Photo: RetailWire
CEO thinks momentum is on Macy’s side
Macy’s CEO Jeff Gennette was feeling good yesterday on the department store retailer’s earnings call after the company posted its first quarterly same-store sales gain in three years.
“We’ve created momentum and we are taking that momentum into the new year with a commitment to returning Macy’s, Inc. to comparable sales growth in 2018,” said Mr. Gennette (via Seeking Alpha). “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.”
Macy’s comps improved 1.4 percent during the fourth quarter as the company benefited from improvements in its beauty business, which meant it did not have to engage in “additional discounting to clear inventory.” Mr. Gennette said he expects 2018 to be a good year for the category as Macy’s transitions from its traditional approach, where associates were trained to understand a specific brand line, to one where they are cross-trained to advise customers across a broad array of products.
Mr. Gennette said Macy’s saw improvements in its stores and that its online business continues to grow at a double-digit pace.
While it has fewer stores than it did at this point last year, Macy’s plans to increase its capital expenditures by $150 million in 2018. “Healthy stores mean a healthy business,” he said.
A large portion of the expenditures are being devoted to stores that are part of Macy’s “Growth 50” initiative, which will see the company roll out concepts tested at the chain’s store in Woodbridge, NJ last year to 50 new locations. The stores will feature more fashion, localized product selection and leased businesses including food and beverage. The stores will also include expanded Backstage shops.
“We’re improving fixtures and facilities. We’re expanding in-store technology. We’re developing top talent. We’re also ramping up local marketing and community engagement,” said Mr. Gennette. “We plan to come out of 2018 with these 50 stores on an accelerated growth track and with the model to scale more broadly across our stores’ portfolio in 2019.”
The retailer recently debuted The Market @ Macy’s, a turnkey in-store pop-up concept, being tested at 10 stores in Boston, Detroit, Fort Lauderdale, New York, Las Vegas, Los Angeles, Pittsburgh, San Antonio, San Francisco and Seattle.
Discussion Questions
DISCUSSION QUESTIONS: Where do you see the biggest opportunities for Macy’s to improve its business? How will increased capital expenditures and Macy’s “Growth 50” plan affect the business overall?
Poll
BrainTrust
Cynthia Holcomb
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
Ken Morris
Managing Partner Cambridge Retail Advisors
I really love this new approach. I like the pop-up concept and I love the local movement that’s happening. I think the opportunity is to spend the money to make Macy’s faster. I hope they’re not spending money to make this version of Macy’s the “permanent” version of Macy’s. I hope that the money is being spent on making their infrastructure nimble and adaptable, for example with fixtures that can do more than one thing, top talent that can market locally, etc.
As a merchant by training, I look first at Macy’s assortments and would like to see more clarity between its private brands. There is a sameness to the product offering that will keep its sales increases stuck in the low single-digits unless it addresses this issue more forcefully.
Beyond product, I agree that Macy’s capital expenditures are long overdue. I’ve visited Macy’s stores all over the country that are badly in need of new carpet and paint (at the very least) while the company seems to focus its efforts on Herald Square.
I think many of the changes Macy’s is incorporating into their stores are good. But the point that got my attention was Mr. Gannette’s acknowledging that the well-trained associates were a significant contribution to their cosmetic success. Staffing a store, especially a department store with enough associates and well-trained ones, is the secret to success. However, it does not appear to be part of Macy’s plan for other departments. Price and selection along with convenience remain very important. But even in this day of extreme technology, it is still that well-trained associate who can “wow” the customer giving them a memorable customer experience. When that happens, the customer leaves with a smile on their face and looks forward to returning. Hiring more staff and properly training them is how Macy’s can truly make a difference.
Macy’s seems to be on the right track. Although one good quarter in three years does not a trend make! Of all the strong initiatives, local marketing and community engagement set a tone that indicates Macy’s is reaching outward to attract a newer customer base. These actions have the most potential to infuse long-term success into the overall effort.
Oh, what a difference a year makes! Macy’s, the new darling of Wall Street. Macy’s earned it. How did Macy’s do it? Flashback to 2016 Q4. Stores were bloated with endless, overwhelming aisles of stuff. Seemingly merchandised by a robot with no eye or passion for a compelling, well thought-out selection, especially in apparel. 2017 Q4, Macy’s feels fresh again. So fresh I was shocked. Merchandise assortments reflected a change in tone, not mass, but more novel — assortments merchandised to inspire a purchase! Is this the new Macy’s?
One other positive metric (reading between the lines) is that despite Amazon’s fashion growth, Macy’s is still showing overall improved comps. For a store that’s heavily dependent on fashion, that’s an interesting achievement.
The Woodbridge NJ store is in a mall that is doing better than most malls, so presumably, Macy’s gets enough traffic there to see its testing have real meaning.
Macy’s is in a very interesting state of evolving as a brand, closing unprofitable locations, and attracting the next wave of talent to drive their latest transformation. One of the most significant disadvantages of a traditional retailer is their ability to be nimble, agile and flexible to the changing market conditions, technology shifts and consumer preferences. Bringing in the right talent in-house to drive these innovative projects will be key for the iconic retailer to take the next steps.
It’s encouraging to see Macy’s begin their turnaround with new innovative concepts, pop-up retail, fashion-first focus and localized assortments as well as closer ties to their communities. The department store concept has been long overdue for a re-brand, and Macy’s appears to be leading the charge with their “Growth 50” initiative.
It will be very interesting to see how this plays out.
Improving the store is good. But, what must be improved is the department store business model. In China, as Alibaba moves into retail, Jack Ma calls it Consumer Lifestyle Liberation. The concept is primed for the convergence of department stores and probably their only future. It is an integration of the consumer’s lifestyle and the retailer that seems leagues away from traditional retail thinking.
That’s called “bottoming out,” I believe. After years of declining numbers and then a positive, my old retail mentor would call that “poop on poop” or, you know, the retail version of that phrase. In the meantime, closing those 125 stores probably helped, as will closing another 125 ASAP and another after that.
And, for what it’s worth, a 1.4 percent increase does not constitute momentum. If you want to see momentum in this era, look at Amazon’s $100 billion increase in revenue over the last three years. 100 BILLION DOLLARS. That’s a speeding freight train with no brakes, and a lot of Macy’s business was/is on those tracks.
We have Macy’s on our Digital Executive Council and what I find most encouraging about their future is the fact that they acknowledge that they need to change and that they are willing to take risks, test and learn, and seek advice outside of their four walls. As we know, a willingness to change is half the battle! They learned from their mistakes on a lot of their omnichannel initiatives and new tests like their VR room sets in Macy’s furniture departments have defined metrics and goals.
I love what they’re doing with the Market and b8ta — I totally agree with Art about the importance of the well-trained associate but a great supplement to the massive effort of training is having an expert third-party associate that can drive the experience.
One swallow does not a summer make!
There’s no denying that these results are an improvement. However, they also coincide with a period of elevated consumer spending. That has floated all retail boats. What’s interesting is that Macy’s is still losing market share and its growth relative to the market is poor.
That is not to say that Macy’s isn’t taking the right steps. It is doing some smart things and is seeing an uplift in performance across some categories. However, the blunt truth is that the bulk of stores are still a mess and need significant investment and the proposition is still unclear and requires more discipline and focus.
Macy’s has the firepower and probably the will to revive its fortunes. But this latest result is not a sign that its future is safe.
Retail is all about the experience now, not the apparel. Millennial mores have shifted and influenced the rest of culture. Millennials would rather buy a plane ticket than a handbag. For example, consider the fact that music concert ticket prices have risen faster than inflation, whereas brick-and-mortar retailers have been driven out of the market. Macy’s must continue to invest in better in-store experience, service and engagement so it becomes a hub for its local community.
Halting the race to the bottom by moving the focus away from discounting is a good start. The capital expenditures are much needed and will improve the customer experience, although it is a delicate balance between investing in capex and also reducing long term debt, which is critical to their success and has been an issue for so many others in the sector.
Macy’s needs to change and it knows it; that fact alone gives me hope for its future. I like that Jeff Gennette says he is improving fixtures and facilities — that’s great because so many of the stores are tired at best and a mess at worst. Who wants to try on anything in a fitting room with dirty walls and torn carpeting? I love that he is developing top talent because sales associates are critical to the in-store experience. Consumers of all ages, but especially Millennials and Gen Z, will be happy to know that Macy’s will focus on community engagement as well. I want to see Macy’s succeed and I am anxious to see what it can do.
While many have predicted its demise, Macy’s has experimented with many new initiatives and some are paying off. Some of their most successful strategies have included expansion of its Backstage off-price stores and incorporating them as a store-within-a-store, leveraging its strength in beauty by acquired makeup and spa retailer Bluemercury in 2015, and expanding its offering with relationships with other brands (pop-ups and stores-within-the-store), e-commerce and omni-channel fulfillment capabilities. The leased department for food and beverage and localized assortments are likely to recreate the theater of shopping that department stores of the past where traditionally known for and will definitely drive traffic.
The area that is critical for Macy’s and other departments stores is offering a personalized shopping experience. As retailers look for ways to differentiate their brand from their competitors, offering customers services that make shopping more convenience and reduce aggravation will go a long way in building brand loyalty.
I think it a smart move by Macy’s to transition from its traditional approach, where associates were trained to understand a specific brand line, to one where they are cross-trained to advise customers across a broad array of products. This will be more aligned with how most consumers like to shop and tend to alleviate the bottleneck we all experience when trying to find an associate to help us in one of their stores.
What I find surprising is that very few media folks or analysts comment on the success of Macy’s eCommerce business. This is a $6+ billion dollar juggernaut experiencing double digit growth and a great success story … I believe that Macy’s has closed most poor performing locations and is poised for growth both online and in store.
Macy’s has gone through some tough times, but they are resilient. It is great to see their hard work pay off.
Macy’s biggest opportunities are with respect to innovation:
That’s nice. Of course the economy (in nominal terms) probably grew 4-5%, so in real terms they’re still shrinking; and they’re likely still pulling $$$ from Sears — the gift that keeps on giving — which won’t go on forever. And that $150M? Let’s see, over ~700 stores it works out to about $500K/store … enough to clean the carpets, I guess.
All right, enough being Davey Downer: let’s assume Macy’s “momentums” itself enough that it’s still around in 10 years, what will it look like? I think it will be a (relatively) small group of 100-200 well maintained, moderately upscale stores and a healthy online business (I’ve long advocated for spinning off Bloomingdales, but that complicates the “Cliffnotes” version, so let’s leave that out for now). The big question is how to get there from here: continued dribs and drabs of cuts and crossed fingers, or something drastic?
Fewer markdowns and increasingly localized assortments both require superior inventory visibility. This know-how is also crucial for integrating its physical and digital domains. Macy’s has been a standout in this regard for several years and it’s good to see the payoff materialize in the last quarter.
Meanwhile, it has been pursuing creative ways to re-purpose excess retail square footage, by incorporating new concepts within large stores. This has had the dual benefit of tightening bloated departments and creating new in-store experiences and reasons to visit.
Finally, its strategic store closures last year were unjustly criticized as signs of weakness when they were actually evidence of sound management. I’d venture that this decision helped enable the announced investment within remaining stores.
Does this mean that Macy’s is out of the woods? Of course not! It never will be. Its business sector is far too dynamic and competitive. Mr. Gennette knows that survival requires continuous reinvention. At the moment, it seems to be working.
There was a time when it wasn’t just Macy’s. It was all the varied divisions of Federated and May Co. THAT was localized retail. And now a decade and a half later it turns out that local customers do indeed want localized assortments. “My Macy’s” was an attempt at that and it sounds like the lessons of “local” were never really forgotten. And now without the distraction of unproductive stores the capital can be spent where it will be the most productive. I am a Federated/Macy’s alumni so I am all applause.