strategy involving rolling out more Backstage off-price units and continuing to test the Market by Macy’s format introduced this year. The off-mall strategy was halted due to the coronavirus and all the disruption it has caused. Bloomingdale’s Outlets, where room for growth is seen, is also part of the off-mall strategy.

Macy’s digital shift is hardly surprising, considering the company, like other so-called “nonessential” retailers, was forced to temporarily close all of its stores last spring due to the spike in coronavirus cases, forcing it to rely more on dot-com. Consumers continue to shift much of their purchasing online, and away from brick-and-mortar.

Macy’s Inc.’s dot-com business is going to be “in the high 30s and 40s in the near term and grow from there,” said Jeff Gennette, Macy’s Inc. chairman and chief executive officer, speaking at the Morgan Stanley Virtual Global Retail and Consumer Conference on Tuesday morning. Gennette said that after Macy’s digital sales hit the mid-40 percent range this year, they would moderate next year to the low 40 percent range.

Macy's CEO Jeff Gennette.

Jeff Gennette  Thomas Iannaccone/WWD

Competitors are also seeing big swings toward digital sales. Nordstrom, for example, disclosed this year that digital sales are tracking at more than 50 percent of the total business.

Gennette, when asked to comment on holiday sales, replied: “We don’t comment on how the quarter is performing within the quarter, but November was at our expectations,” he said.

In terms of Macy’s inventory position and fulfillment of orders, “it’s all going at expectations. We exited November as expected,” the ceo said.

Retailers are bracing for another possible round of closures, with cases of COVID-19 again spiking across the country. “We are very agile and flexible to deal with whatever the pandemic throws our way,” Gennette said.

During the Morgan Stanley conference, Gennette listed initiatives taken to support digital growth, among them creating “enhanced” product pages, filter features and Google search; getting more specific with style recommendations to customers, though Gennette said Macy’s is in “the early innings” of personalization; more storytelling, and an easier to navigate gift guide.

He also said Macy’s is getting “much more specific” on when packages will be delivered. “We used to be more opaque.”

In addition, technology enabling call center associates to work at home was implemented, Gennette said.

When the health crisis hit in March, initiatives at Macy’s centered around cash preservation; gearing up stores as fulfillment centers for the dot-com; rewiring the cost structure, and getting “fast and scrappy” to adapt, including rolling out curbside pickups, chainwide, in a matter of weeks.

Macy’s quickly brought in partners, including Klarna, which enables shoppers to pay by installment, and DoorDash, for same-day deliveries.

Gennette said Macy’s worked fast to make sure certain home categories got built up, including games and home office supplies.

Macy’s ceo has been vocal in his opposition to his company’s designation by local and state authorities as “nonessential” retail. He believes it’s unfair that other retailers selling some of the same products as Macy’s are deemed essential.

“We have fought hard to prove the case that we are a safe retailer. The team became expert in all the city and state ordinances to make sure we were compliant,” Gennette said.

Last February, when Market by Macy’s debuted in Southlake Town Square in Southlake, Tex., Gennette said the format would play “an important role in our off-mall expansion.…Our vision for Macy’s is to build an ecosystem that gives our customers easier and more convenient access to the fullness of the Macy’s brand, from online to off-line, on-mall to off-mall, flagship to off-price.”

The 20,000-square-foot Market by Macy’s sells a mix of branded and private-label fashion, products from local designers and direct-to-consumer brands, food, an apothecary called Getchell’s, plants and home items.

That “ecosystem” Gennette is talking about involves clustering Macy’s Backstage freestanding, off-price stores and the new Market by Macy’s concept around Macy’s department stores. The strategy was set to expand to Atlanta and Washington, D.C., but was put on hold. Gennette said Tuesday it would resume in January.

Regarding the increased costs that arise with a growing digital business, Adrian Mitchell, Macy’s new chief financial officer, said they could be offset by optimizing point of sale promotions, and location-level pricing to be more flexible and strategic in pricing and markdown decisions. Digital headwinds could further be offset somewhat by improving the stock to sales ratio, and benefiting from leaner inventories and higher sell-throughs.

Maintaining “a fast and efficient supply chain and the use of advanced analytics, is part of the strategy,” he added.

He noted that Macy’s added 7 million new customers on macys.com in the second and third quarters.

Gennette said the off-price and luxury businesses are doing well, and that he sees market share opportunities as a result of store closings by Nordstrom, Lord & Taylor, J.C. Penney and Century 21. In Manhasset, N.Y., the Lord & Taylor is closing “just up the road,” Gennette noted. “It’s a $35 million business — how much of that can we capture? As the department store industry continues to consolidate, we will take advantage of that.”

Macy’s has done some of its own consolidating recently and will close more stores in the future. Back in February, Macy’s said it would close roughly 125 stores, a fifth of its locations, over the next three years. Also, the company reduced store and corporate payroll in February, and again in July, and reduced its marketing and travel spend as well.

Gennette said he wasn’t concerned about brands increasingly widening their distribution beyond the department store channel. Many continue to sell through their own web sites and online marketplaces as well as opening their own stores. “I’m very confident in our relationships with our brands. We do share a same customer.…There is a lot in their assortment breadth we can tailor for our customers. We work very hard on exclusivity.”

Gennette also cited that Macy’s exclusivity extends to its stable of private brands, which accounted for 20 percent of the business and is being bolstered so it rises to 25 percent.

Outlining Macy’s capital priorities, Mitchell said that for the near term it’s focused on liquidity and financial flexibility, and that the company ended the third quarter with $1.6 billion in cash.

In the near to medium term, Mitchell said, Macy’s is focused on investing in growth initiatives that give high returns, like omnichannel capabilities, and deleveraging the balance sheet by paying off debt as it matures.

For the long-term, Mitchell said the company was “super committed” to restoring the dividend and repurchasing shares.

Impacted by the pandemic, Macy’s posted a net loss of $91 million, or $0.19 cents a share, in the third quarter, versus a net profit of $2 million, or $0.07 a share, in the year-ago period. Revenues fell to $3.99 billion in the last quarter ended Oct. 31, from $5.17 billion in the year-ago period.

 

The new Market at Macy's in Southlake, Texas.

The Market at Macy’s in Southlake, Tex.  Courtesy Photo

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