Macy’s Inc., with a new president and management structure in place and second-quarter momentum, expects “a big half ahead of us.”
That was the word from Jeff Gennette, Macy’s chief executive officer, who brought an upbeat message about the prospects for the $26 billion department store chain and said it was getting more nimble and more data-driven, during his presentation at the Goldman Sachs & Co. retail conference on Wednesday.
“When I look at the back half of the year, there are really a number of things that give us confidence,” Gennette said, specifying strong performances in fine jewelry and women’s shoes; stores picking up some of the volume from others that were recently closed; digital growth; upcoming marketing focused on product strengths and a new loyalty program; simplified pricing for shoppers, and the Backstage off-price concept inside existing Macy’s stores lifting the overall store with sharp values and some products not seen at Macy’s, before such as in home décor and kids’ shoes.
“Any store that has a Backstage in it, the entire building is being lifted by over six points,” Gennette said. By the end of the year, Macy’s will have 50 Backstage areas inside Macy’s stores.
As reported, Hal Lawton, formerly senior vice president of eBay North America, becomes Macy’s president on Friday, and Macy’s veteran Jeff Kantor was named head of merchandising, thereby combining three organizations — merchandising planning, private brands and merchandising national brands — into one, with Kantor the leader. By making the changes, Macy’s simplifies its management structure and processes with the goal of achieving greater speed and flexibility to react to market conditions quicker, and to save money.
Gennette said Macy’s is coming off a “solid” second-quarter performance, with double-digit growth in fine jewelry and midsingle-digit growth in women’s shoes continuing. There’s also “great strength” in active men’s, women’s and kids’ areas, he said.
Macy’s reported that its net income for the second quarter rose to $113 million, compared to $3 million in the year-ago period, though sales on a total and comparable-store basis were significantly down.
Sales in the period totaled $5.55 billion, declining 5.4 percent from sales of $5.87 billion in the second quarter of 2016. The year-over-year decline in total sales reflects, in part, store closings, Macy’s said. Still, the retailer expects comparable sales to decline between 2 and 3 percent for the year and total sales are expected to be down between 3.2 and 4.3 percent.
Aside from down traffic trends in malls, Macy’s is being impacted by store closings. Of the 100 anticipated store closings previously announced, 70 have been shut so far, but 12 percent of the sales from those locations are being retained, according to Gennette.
Macy’s new marketing, which began with back-to-school, “comes in full force at the end of September with our new fashion spots,” he said. Macy’s just hired BBDO as its agency of record and will put greater emphasis on “product authority in big headquarter categories.” The enhanced loyalty program will be unveiled the first week of October.
According to Gennette, Macy’s digital business “is more penetrated in the fourth quarter than any other quarter and will affect the overall trend of the company by over a full point when you look at it versus the trend of the other three quarters.”
Beauty and handbags have been challenging businesses for Macy’s. To reverse the softness, Gennette said in beauty, the company is adapting the selling model for a proper balance of assisted versus open-selling environments, cross training associates to sell different brands, making its loyalty program more competitive, and moving aggressively into digital and social media, among other steps.
With handbags, the supply and demand issue has corrected itself, Gennette said. With Coach, “we both agreed to go out of certain doors” as well as investing more in larger doors and focus on having greater exclusivity. Macy’s is working with Michael Kors as well, to procure more exclusives.
“So I would tell you that handbags is meeting its plan. It’s not growing right now, but I am convinced that with the arsenal of established and new players we have coming in that this is a category we will grow again,” Gennette said.
In private label, Macy’s has “dramatically” reduced its supplier base. “We’re down to a core of 40 that do about 60 percent of the business and we’re really working on getting decisions much closer to the customer,” Gennette said. The INC private brand is down to an eight-week cycle. “There are some predictive key items in INC still at 26 weeks, but that range of eight to 26 weeks is really helping our largest private brand grow,” Gennette said. “You’ve got other brands that we are now taking into the same formula.”