Source: Macy’s promotional video
Macy’s CEO says recent gains are real and better things are ahead
Macy’s reported a 63.9 percent gain in same-store sales during the first quarter as shoppers returned to stores and online sales climbed upward.
The parent company of its namesake chain, Bloomingdale’s and Blue Mercury announced that all three outperformed sales expectations during the first quarter. Macy’s said its first quarter results represented a continuation of improvement picked up during its fourth quarter, when it saw sales improvement over the previous three months and reported an earnings gain for the first time in more than a year. Management also pointed to federal stimulus checks, the increase in COVID-19 vaccinations as well as significant progress on its three-year Polaris strategy, which includes digital investments, paying dividends.
Macy’s said that it was encouraged not only by the return of its core customers to stores but that it saw significant increases in new shoppers at the same time. The department store retailer said that 4.6 million new customers were acquired in the last quarter, representing a 23 percent jump over 2019. Among online shoppers, 47 percent bought from Macy’s websites for the very first time.
The company is looking for further improvement ahead.
“We don’t see this as a short-term pop,” Macy’s CEO Jeff Gennette said on the company’s earnings call this week. “There are pent-up demand opportunities in our categories that give us confidence for accelerated profitable growth in 2021 and beyond.”
The retailer said that categories that held up during the pandemic continued to show strength, with fragrances, jewelry and watches, home and luxury items among its strongest merchandise performers. It also saw a rebound in “special occasion” categories, such as travel-related products (luggage and swimwear), which were negatively affected by the COVID-19 outbreak.
Mr. Gennette said new merchandise categories are beginning to “emerge” for the retailer.
“We have the liquidity and flexibility in our inventories to respond to customer needs in categories like toys, pet, food and wine, health and fitness either through vendor direct or our owned inventory,” he said. “We’ve added hundreds of new brands and categories in apparel, home and beauty over the past year, allowing us to capture additional spend with new and existing customers.”
Macy’s has been “hyper-focused” on toys and its importance to Millennial parents, said Mr. Gennette. The chain’s toy business is small, but he sees “huge market share opportunities” for the category.
Discussion Questions
DISCUSSION QUESTIONS: Do you agree with Macy’s CEO Jeff Gennette that its improved first quarter performance was not “a short-term pop” for the retailer? Which of Macy’s initiatives does the retailer deserve credit for and which, if any, worry you as diverting its attention from areas needing more attention?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Dick Seesel
Principal, Retailing In Focus LLC
No, I don’t agree with Mr. Gennette. We’ve been treating Macy’s like a piñata for years, so it’s good to see them deliver positive results. And as much as management should be commended on achieving these results, it’s important to keep them in context. The positive results are helpful but, the real question is, is there anything sustainable about these results? What’s changed? Stimulus checks and pent-up consumer demand will naturally drive short-term results as they have for many retailers – Walmart and Target reported stellar results. But what happens when the stimulus ends? According to the earnings call, management feels so good that they’ve taken up their guidance — we’ll see. I’m not convinced.
I wrote this post, Malls and Shoppers are Back In Droves, after a visit to Garden State Plaza in New Jersey just before Mother’s Day. It was packed like the Saturday before Christmas.
Despite what the digital natives want to believe, shoppers do want to go shopping in stores and department stores are relevant. Yes Target reported lights out growth as well but the message is clear – consumers are back, they have money to spend, and it goes beyond “revenge buying.” We learned it could all go south quickly last year which I believe has given rise to a new hedonism.
After 15 months of essentially sheltering, people want to just go anywhere. The issue: is this a reaction or a trend?
I think you get lost in trying to split the difference. The reality is, sales are up and manufactures can’t get enough product due to demand. It’s all good news.
Make no mistake, the macroeconomic tailwinds are phenomenal. Trillions in extra savings. Trillions in stimulus. Macy’s hasn’t solved its core identity and value to the shopper yet, but its investments in digital, loyalty, and CRM are paying off. And while it is sure to close underperforming stores, its surprise profitability proves that it is more likely to be a sustainable business for the long term than not. So much for the naysayers.
What was surprising about their profitability? We knew they cut expenses and bought inventory very tightly. Largely fixed cost businesses show flow-through profits at 25 percent – 35 percent of sales increases and the year earlier quarter had massive write-downs and deleveraging of these same fixed costs due to how quickly the business cut off.
How does the saying go — perception is reality? And Wall Street is rewarding retailers that emerged from COVID-19 TRANSFORMED into digital first – even if it’s only perception (see Gap, L Brands). IF Macy’s can curate their narrative of their own transformation (real or not), there could be substantial support.
Better is not the same as good, and it’s still far short of remarkable. It’s totally expected that we will see strong sales growth from a year earlier for Macy’s and similar retailers given they are comparing to a period when many stores were closed and work from home/not going out drove down the need for many of the items that are core parts of their assortment. Moreover, government stimulus is amplifying discretionary spending power and certainly plenty of folks want/need to refresh their wardrobes. The key number is that this quarter was 10 percent below the same period 2019. As I’ve been saying about Macy’s for quite some time (and discuss in my book), a slightly better version of mediocre is not a winning strategy. The fact that Macy’s has not been gaining relative share despite their direct competitors closing hundreds of stores and their years of “strategic initiatives” show they have a long, long way to go to drive sustainable profitable growth.
As you say, “The key number is that this quarter was 10 percent below the same period 2019.” Looking at any 2021 performance versus 2020 is totally misleading. Throw out 2020 and make all comparisons to 2019 and the picture will become very clear.
It’s hard to gain advantage from competitors closing stores when you’re doing exactly the same, or even more. This year saw the “adios” to Water Tower Place and last year Seattle; it’s not just the dregs they inherited from the May merger anymore, it’s the (one time) marque locations.
Comparatives with 2019 are encouraging. So is the number of first-time customers, which is predominantly online. Macy’s could be operationally profitable but is held back by legacy issues. Arbitration with union staff regarding commission payments comes to mind. The real estate that it holds and the physical footprint of each store is another structural challenge.
Macy’s long-term health depends on its ability to reorganize the physical footprint to its advantage.
There are two very important factors curiously missing from the Macy’s reports – inflation and supply chain issues. Inflation may not be as much an issue for department store retailing as other sectors, but it could still impact profits and reduce the company’s future flexibility. With the supply chain, again there is not as great an impact on department stores as we’re seeing with the semiconductor space, but it is still very much there. The blocking of the Suez Canal and the issues at West Coast ports mean Macy’s and other retailers are not going to be able to offer as much product as they had hoped.
Or, Those retailers are doing incredible in spite of the supply chain disruptions still going. Imagine that is fixed?
Nope. I don’t know how any reasonable analyst could. We’re comparing a chain that had no stores open for at least a month of the quarter (the one that would have generated sales), with a panicky population to a more enured population, many of whom are vaccinated, and who are also excited to get out of the house.
I don’t know what to say, really. To me, as people come back out into their lives, it’s going to be like a rebound romance, with pent-up demand and energy. And then, they’ll remember “Oh wait, this wasn’t so much fun” and sales will slide again.
I wish Macy’s the best. I really do. But it would be way better for Mr. Gennette to be less hyperbolic.
Paula, I could not agree with you more. What caught my eye was the reference to Macy’s being “hyper-focused” – that is close to last word I would use to describe Macy’s.
But hyperbole is the greatest thing ever!
Kudos to Macy’s and Mr. Gennette. As we see light at the end of the pandemic tunnel, consumers are excited for many things, and that includes shopping. I believe the experts who are predicting another “Roaring ’20s.” There is an opportunity for a “boom” in retail and hospitality. Smart companies, Macy’s included, will take advantage of this, while at the same time practicing strong inventory and distribution practices. Also the hybrid model of in-store and online continues to improve for many retailers, large and small.
The results are better than I expected, but of course they are being compared to 2020. Suggesting that is part of a trend is foolish. I am sure Mr. Gennette is looking for good things to say, but when talking to analysts on an earnings call who have some expertise in the category, suggesting this is a trend shows considerable lack of respect for the audience.
Great to see Macy’s growth which by any stretch of the imagination will last through 2021 as Mr. Gennette predicts and perhaps beyond. But as many have already identified on this thread, this growth doesn’t differentiate the company in the market. A rising tide lifts all boats. I’m not particularly thrilled about Macy’s market share opportunities in toys – which seems to be a challenging proposition.
I don’t know, what else is he going to say, “kids don’t go to Macy’s so we’re going to close most of them”? So I get this “speech” and, in reality, these are all good ideas — for 2010. That big ship has sailed. And regarding the “bottoming out” of their numbers, my old boss Les Wexner used to say, “these numbers are s*** on s***, don’t get too enthused.” Spot on as usual.
Oh Lee, you made me Laugh Out Loud! THANK YOU! I agree with you and with Paula too! Thanks again for the great laugh from your post!
Macy’s results, and its improvements that drove those results, need to be taken into context relative not only to the rebound in the consumer and Macy’s making progress on digital and customer initiatives but also the comparison period. The quarter LY was basically the abyss with stores closed, virus uncertainty and a massive consumer shift to savings.
Macy’s has way too many stores and way too little differentiation, leaving me skeptical about the bullish case for Macy’s and in agreement with Paula Rosenblum regarding Mr. Gennette’s hyperbolic comments. To quote Public Enemy: “Don’t believe the hype.”
Comparisons to 2019 vs. 2020 are more valid, and we’ll learn even more from Q2 about how Macy’s is really doing. Conditions on the ground will be more comparable to two years ago, because many people were still avoiding malls during the 1st quarter of this year. Let’s see how the rest of the year pans out for Macy’s before declaring victory.
“Better to remain silent and be thought a wild-eyed optimist than speak…” Unfortunately, when you’re a CEO “remaining silent” really isn’t an option, but what to say? Department stores have been in a decline for 20 years — 50? 80? take your pick — and I’d be hard-pressed to see how Macy’s has done much to change that. Amazon showed that the department store CONCEPT still has value in the virtual world, but unfortunately for Macy’s — and other (once) large chains like Sears — they were unable to capture much advantage from their legacy status.
Agreed Craig. Not silent AND raising guidance. What’s the old saying, “under promise, over deliver”…or is it the other way around?
If Macy’s recent gains are based on pent-up demand, what’s going to happen when that demand has been satisfied? What’s the strategy after that? It certainly is the CEO’s role to be optimistic and forward-looking about the success of the company, but Gennette may be leaning in just a bit here. Roughly half of the 4.6MM new customers were first-time online buyers–in Q4. When these numbers sustain and grow across the other three quarters of they year, then perhaps we can move past “short-term pop.”
Macy’s has all the best potential to reclaim its retail glory, but focusing on toys is not the answer. Stores are important yes, but I’d be more encouraged to hear Gennette talk about omnichannel and upgrades to their website experience. Toys is only a huge opportunity for a handful of retailers. Macy’s is not one of them.