After a strong final quarter of the year, Macy’s is determined to keep the momentum going and defy critics who say the company can’t win with the Internet, Amazon and off-pricers coming on strong.
On Tuesday, after reporting that its net profit rose to $1.33 billion, versus $475 million in the year-ago period, the $25 billion Macy’s disclosed a battery of strategies for growth, among them upping investments in stores, incentivizing employees, growing online orders through vendor direct-to-consumer deliveries known as “drop-shipping”; fast-tracking the expansion of Macy’s Backstage off-price format, and monetizing unproductive real estate.
In a big reboot, Macy’s is remaking 50 locations around the country.
“We’re playing with all aspects of the customer experience in 50 doors,” Macy’s chairman and chief executive officer Jeff Gennette told WWD on Tuesday. They are works in progress through the first half and they have all the enhancements up and running in the third quarter, Gennette said.
Macy’s financial report Tuesday beat expectations, and at one point the stock rose as much 13 percent but ended the day up 3.5 percent, or 95 cents to $28.40.
Sales in the fourth quarter, which ended on Feb. 3, totaled nearly $8.7 billion, an increase of 1.8 percent, compared with sales of approximately $8.5 billion in the fourth quarter of 2016.
For the first time in three years, Macy’s saw comparable sales rise. On an owned and leased basis, they rose 1.4 percent in the fourth quarter.
Total sales in the fourth quarter reflect a 14th week of sales, whereas comparable sales are on the same 13-week basis as fiscal 2016.
Sales last year totaled more than $24.8 billion, down 3.7 percent from $25.8 billion the year prior. Comparable sales on an owned and leased basis declined by 1.9 percent. Total sales for fiscal 2017 reflect a 53rd week of sales, versus 52 weeks in the prior year.
Macy’s wasn’t the only retailer reporting gains. Dillard’s, benefiting from improved sales trends and a tax gain, reported that its net income for the fourth quarter rose to $157.6 million compared with $56.9 million a year ago. Net sales for the 14-week quarter were about $2.1 billion, compared to $1.9 billion for the 13-week period a year ago. Dillard’s stock rose 17 percent to $82.91.
The 50 Macy stores getting the TLC are being “hyper-localized with extreme editing” so hot items stand out, there’s less clutter and shopping is easier. The reboot also calls for new fitting rooms, restrooms, flooring and lighting; remaking women’s shoe floors with assisted and open-sell formats and new technology such as automated pricing tags; staging “grassroot” special events and new trunk shows for greater local appeal; adding big-ticket items, primarily furniture and mattresses; installing Backstage off-price departments; bringing in top managers and better-trained selling associates; extending store hours, and intensifying marketing tailored to the local area. After closing about 100 stores over the past year, the retailer is in a better position to enhance many of the remaining 700 stores.
Some concepts tested at the Macy’s “lab” store in Woodbridge, N.J., are being rolled out aggressively to far greater than 50 stores. For example, the At Your Service counters for picking up online orders, returning items from in-store or online, paying bills and buying gift cards is rolling out to 450 doors. Also many stores will see updated shoe floors with both assisted and self-serve formats and electronic price tags, and undergo the “extreme editing.” At the Woodbridge store, the assortment was reduced 40 percent.
Tax reform is putting more money into the coffers of Macy’s and other retailers. And at Macy’s, at least, much of it is being earmarked for brick-and-mortar and a new employee incentive program, which will entitle associates for extra pay if their stores exceed monthly goals. Personnel at call centers and warehouses will participate in the incentive program as well.
Macy’s growth initiatives call for:
• The launch of a vendor direct program, whereby Macy’s beefs up its online presentation with products and categories it didn’t previously sell and vendors ship orders direct to consumers. The program kicks off mid-year with home.
• Expanding Backstage, Macy’s two-year-old off-price format, to 100 stores this year, bringing the total to about 150. Smaller Backstage departments, at 10,000 square feet, will be tested. Typical Backstage areas are 20,000 to 30,000 square feet. Shoes and soft home are “the two biggest standouts at Backstage,” Gennette said.
• Redeveloping unproductive real estate assets through the strategic alliance with Brookfield Asset Management. Nine assets will be redeveloped — provided appropriate approvals are obtained — involving “densification” of store sites, redevelopment of furniture stores and non-retail property owned by Macy’s. Macy’s expects transactions on the nine sites by 2019, either selling the property or putting it into joint ventures.
• Elevating the merchandising for fashion, higher-quality goods and higher average unit retail prices, or AUR, which last quarter saw an uptick of about 3 percent. Macy’s is putting “extra weight” to reinvent beauty departments from being “brand-centric to customer-centric.” Beauty associates, for example, are cross-trained in various brands to provide assistance and product recommendations based on customer needs and preferences and not being biased in favor of any one brand they could represent.
• Monetizing flagship properties. Macy’s is selling the top seven floors of its downtown Chicago flagship to a private real estate fund sponsored by Brookfield for $30 million and plans to sell the former 243,000-square-foot I. Magnin building on San Francisco’s Union Square, reducing the Macy’s flagship to more than 700,000 square feet. While asset sales did contribute to bottom line gains, “The thing is, if you take out real estate sales and look at operating profit, we are operating better. Our core business is getting healthier,” Gennette said. Macy’s has made $1.3 billion in real estate transactions from 2015 to 2017.
• Reengineering the marketing machine in a multiyear effort to place greater emphasis on fashion, simplifying the pricing, and enhancing the loyalty program, including getting tender neutral later this year.
Getting granular on the merchandise, Gennette said women’s, men’s and kids activewear continued to be quite strong: retro looks and some big name brands including Ralph Lauren, Calvin Klein, Nautica and Tommy Hilfiger performed well last quarter. So did Macy’s private brands. Gennette said the more “make” Macy’s puts into its private brand merchandise, meaning embellishments, details and higher-quality fabrics, the better they sell. Private brands account for 20 percent of Macy’s sales and are growing. Juniors was among the weaker areas last quarter.
Gennette called 2017 a transition year for testing concepts to rollout in 2018.
“We feel better about the business today than we have in a long time,” he said. “There is a high level of optimism from our consumers. We have an opportunity to win business and get share.…We’ve created momentum and we are taking that momentum into the new year with a commitment to returning Macy’s to comparable sales growth in 2018. We’re headed into 2018 with an improved base business, healthy inventories, a focused and engaged organization and a clear path to return Macy’s to growth.”