With its digital business delivering its 40th consecutive quarter of double-digit growth, Macy’s made progress on its 2019 strategic initiatives during the second quarter. The department store retailer bolstered its omnichannel efforts while opening a distribution center for its off-priced business that taps into cloud computing technology; however, it struggled with inventory during the quarter.
Macy's CEO Jeff Gennette said in the company’s second-quarter earnings conference call that as it communicated in its first-quarter call, “we walked into the second quarter with elevated spring inventory.” He noted that the second quarter got off to a slow start. Moving deeper into the quarter, inventory became a mounting problem due to a combination of factors, including a miss on key women’s sportswear private brands, a slow sell-through of warm-weather apparel and accelerated decline in the international tourism business.
Gennette said the company took the necessary markdowns to clear inventory. The company is entering the fall season with the “right inventory level and mix” to meet anticipated shopper demand with better freshness and liquidity to respond to in-season fall trends. When it comes to technology, Gennette said the company is getting off-price better every day, with its backstage distribution center in Columbus now up and running. “This DC operates on the Google cloud platform,” he noted, giving the company improved efficiency, speed and scale to support its off-priced business.
With its supply chain strategy, Gennette said the company will bring the Google cloud platform to its other distribution center in 2020, which will provide additional network flexibility and speed for Macy’s as well as Bloomingdale’s. Gennette noted that the company also continues to aggressively grow the stock-keeping units (SKUs) and brands it offers to customers on Macys.com via vendor direct. “Our customers love the expanded selection,” he said.
Gennette also noted that mobile helps the company “create a better omnichannel experience” for customers by letting them shop more easily and frequently in stores and online. He said the app is a valued assistant for interacting with the Macy’s and Bloomingdale’s brands, while the company continues to see notable increases in usage and conversion. At the same time, he noted that “mobile remains our fastest-growing channel.”
Gennette said the company also has a regular cadence of new features through My Wallet, My Store and My Stylist. Many of them will bolster the customer experience in stores via quick bar code pickups of online orders, in-store rewards exclusive to the app and localized product recommendations. In other innovations, the company launched its second iteration of STORY at Macy’s with Outdoor STORY.
STORY and Subscriptions
The CEO noted that the STORY concept brings in new customers while providing current shoppers with a reason to visit more often. It also opens the doors to partnerships with local and niche brands as well as major players. With Outdoor STORY, the company partnered with DICK’S Sporting Goods and Miracle-Gro. The collaborations allowed Macy’s to offer unique products and experiences to shoppers. The company is also testing opportunities in re-commerce and rentals as it taps into changing customer behaviors, especially among Gen-Z and millennial consumers.
Macy’s also began its pilot with thredUP, which Gennette described as “the world’s largest fashion resale marketplace.” He noted that many customers are passionate about sustainable fashion and shopping resale. The partnership “gives us the opportunity to reach a new customer and keep them coming back to shop an ever-changing selection of styles and brands” that it doesn’t typically carry. He added that Bloomingdale’s is launching My List, which he described as a “subscription rental service,” with CaaStle as a partner. The learnings will inform the development of a similar rental service at Macy’s in the near future, Gennette said.
Macy’s fell short of earnings expectations for the second quarter, while it had slightly better-than-expected top-line results. The department store retailer reported revenues of $5.546 billion and earnings per share of 28 cents compared to expectations of $5.542 billion and 45 cents.
With the help of technology and product initiatives, Macy’s aims to drive innovation through subscriptions and mobile omnichannel options.