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How ‘Fast and Scrappy’ Macy’s Survived Pandemic Upheaval

While Macy’s Inc.’s business has suffered during the coronavirus pandemic–with a Q3 net loss of $91 million and sales off 22.9 percent to $3.99 billion–the iconic department store retailer has capitalized on the opportunity to quickly advance its omnichannel strategy.

Macy’s learning curve has accelerated as online sales exploded, promoting the merchant to scramble in serving customers who quickly acclimated to shopping clicks over bricks, CEO Jeff Gennette said Tuesday during Morgan Stanley’s virtual Global Consumer and Retail Conference.

As the pandemic took hold, 50 percent of digital demand was being satisfied by store inventory, Gennette noted. That has receded somewhat as stores have reopened, “but just the opportunity to make sure that curbside, same-day delivery was all really well wired” was a vital response, he added.

Prior to the coronavirus pandemic, digital was 25 percent of the business and has grown to be “in the high 30s to 40s in the near term and growing from there,” Gennette said.

“It’s now optimizing the omni experience, which is really taking the friction out of the function of digital assets, as well as the experience,” Gennette said of Macy’s multichannel strategy. “Then the last is really resetting the cost base and making sure that we are draconian in how we go after cost and SG&A, recognizing that you’ve got the margin pressures of an increasing digital business on gross margin and making sure we’ve got to get our SG&A stack down on anything that is not customer-wanted so the profitability of the company can grow at the same rate that we expect to grow top line.”

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Macy’s expects to announce details and adjustments to the plan in February–different initiatives and tactics–to further enhance the omnichannel experience, he said.

“I think the first thing is that we need to be able to offer a curated assortment for our customers because every one of our customers, even our most confident alpha shoppers, need help with style,” Gennette said. “So our opportunity to curate their brands and make sure that we’ve got the key basics, but then we also had curated fashion content in these brands, is important. But it’s the multi-brand aspect of Macy’s, it’s the loyalty programs, it’s the one-stop shop opportunities that they get in fashion that they can’t necessarily get from a direct-to-consumer website, so if they’re going on and our opportunity to now kind of personalize our offerings, if they’re buying a casual outfit, what’s the footwear that goes with that, what’s the cosmetics that they might wear with it, those are the opportunities that we have through personalization that expands our value.”

The company took several steps to upgrade its digital presence, enhancing product pages, enabling better browse and filter features, and re-platforming to Google Search, “which really improved our search relevancy,” Gennette said, as well enacting ‘buy now, pay later’ options with Klarna, a move in response to “consistent call-outs, particularly from younger customers, about installment pay.”

In October, Macy’s invested in Swedish fintech Klarna, giving budget-minded customers of the nation’s largest department store company the option to spread out their purchase costs over four equal interest-free installments.

“We are in the early innings of personalization, but we’re really getting very strong bites from that and the conversion rates of that messaging is really improving,” Gennette said of another needed aspect for digital growth. “Most importantly with customer relationships was really the site experience and so it is much more experiential. There is more storytelling, and so when you look at that…the holiday gift guide as an example versus what it was last year, it’s much easier to navigate.”

Another important element in maximizing the overall convenience of digital shopping was launching curbside pickup and now through DoorDash, every Bloomingdale’s and major Macy’s market is available for rapid at-home delivery. A previous same-day provider had limited the company’s reach, Gennette noted. Macy’s is prominently promoting the DoorDash service on its digital presence, especially as shoppers purchase with “hard deadlines for the holidays,” he added.

Given the strain under which fulfillment networks are operating this season, Macy’s recognizes the need to inject more clarity into its “holiday delivery messaging.”

“We used to be much more opaque about when a package would be delivered,” Gennette said. “We’re much more specific now and we will continue to improve that. But those are all the things that we did to kind of improve the focus on digital, our tactics to deliver a better experience.”

“We learned to be fast and scrappy,” the CEO added, describing the speed at which Macy’s implemented curbside service. “In March, we didn’t have curbside in any form; in April, we had curbside up and running, and in May it was rolled out in every store. The first version of this was really a hack—it worked, but it was missing some of the conveniences that customers expect, so we ran the initial curbside program while the team developed a more robust solution, and we rolled that out right prior to holiday.”

Macy’s doesn’t expect consumers to return to their pre-pandemic behaviors, meaning the new normal looks to be here for the long haul.

“When you look at our core customer, they’re very comfortable now, whereas before you started to map all of their behavior when they were a stores-only customer, those people have definitely shifted to omnichannel and many of them actually have not returned to stores,” he said. “They’re just very comfortable transacting digitally, so recognizing that, we needed to make all of the improvements on site.”

Additional reporting by Jessica Binns.