Macy’s Inc. Sees Brighter Light in World Of Uncertainty

● Macy’s Inc. executives exude optimism during J.P. Morgan presentation.

It’s a feel- good moment for Macy’s Inc.

The retailer is seeing sustained momentum, believes the government stimulus package and rollout of COVID-19 vaccinations are spurring shopping, and that it will reach its goal of generating $10 billion in digital sales in 2023.

“We’re very excited about what we’re seeing right now with the consumer and what’s going on in the macro environment. So the momentum that Macy’s Inc. banner brands had in the fourth quarter is continuing into the first quarter,” Jeff Gennette, chairman and chief executive officer of Macy’s Inc., said Wednesday at the J.P. Morgan Annual Retail Roundup.

“We’re definitely seeing benefits from the stimulus package that was in full force over the past six weeks and certainly the vaccine which is starting to take root... at different rates in different parts of the country. Our existing customer base, our core customer, they’re getting stronger, and we’re certainly seeing increased spend as they’re re-engaging with the brand.”

Gennette cited an influx of new customers — 7 million in the fourth quarter — and an opportunity to capture market share, particularly in the digital space. “We can get to $10 billion by 2023. We’re the number-two online site in the categories that we serve, and we’ve got ambition there.

“With competitive closures, we definitely see an opportunity to take share in targeted categories at both Macy’s and Bloomingdale’s.”

Continuing to exude positivity, Gennette said Macy’s “fundamentals” continue to improve, including margins through improved pricing analytics. There’s greater full-price selling, faster turnover, a healthy stock-to-sales ratio, a lower SG&A rate, and expense discipline, he said.

However, Macy’s boss cited uncertainty for the future, stating, “We don’t know where we are right now in kind of the end of the pandemic cycle, what that looks like.” He said Macy’s takes “a measured view to the back half of the year.”

Macy’s in the fourth quarter saw steep sales and profit declines but not as much as had been expected. There could still be some declines in the first quarter, but there’s improvement and the company expects to eventually return to pre-pandemic volume levels. Sales totaled $17.34 billion in 2020, versus $24.56 billion in 2019. For 2021, Macy’s anticipates between $19.75 billion to $20.75 billion in sales.

Currently, compared to 2019, Macy’s sees the rate of increase in new customers at about 19 percent ahead, and that the company is spending 8 percent more.

Gennette said digital remains very strong.

“It was up 24 percent in 2020, and that momentum is accelerating as we get into the first quarter of 2021.” The CEO said the company has been working on search relevancy, improving personalization, simplifying pricing, promotions and the checkout experience, and providing new payments options, including Klarna.

Home, fine jewelry, fragrances, sleepwear, sunglasses, footwear, particularly sandals, watches and luxury handbags remain strong.

Denim is beginning to show strength, particularly Levi’s, as well as dresses, with proms and wedding dates beginning to get calendared in again, Gennette said. “And then just people going out more. You see that in casual day dresses.” Luggage, which was dormant in 2020, is coming back as travel revs up.

Among the top brands across categories, Gennette cited Levi’s, Kors, Polo Ralph Lauren, the partnership with Finish Line, Chanel, Dior and Louis Vuitton in luxury bags, as well as Birkenstock and Steve Madden in footwear.

The CEO cited opportunities in new categories that Macy’s pursued last year like baby gear, outdoor, recreation, fitness, hair care and gourmet food. “We went after hundreds of new brands, lots of new skus.” Macy’s ended 2020 with $1.7 billion of cash, which executives said provides liquidity and flexibility to chase categories to grow with.

Gennette stressed that Macy’s Inc. is selling more with less inventory, that regular price sell-through is up and average unit retail price is up about 7 percent this quarter versus the same period in 2019.

With Backstage, Macy’s growing offprice business, 45 in-store departments are planned this year, and there’s a resumption of opening freestanding Backstage stores. A handful opened for the first time in 2015.

According to Macy’s Inc. chief financial officer Adrian Mitchell, digital sales per capita are two to three times higher in markets where there are Macy’s and Bloomingdale’s stores versus markets where there are none.

He said Macy’s store fleet transformation activities are focused on rightsizing the number of stores, making omnichannel investments in remaining stores, testing the potential productivity and profitability of smaller off-mall formats (Market by Macy’s, Backstage and Bloomingdale’s the Outlet) and monetizing real estate assets wherever possible. Macy’s expects $60 million to $90 million in asset sale gains this year.

Last year, Macy’s said it would close 125 “neighborhood” doors, and now has about 60 locations left to close. “This really allows us to concentrate our store locations in the most productive A and B malls.” After the closures, “We would expect to generate about 75 or 85 percent of our store sales from those stores.” Macy’s neighborhood stores are those that have been comping a few points under the rest of the chain and are expected to further decline, though they are still cash-flow positive. The neighborhood stores are mainly situated in underperforming malls where Macy’s has other stores in close proximity.

To improve margins on digital sales, Macy’s has been developing ways to encourage store pickups to save on delivery costs, reducing the distance that packages travel to customers by improving demand forecasting and inventory allocation, reducing the number of packages per order, and linking the best shipping offers more directly to the loyalty program and Macy’s proprietary credit card to reward bigger spenders.