Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Macy’s CEO Expects ‘Modest Sales’ When Stores Reopen

Macy’s outlined plans Thursday to get stores reopened after weeks of coronavirus lockdowns, and now the department store company is diving into the details of what it will take to right a retailer that has been turned upside down.

Aside from government-mandated safety protocols, Macy’s said it’s taking a close look each individual store’s cash-flow generation to decide which locations it can profitably reopen first. And the company is also reviewing its fashion inventory to get a read of what’s stale versus salable.

In keeping with guidelines issued by the National Retail Federation and Retail Industry Leaders Association, Macy’s will also offer and expand alternative shopping services such as curbside delivery and the At Your Service concierge concept. The company will keep an eye on coronavirus infection rates and other government mandates to adjust initial store reopening target dates as necessary.

What’s the protocol, and what about sales projections?

When Macy’s stores begin reopening next week, shoppers will be able to pick up online orders outside 100 locations. The retailer is also determining which inventory units are replenishment items that can be evergreened and separating the fashion-led inventory at risk for being out of date.

“We are working with our merchant partners and vendor partners,” CEO Jeff Gennette said during a fireside chat with Gordon Haskett Research Advisors analyst Charles Grom Thursday. Macy’s, he added, is analyzing the level of markdown needed to liquidate spring fashion orders. In the meantime, Macy’s is also bringing in some new items to have summer fashion merchandise available for shoppers.

“We are working through what that will look like [and] working through what to return to vendors and what to pack and hold for next spring so we are not taking unneeded markdowns,” he added.

Gennette emphasized that the retailer is in good shape. “There’s a lot of fashion we have to work through, a lot of markdowns that we have to take,” he added. “Because we went in clean, there’s a lot less to deal with, but still a lot to clear through.”

But just because the company is starting to reopen doors doesn’t mean selling levels will be back to the way it was before the coronavirus outbreak. “We are going to start the wind-back slow, and emerge out of this as a smaller company,” Gennette said. “We’re not sure what it will look like.”

While digital sales have been good, Gennette said the company expects brick-and-mortar sales will represent less than 20 percent, or barely one-fifth of what the stores normally generate, of its business even after reaching out to its best customers. Most of the activity is expected to focus on using a limited number of store associates to fulfill curbside delivery of online orders.

“We expect modest sales in the beginning,” Gennette said, adding that sales growth will inform when to recall store employees.

Looking for some intelligence from overseas partners, Gennette said business is still off about 30 percent to 50 percent in brick-and-mortar locations that have reopened, with many of those doors in countries, excluding China, whose recoveries are five to six weeks ahead of the U.S. While Gennette said having a vaccine would be a game changer, he noted the many uncertainties ahead, from a likely second wave of infections later this year and long-term social distancing measures.

What’s selling now and a look ahead

Home and beauty sales have been strong, along with activewear, toys and games, and other categories such as baking and bread makers, the areas that one might expect to be doing well when so many consumers are homebound, Gennette said. In contrast, Macy’s has experienced sluggish demand for men’s dress shirts. Dressier fashion categories were down, while casual apparel was up. “Handbags are doing well, surprisingly,” Gennette noted.

He expects apparel sales will start to rise as consumers see “great deals” in the women’s, men’s and kids categories.

Looking ahead to fall and holiday, Gennette said Macy’s is taking a conservative approach to back-to-school. “The ramp back to brick-and-mortar will be gradual. The holiday timeframe is the opportunity to be the best quarter for 2020 and we are planning accordingly, but not as it once was,” he noted.

Macy’s, he added, is planning sales smaller in volume, as well as fewer order receipts to match expected sales levels. The company has made cutbacks on second- and third-quarter order placements, and has “triggers” planned to determine when to make decisions with vendors on what orders to move ahead on and which ones to cancel, pare back or put on hold. Macy’s will leverage its status as the holiday’s gift-giving headquarters, giving it an advantage to grab some sales from competitors, Gennette said.

Macy’s anticipates consumers might come back with different buying patterns, and has an array of staffing models compatible with those patterns and that can quickly adjust to changing needs.

Meanwhile, all stores that are reopening will comply with guidelines from the Centers for Disease Control and Prevention and enforce enhanced cleaning measures. Sanitizer depots will be installed throughout the stores along with additional signage reminding shoppers of social distancing. Store associates interacting with customers at high-traffic registers will be provided with gloves, and protective safety plexiglass will be installed at points of sale where social distancing will be difficult to maintain. Bra-fittings and ear piercing services are temporarily paused. Men’s dress shirts are not available for trying on in the store, and the company has temporarily suspended alternations.

Gennette said the company has looked to essential retailers for guidance and best practices. “We are obsessing about that to make sure we’re doing it right,” he added.

Macy’s and Bloomingdale’s will open on a similar schedule, while the Blue Mercury beauty business, which has many street-level store fronts, will open on a slightly different schedule, the CEO said. There’s been talk that Macy’s might be looking to sell its Blue Mercury business, which was not discussed when its Polaris strategic initiative was announced earlier this year, but that was not addressed during the call.

As for the Polaris initiative, Gennette said Macy’s is fixed on figuring out what post-pandemic retail might look like. The company had planned to close 125 doors as part of that strategy, and is debating whether it makes sense to accelerate those plans.

For stores that don’t generate enough cash flow to open profitably, Macy’s is determining if it can build an expense structure to support a partial opening of only certain areas or limit the store to just curbside pickup. This could include new fitting-room protocols, returns and other safety measures.

And Gennette said the company plans to keep its annual traditions this year, such as the Fourth of July fireworks display and the Thanksgiving Day Parade, even though they are money-losing events. “They are part of our DNA, and we’ve worked at this to not lose money,” the CEO said, adding the two events are opportunities for Macy’s to “give thanks to America.” While Gennette has had talks with New York City Mayor Bill De Blasio and has committed to doing both, details on how to keep everyone safe are still being worked out.

But what about cash burn and a $5 billion debt deal to increase liquidity?

Out-going chief financial officer Paula Price debunked talk about Macy’s cash burn rate, which Grom said was roughly $40 million a week. She emphasized that the company has been quick to respond with cash preservation efforts, and that strong digital sales combined with access of nearly $1.5 billion through its revolver means that the company’s financial position is in good shape and that its cash burn rate was below $40 million, on average, although she adcknowledge that will change once payment terms on delayed vendor invoices come due.

She didn’t go into detail about plans to raise about $5 billion in a debt deal, but said assets and some real estate holdings could aid the company will additional financial flexibility for future needs. If a deal were to happen, it would close and be funded “well in advance before the need for additional liquidity,” she said.

More from our brands