Macy’s stores reopening around the country are down 50 percent at the outset — and that’s OK with chairman and chief executive officer Jeff Gennette considering his expectations were far lower.
Gennette told WWD on Tuesday that stores were first anticipated to be down 80 to 85 percent. “We were modeling off of other countries opening brick-and-mortar, but as soon as we got those first bites at our stores we adjusted the plans, the staffing and the support, to make sure customers had a positive experience.
“Business in the stores is getting better — three to five points each week. At some point, they will be plateauing,” Gennette said in an interview. “Customers love being back in stores. They are happy to be out of their houses and doing a familiar activity again. There is optimism here.”
As of June 1, Macy’s Inc. had about 450 stores reopened, with the majority opened in their full format; others offering just curbside pickups. Macy’s Herald Square soft-launched curbside pickup Tuesday, and makes it official today. The planning is for New York City to launch phase two of reopening the local economy in about two to three weeks, which includes in-store shopping health precautions are taken such as social distancing, sanitizing and wearing masks.
On Tuesday morning, a severely COVID-19-impacted Macy’s Inc. reported a loss of $652 million, or $2.10 a share, for the first quarter ended May 2, compared to profits of $137 million, or 44 cents a share, in the year-ago quarter. Net sales amounted to $3.02 billion, a 45 percent decline from $5.5 billion in the year-ago quarter.
The adjusted net loss was $630 million, compared to an adjusted net profit of $137 million in the year-ago period. The loss last quarter from operations was $969 million, versus an operating profit of $203 million in the 2019 period.
The $24.6 billion Macy’s Inc., which operates Macy’s, Bloomingdale’s, Bluemercury and Backstage stores, said the results were preliminary, but better than expected. “We are seeing strong sell-through of seasonal merchandise, and anticipate that we will exit the second quarter in a clean inventory position,” Gennette said. “The holiday season will be crucial, and the team is working now to get the right merchandise and assortment in place.”
Still, Macy’s has “modeled a gradual return to normal. However, we do not see a return to normalized trends until well into 2021 and possibly not until 2022,” Felicia Williams, the retailer’s interim chief financial officer, said during a Cowen virtual conference on Tuesday.
“Our stores were down substantially to last year, and our digital business was down in the low single digits versus last year,” said Williams. “We did expect some disruption in our digital business due to campus consolidation. And also, when the pandemic started, we did turn off our initial digital marketing spend. But in April, we opened our stores to fulfillment and curbside pickup. As we have said previously, our digital business was weaker in March as the pandemic was cresting. And in the month of April, it was improving, and our May trend has been very strong.”
Adding a large dose of optimism for the multichannel retailer, this week the company closed on $4.5 billion in financing, to fund operations, bring in fresh inventory, cover debt, resolve payables and otherwise enable the department store to weather the pandemic.
Macy’s temporarily closed all of its stores on March 17, then started offering curbside pickups and fulfillment from stores in April and total reopenings began in May.
Women’s sportswear, specifically dresses, workwear and dressy styles, has been the worst-selling segment at the company. It was performing poorly before the pandemic and slipped further as customers switched to casual and active labels as their lives changed to adapt to the pandemic.
“When you look at suits and dresses, that has been tough,” Gennette said in the interview. “I believe those categories will definitely surge again. I don’t know the timing of that.”
“When you think about the female consumer in America, she is an inveterate shopper. I don’t think that changes,” said Gennette, during the Cowen conference.
While noting the obvious — that wardrobing changes with people working virtually from home versus physically in the office — Gennette emphasized, “The lure of having appropriate fashion for our customer, all the way from mass to off-price to luxury, is still incredibly potent.…I do believe people are going to go back to weddings. I do believe people are going to go to parties. The ability to look your best and the ability to express your individuality through fashion is as relevant today as it’s ever been. It’s going to be a question of how that sifts out with trends over the next number of months.”
Certain categories, in particular beauty, have become more important during the pandemic. “There are areas in beauty that we got into as a result of COVID-19 that we didn’t have a lot of traction with before,” said Gennette. “When you look at fragrance, hair, nails — they are tangential businesses that could become quite big and important. As a department store, we have the opportunity to go after those, either through vendor direct with limited economic downside to it, or to own them fully because that is what our customers care about through the entire omni journey.
”When you look at beauty, we were struggling losing market share in key categories for some time. In 2019, we made a comeback. Our crackerjack team was very aggressive going after hair care, men’s grooming, home fragrance, bath and body, nails and hair. Obviously skin care is big win online. Fragrance has been very strong.
“Our first tranche of reopenings were in time for Mother’s Day. The beauty areas were crowded. Our beauty advisers wear masks. They don’t touch customers. They do tutorials using a diagram of the face.
“We expect Father’s Day to be good. We will have almost all of our stores opened,” the ceo added.
Macy’s launches a “friends and family” promotion today, which runs through after Father’s Day.
Gennette said the re-commence has become “very important. When you think about this Gen Z customer, and their value structure, and you ask them about DNI [diversity and inclusion] and sustainability, it’s off the charts compared to other generations that came before them. This is not a fad. This is going to stay with us.”
He said that with ThredUp, “the better the brand, the better they sell.” Last August, Macy’s began selling ThredUp used merchandise at several of its stores, supporting sustainability.
As for the reopenings, Gennette said, “The first tranche was May 4. The second was May 11, this week a little over 400 stores will be fully opened. Each tranche gets a little bit better” with business. “The digital business was up 80 percent in May. We don’t expect that 80 percent to hold as stores continue to open.”
One bright spot in brick-and-mortar is with the Backstage off-price departments operating inside Macy’s stores. “It’s not surprising that Backstage, when a store reopens, is performing better than the balance of the whole store, about 10 points better,” Gennette said.
Inventory receipts were down 7.2 percent in the first quarter and will be down again significantly in the second quarter. “We will attain sales to stock parity,” said Williams. “We expect to head into Q3 with clean inventories and just as important with newness for our customers.”
Gennette has been surprised at “just how comfortable everyone is [with] running our businesses virtually, for a guy who believed the team needed to be in the offices. My perception of that has changed dramatically. The team is scrappy and agile,” he said, citing “the efficiency of virtual meetings. Operating in a virtual environment has been much better than we expected.”
The big question, he added, is what does the situation look like when office life becomes a “hybrid” between the virtual and the physical? “Any brand is going to have to think that through, to be the employer of choice.”
Gennette outlined several priorities in the pandemic-plagued society, first underscoring the importance of curbside pickups. “I give the team a great deal of credit for developing, getting it into 300 stores in 17 days. By Friday, we will be in virtually every single store in the Bloomingdale’s, Macy’s and Blue Mercury chains. Customers love the safety of it, the security of it, and the speed of it.”
The ceo also said improving search and personalization functions on the company’s web sites, seamless checkouts, improving the mobile experience, expanding same-day delivery, contactless returns in stores and through curbside pickup, and providing instant credit for returns are among the more important priorities. “We want to have the best-in-class omni-experience. We are really clear-eyed where our gaps are and where the friction is,” Gennette said.
In February, Macy’s said 125 “neighborhood” stores, which are those in weaker malls, would close over three years. More closings are expected, but Williams said it was too soon to commit to a definite level of store closings.
“When you look at the malls we are in, we remain in about 500 of the 1,200 malls in the nation. We have identified about 100 ‘neighborhood’ stores that we will close. We might accelerate the timetable as we get closer,” said Gennette. Neighborhood stores are those in B-level or lower malls.
“The remaining 400 stores represent about 85 percent of our overall business. Fifty-one percent of our stores and 65 percent of our sales are in A malls. They are the best malls in the country. They will stand the test of time. The developers are looking at remixing the tenant mix, reducing their dependency on apparel and accessories. They are increasing entertainment, food and pharmacy. Anytime they are able to do that, you are seeing big changes in the mall traffic. We benefit from that as well. We are investing in these stores through our growth store strategy,” the ceo added.
“We will be a smaller company coming out of this pandemic,” said Williams. “We clearly need to right-size our cost base to properly align with the new reality. All costs have been on the table.”