Macy's CEO Jeff Gennette.

“We are trying to spread our portfolio to where the customer is going.”

So said Jeff Gennette, Macy’s chairman and chief executive officer, at the BofA Securities consumer and retail technology conference on Tuesday.

Gennette, along with Adrian Mitchell, Macy’s chief financial officer, outlined key steps on how the company is “reimagining and repositioning” the company into a “digitally led, omnichannel retailer.”

Among the key goals and maneuvers ahead: generating $10 billion in digital sales in three years and shifting large amounts of capital to the digital supply chain and technology; narrowing the store fleet while testing new brick-and-mortar formats; building up the Backstage and Bloomingdale’s the Outlet off-price businesses; monetizing real estate, and maintaining liquidity to respond quickly to categories in demand, including some new ones started during the pandemic such as gourmet food, outdoor fitness and recreation. Macy’s last year also added about 1,000 new brands to expand categories already carried, Gennette said.

The Backstage off-price format “is alive and well,” Gennette said. Backstage started in 2015 with a handful of freestanding units, then shifted to Backstage departments inside Macy’s department stores.

“In 2020, we ended with 217 in-store Backstages,” said Gennette. “It remains a huge piece of our overall strategy. We are resuming our strategy of opening Backstage freestanding” units, from the current six, Gennette said. That’s part of the plan to create “ecosystems” comprising Backstage off-price, Market by Macy’s, Bloomies small-scale Bloomingdale’s units, and Bloomingdale’s the Outlet off-price locations in the same areas as Macy’s traditional department stores. So far, the strategy is unfolding in three markets — Dallas, Atlanta and Washington, D.C.

Also, Bloomingdale’s the Outlet is planning to launch e-commerce in 2021, Gennette said.

“There is a big opportunity in 2021 for off-price,” he said.

Gennette cited real estate monetization as continuing to be a “valuable contributor” to cash flow and earnings. He said Macy’s has dozens of parking lots with excess space that could be monetized by selling to other businesses and retailers.

At Macy’s Herald Square flagship, the company’s most valuable asset and most productive store, there are “lots of opportunities to monetize real estate here,” Gennette said. “It could be an office tower on top of the spine of the store.” He acknowledged delays in redeveloping the site, adding, “It’s a long-term project. It’s not going to bear fruit in the next couple of years based on delays. It will be a very big, value-creative element.”

Macy’s sees $60 million to $80 million or $90 million of assets sale gains for 2021.

The retailer will also more aggressively drive its Macy’s credit card usage by making the application process easier, testing new types of loyalty enrollment incentives, and emphasizing the proprietary card messaging through the digital shopping experience, among other tactics.

Projecting Macy’s overall business for 2021, “We expect our performance to be bifurcated with continued pandemic challenges of the spring season and a more normal pattern as we get into the back half of the year,” said Gennette.

He said Macy’s, Bloomingdale’s and Bluemercury had 7 million new customers during the fourth quarter of 2020, presenting a 2 percent increase from the 2019 fourth quarter, and of the 7 million, 4 million were new in digital alone, representing a 36 percent increase.

Recognizing that increasing digital sales puts pressure on gross margins, Mitchell cited several ways to mitigate that, including improving demand forecasting and allocation, increasing orders picked up by customers at stores, reducing split shipments, and linking the best shipping deals directly to the loyalty program with Macy’s cardholders.

For retailing in 2020, “When you look at the top 10 categories in retail, we weren’t in any of them,” Gennette said. “So when you think about PCs, TVs or video games, things like paper towels — those were not categories that Macy’s brands were in. And when you look at the bottom 10 categories, those are all categories that have been historic strengths of ours like outerwear, sweaters, dresses, knits and wovens. But through all that, when you look at all the categories that we carry, all the home categories, accessories and apparel, we’re the number-two website in the country. I was pleased we maintained our market share during all of 2020. So the customer is gravitating toward online for us…We are known for dress-up and dressy categories and as people kind of re-emerge to normal activity, we do think that could be good for our business.”

Regarding import delays, Mitchell said in the height of the pandemic there were three-week lags on some shipments; now its seven to 10 days behind in West Coast ports while the East Coast is “much better,” with about three days lag time. “It is getting better, but we expect that it’s going to go on for the next few months for the first half of 2021,” said Mitchell. “Then we expect that that’s going to start to open up again.”

Macy’s ended 2020 with 727 stores, and is closing about 60 more going forward. After those closures are made, the company sees at least 85 percent of sales coming from “A” and “B” locations.

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