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Macy’s Going Hard on Off-Price This Year

Macy’s doesn’t expect supply chain disruptions to suddenly go away this year, according to one of its top execs. But what the retail company does expect more of in 2022 is something it can control—expanding into new store concepts.

At the UBS Global Consumer & Retail Conference last week, Macy’s chief financial officer Adrian Mitchell said the company believes the supply chain will be a “challenge through 2022, and likely into the early part of 2023.”

Mitchell is feeling good about the current state of the supply chain, saying that the challenges are easing in comparison to pre-holiday 2021, despite the ongoing pressures. In the U.S., he said labor shortages across trucks, railroads and ports remained the biggest headwinds, on top of equipment like chassis and containers stuck in far-flung parts of the supply chain.

Overseas, lower vaccination rates and China’s zero tolerance policy on Covid-19 could further hamstring the supply chain, he said. China, for example, placed the port city of Shenzhen into lockdown on Sunday as the country battles a resurgence in Covid-19 cases.

Like many of his peers, Mitchell is closely watching the trajectory of U.S. inflation, which reached 7.9 percent in February—a 40-year high.

“I think inflation is the biggest unknown in 2022, and also the biggest unknown over the next couple of months,” Mitchell level. “Oil prices continue to surge, especially with the ban of Russian oil, so that’s going to pinch the consumer. Gas prices are elevated across the country, grocery prices are elevated across the country, people are noticing their ticket, so there’s certainly a segment of customers that are going to be more impacted than not.”

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Mitchell also outlined brick-and-mortar’s evolving role in the overall Macy’s experience. The Backstage off-price banner will expand to “a couple more” freestanding stores in 2022, and show up as a “store-in-store” concept inside 30 to 40 additional full-line Macy’s stores next year. The company already brought Backstage into 45 full-line stores last year.

In a November earnings call, CEO Jeff Gennette said sales at the store-in-store format were up 24 percentage points above standalone Backstage stores.

Mitchell also acknowledged the shift to off-mall, a pivot from a decades’ old tradition for Macy’s. The retailer is scaling growth of its smaller-format Market by Macy’s and Bloomies stores as part of the evolution.

“We see that malls, particularly the best malls, remain relevant, but to a lesser degree than what we saw over the last 10 years,” Mitchell said. “We do believe that off-mall formats will continue to have resiliency with a modest level of growth over time, but the data seems to show that those off-mall locations that are very convenient to where customers live, shop and work are actually quite relevant and an important part of how we think about our strategy.”

Market by Macy’s stores will typically be 30,000 to 50,000 square feet, with Mitchell pointing to a Dallas location and two Atlanta-area stores as the blueprint for what to look for in the new formats. The stores are meant to coexist in shopping complexes with off-price retailers like TJ Maxx and Ross, as well as grocers, he said.

“When you walk into the store, you can see the entire store, so you have very good sightlines into seeing beauty, into seeing home, into seeing ready to wear, and at the very center of that store is the fitting room which is staffed with a stylist to help you make your choices,” Mitchell said.

The stores include digital screens in the fitting room, at service desks and at checkout, showing content on styling and product.

Macy’s launches “Own Your Style” experience

Aside from the store footprint, Macy’s also aims to add new value to e-commerce with the launch of its Own Your Style brand platform. The department store initially hired AlixPartners to review its business and determine if spinning off e-commerce into a standalone business made any sense. But Macy’s board of directors ultimately shot down the idea, and the Own Your Style concept appears to be geared to more closely integrating the physical and digital channels.

Own Your Style offers branded content, sequenced storytelling, in-person expert advice and personalized data-driven recommendations. It’s designed to be inclusive through offerings that address shoppers of diverse ethnicities, sizes, gender identities and abilities.

The new digital Own Your Style hub curates style inspiration through product carousels that highlight different categories, plus new product photo grids and product videos meant to drive engagement.

The company is also bringing back its Macy’s Style Crew team of in-house experts who guide shoppers by sharing live demos, tutorials and recommendations. Mitchell said he sees Own Your Style as a differentiator for the company.

“Own Your Style is about helping consumers express and own their own style, whether they’re decorating their home for an event or whether they’re getting dressed up for work, and really leveraging that through our in-store colleagues by providing experts that can help you develop your style in any part of your life to personalized content driven on the digital platform through our data science recommendations,” Mitchell said.

‘We’d rather chase sales’

Regardless of the channel, Macy’s believes it can stay disciplined on inventory management this year after seeing 2021’s inventory increase 16 percent above 2020 to $4.38 billion. In kind, inventory turnover, the rate that inventory stock is sold and replaced, jumped 21 percent, indicating slightly higher demand that Macy’s has scrambled to fulfill.

The company prefers it this way. “We don’t want to overbuy, we’d rather chase sales,” Mitchell said. Macy’s is leveraging data science to identify specific markets, channels and even stores when it can send in-demand product.

“We’re just being very measured,” Mitchell said. “It’s important for us to be very measured so that we don’t get over our skis, because as soon as we get over our skis, what happens is you have excess inventory, you have a market down, margins compress, cash flow diminishes, and you’ve got to add labor in the store to price markdowns. That’s not a place we want to be again.”