Macy’s has a challenging road ahead as it looks to regain sales momentum and improve profitability amid a challenging climate for department stores.
On Wednesday, the company held its investor day in New York City, outlining a three-year turnaround plan that includes trimming 125 stores from its total footprint, cutting 2,000 jobs (or about 9% of its corporate workforce) and ramping up investment in both higher-margin private labels and off-price through Macy’s Backstage. The retailer will also close its Cincinnati headquarters and San Francisco tech office, relocating some of these jobs to New York City.
Macy’s says it expects these moves to save the company $1.5 billion annually by the end of fiscal 2022, some of which it will reinvest in its growth plans. Despite the mostly tepid outlook for same-store sales, expected to be down 1% to flat three years from now, Wall Street was seemingly encouraged by the presentation: Macy’s stock jumped nearly 6% in Wednesday trading after falling about 35% over the past year.
Here are four takeaways from the meeting at the New York Stock Exchange:
1. Macy’s will double down on its top private labels, with the aim of building four $1 billion brands.
The retailer sees the higher-margin private-label business as a bright spot in its financial future, announcing plans to invest in growing four of its top apparel, accessories and home brands — International Concepts, Charter Club, Alfani and Style & Co. — to $1 billion each in sales.
“We’re already well on our way,” said Patti Ongman, Macy’s chief merchandising officer. “Private brands are already among our highest margins, but we continue to find ways to improve. We’re building new sourcing and supply chain capabilities.”
2. Online growth is key, but Macy’s needs to cultivate omnichannel shoppers.
Macy’s is upgrading its online experience to cater to today’s e-commerce shopper, relocating the Macys.com team to New York City as it aims to focus particularly on its fashion offerings and testing new concepts like clothing rental and customization.
“Macys.com is both our digital flagship store and the front window to our brand,” said Jill Ramsey, Macy’s chief digital officer, adding that the site sees more than 2 billion annual sessions and is the first purchase destination for more than 40% of all new Macy’s customers.
The retailer has also found that its omnichannel shoppers are by far its most valuable. However, customers who shopped across Macy’s channels spent an average of $741 annually on 9.5 visits to the retailer, compared with $332 in annual spending and 3.5 average visits for store-only shoppers and $196 in annual spending and 2.4 average visits for online-only shoppers. The company plans to expand its online assortment eligible for in-store pickup and make it more seamless for customers to return online orders in-store. It is also testing curbside pickup and is planning similar tests for scheduled pickups and self-service drop-offs of returns.
3. It will exit lower-performing malls and areas with competing locations while testing new store formats.
“America loves to shop, but our customers shop differently than they did three years ago,” said Chairman and CEO Jeff Gennette, admitting that retail has suffered from the bifurcation of malls, with lower-performing centers sinking rapidly while those with strong traffic stabilize.
After the planned store closures, Macy’s will operate about 400 locations across the country. It has already made upgrades to 150 of these stores through a “growth treatment” that includes physical store improvements and investments in merchandising, technology, talent and local marketing, and it will expand this program to an additional 100 stores in the coming years. These upgraded stores are already outperforming the rest of its fleet, Macy’s said, and by 2021, the company expects its top 250 stores to account for 78% of sales.
It will also test a new small-format store concept, Market by Macy’s, which will highlight locally made products, host community events such as book signings and wine tastings and include an in-store cafe.
4. Macy’s will look to off-price as a growth driver through its Backstage business.
The company said it plans to open more freestanding Backstage stores, adding to the more than 200 locations currently housed inside Macy’s stores. Currently, it has six stand-alone Backstage stores, with plans to open seven more in 2020.
Off-price has been one of the strongest sectors in retail in recent years, even as the rest of the industry has weathered significant challenges. Still, Macy’s has tough competition with T.J. Maxx, Marshall’s, Ross Stores, Nordstrom Rack and Burlington all vying for bargain hunters’ dollars.