The impact from the coronavirus has retailers rethinking their store network, and Macy’s Inc. is no exception.
“Off price is growing for us and robustly,” Macy’s CEO Jeff Gennette said on Wednesday, noting that since the coronavirus pandemic’s outbreak, the retailer has put into motion plans to open a few Backstage freestanding stores and Bloomingdale’s The Outlet for its higher-end luxury nameplate.
At the company conference call last week after it reported second-quarter earnings results, Gennette mentioned opening several off-mall Macy’s and Bloomingdale’s locations, starting first with stores in the Dallas, Atlanta and Washington, D.C. markets. Several Backstage stores are also on the agenda, as well as a test of an off-price e-commerce business next year. And a Bloomingdale’s small-store format will be tested in the fourth quarter of 2021.
Gennette, who on Wednesday kicked off the Goldman Sachs 27th Annual Global Retailing Conference, reiterated plans for every off-mall store to have full service for returns and pickups. “I think value more than just price,” he said, noting that quality, service and trust are also part of that value equation where Macy’s can provide the best balance of options for its customers. And while new customers have trended younger, and will become omnichannel loyalists, Macy’s hopes, its consumer pools are looking for “great value” and have gravitated from opening price points all the way to higher-end luxury goods. Gennette believes digital will remain in the “40 percent or higher” range of the company’s overall business.
“Luxury emerged quickly and we are jumping on that. Looking at the competitive landscape suggests we have opportunities across categories,” Gennette said.
Holiday 2020 might deliver some new opportunities.
“America comes to Macy’s for gifting,” he said, adding that this year customers from brands that have closed are “up for grabs,” and that Macy’s has been working on building assortments on its digital platform to ensure that it has the brands customers are looking for.
As for merchandise assortment, 50 percent of the gifting items will be brand new, and the company has expanded its value offerings to include gifts under $15. “To date, the customer does expect to spend the same as last year. It may be an elongated season, but that’s good news,” Gennette said, adding that Macy’s is resetting its inventory planning to make sure it has an adequate supply for both dot-com and stores. Currently, 30 percent of demand is through stores, and whether shipping from online, using same-day delivery services such as Door Dash or buying online and using ship to store or curbside pickup, Gennette said delivery could create some hiccups with supply and demand.
Though the company has targeted 125 stores for closure over a three-year period, it hasn’t yet shuttered any neighborhood stores and interim chief financial officer Felicia Williams described the deadline for doing so as “fluid.”
“We are modeling different scenarios with respect to the timing [and] I just want to remind [everyone] that we are still generating cash in our leased locations,” she said.
Because of the uncertainty over the next six to 12 months, Macy’s is prioritizing how it thinks about store closures and timing. “So one of our priorities would clearly be to preserve cash with maintaining our market coverage in the areas where we could potentially close a store. We want to be able to offer our customers less crowded options, where they feel more comfortable and we are using [how] our current footprint really could support our digital business,” with omnichannel fulfillment, Williams said.
What’s more, Macy’s is also modeling how to take advantage of store closures by its competitors, as well as waiting for the real estate environment to stabilize, Williams added.
Notably, neighborhood doors are currently outperforming the retailer’s mega stores during the pandemic, possibly because they are either smaller or in centers with less traffic, which may be making its customers feel more comfortable shopping during the pandemic, Williams said. Flagships in large urban mega doors are under more pressure due to the decline in tourism and fewer people heading back to work in offices.
“So some doors will benefit from some competitor closings in the short-term, but in some cases the departure of multiple competitors in the mall could reduce traffic and could have a long-term impact on the overall status of the mall. So our intention is to change the composition of our store base over time as we close more mall-based stores over time and open smaller format off-mall stores,” Williams said, referring to both the off-price format and the mini-Macy’s or mini-Bloomingdale’s concept.