Macy’s says it will recover and rebuild coming off a tough 2020

Discussion
Photo: Macy’s
Feb 24, 2021

Macy’s reported a gain in earnings during the fourth quarter, the first time in more than a year, as the department store retailer cut inventory and pulled back on merchandise discounts.

The retailer’s CEO, Jeff Gennette, said that results came in above the company’s expectations and that sales, which declined throughout 2020, showed improvement on a quarterly basis.

Mr. Gennette said that Macy’s performance was the result of improvements in categories including beauty, home, jewelry and watches. Digital sales, which were up 21 percent, were key as traffic at the chain’s mall-based locations continues to take a hit due to  consumer concerns about the spread of COVID-19.

Macy’s CEO sees the company’s digital channels and strong financial position as instrumental to executing its three-year Polaris turnaround strategy, introduced in February 2020.

Mr. Gennette said the retailer would use 2021 to further accelerate its digital and omnichannel investments and omnichannel initiatives.

“We have shifted a large proportion of our current and future capital to digital, supply chain and technology platforms to better integrate our digital and physical assets and deliver the most relevant shopping experiences. In part enabled by these shifts, we expect that approximately $10 billion in sales will come from the digital channels by 2023,” said Mr. Gennette on yesterday’s earnings call with analysts.

Macy’s CFO Adrian Mitchell said on the call that the chain has found that online sales “per capita are two to three times higher in markets” where the retailer has stores. It has also found over the last five years that online sales are adversely affected when the chain closes a location in a market with multiple stores and even more so when it shutters its sole location in an area.

The chain is expected to shutter another 36 locations in 2021 in addition to the 30 closed last year. Part of Macy’s strategic plan was to close 125 stores over three years in a cost-cutting move that will save $1.5 billion annually.

Macy’s is looking at 2021 for “recovering and rebuilding” its business, anticipating that top line results will pick up in the second half of the year.

Moody’s retail analyst and senior vice president Christina Boni agrees that Macy’s faces headwinds through the first half of 2021 as “mall traffic and apparel demand remain weak.” In an emailed statement, she pointed to Macy’s liquidity and “no revolver borrowings” as financial strengths.

DISCUSSION QUESTIONS: What do you find encouraging about Macy’s earnings report and its strategic plan for its business? Do you think Macy’s has come out of 2020 in a relatively stronger or weaker position than its department store rivals?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Macy’s results are an indication of the department store industry’s problem in terms of customer relevance."
"The middle continues to collapse and a lot more needs to be done for Macy’s to profitably grow share of wallet and share of trade areas."
"Yes, well-integrated online and offline sales and fulfillment models work, but Macy’s is unlikely to find that sweet spot considering its current portfolio."

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21 Comments on "Macy’s says it will recover and rebuild coming off a tough 2020"


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Gene Detroyer
BrainTrust

Once upon a time we discussed Sears regularly. Then there was J.C. Penney. Next it will be Macy’s. The obituaries are already written, waiting for the ultimate end. Three years? Five years? After that, no more.

Sterling Hawkins
BrainTrust

I agree with you. Macy’s simply re-directing some investment online isn’t going to save them. But it doesn’t have to be the end. If they would get serious about hiring different kinds of people, commit to innovation and new ways to do things, and shake up their culture, there could be light at the end of the tunnel. The problem is, those things are hard. And there’s little likelihood Macy’s would embrace them in a meaningful way. Let’s split the difference and call it 4 years.

Suresh Chaganti
BrainTrust

Adiran Mitchell (Macy’s CFO)’s comments confirm something we always suspected. The presence of retail locations improves online sales. Retail stores have long stopped being a sales-only channel. They are marketing channels in a big way. That’s why traditional store-level metrics such as same-store sales and sales per square foot don’t make sense anymore.

Macy’s obviously has taken note of this, but other retailers need to as well. Physical retail is needed, but it needs to be redefined in terms of size, assortment, and experience to make it a marketing channel. Retailers that don’t know how to do this and turn them into micro-fulfillment centers and dark stores are losing it big time.

Lee Peterson
BrainTrust

This reminds me of that Seth Meyers bit: REALLY?

Yogesh Kulkarni
BrainTrust

Macy’s results are an indication of the department store industry’s problem in terms of customer relevance. Macy’s results have bright spots for Q4 but all of them come from operating leverage and cost reductions. Even their guidance for 2021 confirms that a further sales decline is expected. Most of department stores aren’t acquiring a lot of new customers, their existing customers are ageing and not spending as much, and their problems won’t end unless they grow sales. Reducing store fleet is going to further cause sales declines as the article points out.

Phil Rubin
BrainTrust
5 months 8 days ago
The most encouraging aspect of Macy’s earnings report was the actual earnings, in EPS terms. That said, there remain fundamental problems with its business that will remain a challenge and open question in terms of whether they are addressable in any kind of sustainable way going forward. Paraphrasing what Gene Destroyer aptly says, “Sears, J.C. Penney, Macy’s — inevitable.” Having started in the original Macy’s Executive Training program, reading that Macy’s has added 1,000 new vendors is the antithesis of what we learned, which was that going narrow and deep on best sellers is how you win. Granted my experience was 35 years ago and Macy’s was a different company, but when you read Apple’s earnings they often talk about blockbuster quarters while citing specific product sales. Apples to oranges 🙂 yes, but… Macy’s has two other problems: it can’t sell apparel (or most other goods) at full price and it has too many stores. The first problem is obvious and is best summed up by the words of a CFO of a client company,… Read more »
Richard Hernandez
BrainTrust
Richard Hernandez
Director, Main Street Markets
5 months 8 days ago

Macy’s has been reconfiguring their business model for some time now. I really don’t know how much longer this will go on and I am hopeful they will be able to survive with a solid plan to leverage the continued change in shopping patterns.

Jeff Sward
BrainTrust

Macy’s has the component parts for success, but they seem to act like a dysfunctional family rather than a coherent whole. Macy’s. Last Act. Backstage. Market by Macy’s. And then there was STORY by Macy’s. All good ideas, but with varying levels of success. Why didn’t STORY work? Why do they still call it the One Day Sale when it seems to be 24/7/365? Shrinking the store count is the easy, obvious move. It’s a no brainer. The role Macy’s will play in the remaining malls that is the key question. A radical re-think is required to re-imagine the mid-tier department store. Target and Kohl’s will serve the opening market quite well. Primark could well replace J.C. Penney. And I get that the “boring middle” is dead. Can’t we have an “exciting” middle again? Regional department stores did that pretty well for awhile — up to 1980ish. So what does the “exciting middle” look like in 2030?

Ricardo Belmar
BrainTrust
My greatest takeaway from Macy’s earnings report is their CFO’s comments about online sales decreasing in a region where they close stores. We have seen this story play out many times across numerous retail brands. One channel needs and supports another because customers shop across channels and are no longer satisfied by just one. The clearest example of this is the ongoing trend for curbside pickup. If you don’t have stores, you can’t offer easy, local pickup! Apart from that, while the latest quarter appears to be heading in the right direction financially, Macy’s is still left with poor performance overall for 2020. Yes, there was a pandemic. Yes, they are too dependent on apparel sales and consumers just didn’t want to purchase new apparel in 2020. As evidence, I need only look at my email inbox for the constant stream of Macy’s promotional emails touting apparel sales. Where are the other product categories? This is indicative of the entire department store sector, however I suggest that Kohl’s is best positioned out of all of… Read more »
David Adelman
Guest

Their goal of reducing expenses by shutting down stores and reducing store footprints is key in achieving long-term success for any department store today. I commend them for taking these difficult actions but it will take more than reducing store counts for the brand to survive.

Macy’s is an iconic brand but they desperately need a rebranding if they are to survive today’s new consumer. Shoppers will be back to brick-and-mortar stores in droves once the pandemic ends but if Macy’s rests on its laurels, I’m afraid the retailer is doomed.

Mohamed Amer
BrainTrust

Macy’s has already realized that their future is a hybrid model of online and physical stores, as evidenced by Macy’s Adrian Mitchell’s comment on the earnings call. The challenge is that each Macy’s store represents an unavoidable fixed cost, and online sales would have to accelerate massively to offset that drag. Yes, well-integrated online and offline sales and fulfillment models work, but Macy’s is unlikely to find that sweet spot considering its current portfolio.

Scott Norris
Guest

All the other Twin Cities commenters, say it along with me: “I want my Dayton’s back.” Nothing about what Macy’s has done here excites this shopper – and their abandonment of outstate MSAs only drags those shoppers’ expectations to Kohl’s levels. I agree with Jeff that the necessary future is in aggressively local/regional brands, local buyers sourcing locally for local climates and tastes, as micro-manufacturing comes back to make it practical.

Jeff Sward
BrainTrust

You’ve reminded me, and amplified my own thought. My Macy’s was supposed to regionalize assortments. Best of both worlds. Strength of the big pencil plus local sensitivity. It’s “expensive” — but is it less expensive than vacating markets?

Steve Dennis
BrainTrust

What struggling retailers need to remember is that customers don’t switch for a slightly better version of mediocre, or even very good, particularly if you compete in a very mature category. You can bribe them with discounts for a time, but they are not the customers needed to build and sustain a profitable business.

The middle continues to collapse and a lot more needs to be done for Macy’s to profitably grow share of wallet and share of trade areas. The comment about stores being important to online is a blinding flash of the obvious. I’ve been speaking and writing about this for at least a decade.

Gene Detroyer
BrainTrust

Great comment. “What struggling retailers need to remember is that customers don’t switch for a slightly better version of mediocre…”

DeAnn Campbell
BrainTrust

Macy’s has a lot of life left yet. They have been testing ideas for a few years now. They were among the early adopters of BOPIS (Buy Online Pickup in Stores), and purchased Story as an experiment in experiential retailing. There is so much hype today around eCommerce that it’s easy to forget that almost 80% of total retail purchases last year were in brick and mortar. Macy’s has a real opportunity to become the default store for everyone who wants name brands (not private label like Target or Walmart) and at a more affordable price point than Nordstrom. They have a chance to reach what is arguably the largest yet most neglected shopper segment in America — consumers who live mid-way between discount and luxury.

Craig Sundstrom
Guest

It’s rivals? Given that’s its department store rivals — BonTon, Sears, JCP — have either gone out of business, seem to be going out of business or pose a perpetual question mark, it would be “relatively stronger” just by being alive. So the place to look is non-department store competitors, and I don’t think the picture is particularly flattering. What Macy’s has to decide — always has to decide really, since it’s a constant issue — is between the same old, same old of pruning store counts and reinventing the wheel, and doing something truly dramatic — closing or spinning off half its stores, reviving legacy nameplates, etc.

Brandon Rael
BrainTrust

We should, unfortunately, expect more disruption and challenges to come in the department store sector throughout 2021. There will be a continued cost containment and liquidity preservation strategy throughout the sector, with the right sizing of store fleets, downsizing corporate staffs, and mass discounting.

There is an accompanying loss of brand equity in an industry sector that could least afford it. Macy’s has been in the news cycles as they undertake their long-term transformation cycles. There are macroeconomic and consumer behavior shifts that may lead to irrevocable changes in how, where and when we shop.

For a company associated with traditions such as the Thanksgiving Day Parade, the 4th of July Fireworks, and the holiday season, let’s hope Macy’s can turn things around.

Gene Detroyer
BrainTrust

How do we take advantage of the equity in the Macy’s name? We have have the world renownd flagship store that’s more a tourist attraction than anything else. We have the July 4th fireworks, broadcast internationally. We have the world famous Thanksgiving Day parade. We have a company worth more dead than alive.

It is obvious: sell it to Disney and have Disney do it all including the flagship store as an attraction of the Golden Days of department stores.

Brandon Rael
BrainTrust

This is brilliant, Gene!

Brand equity matters, and Macy’s is world-renowned. There is so much that could be done to turn the company and brand around. Considering Disney’s diversification strategies, they could help transform Macy’s back to the magical wonderland it was during the golden days.

I am sure Georganne agrees.

storewanderer
Guest
5 months 7 days ago
Macy’s put out a good effort over the holidays, far better than typically strong competitors which literally rolled over and played dead (Kohl’s…) from a merchandising effort. Dillard’s … I don’t even know what their endgame was, closing at 7 PM most of December. I won’t even comment on Sears and JCP. Back to Macy’s, their stores seemed to be understaffed during busy periods when I looked around but did not buy anything, and I am not sure how well they took care of the customer during the busy periods based on the lack of staffing and very long lines I saw with few registers staffed. As far as actual shopping, which I did during off times (late at night) when the store was deserted, I was very well taken care of. The store was also much neater and more orderly than past holiday seasons. I also did a few online orders from them with in-store pick up and the fulfillment and pick up (again I went late at night) was handled well. One thing… Read more »
wpDiscuz
Braintrust
"Macy’s results are an indication of the department store industry’s problem in terms of customer relevance."
"The middle continues to collapse and a lot more needs to be done for Macy’s to profitably grow share of wallet and share of trade areas."
"Yes, well-integrated online and offline sales and fulfillment models work, but Macy’s is unlikely to find that sweet spot considering its current portfolio."

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