Macy’s Earnings Preview: Watch The Digital Shift

It is the last — and possibly the most important — retailer to post second-quarter earnings. When Macy’s takes the stage Wednesday morning (Sept. 2) it will be a referendum on its own future as well as the future of department stores. By extension, it’s also a key indicator on the state of the American mall.

Analysts are expecting a top-line revenue decrease of around 40 percent. That will undoubtedly come from stores that didn’t reopen until late in the quarter or stores that had to shut down again due to the pandemic. If that top-line decrease is more than expected, or if the company’s mall-based stores are significantly underperforming, it casts a pall on efforts to rehabilitate the country’s mid-tier malls.

The key number to watch will be the percentage of eCommerce increase and the percentage of sales made up by eCommerce.

“We think the ‘Go It Alone’ moment has arrived,” said UBS in late July, per MarketWatch. “This means brands should plan for a future that does not rely on department stores or malls to help generate traffic or drive growth. The ideal business model will be one where a brand can profitably sell directly to consumers either online or in-store.”

That’s exactly the thinking behind Macy’s Polaris strategy. Expect to hear a lot about it on Wednesday. Macy’s first announced in early February before the pandemic took hold. The multi-faceted strategy, to paraphrase CEO Jeff Gennette, was meant to focus on the healthy parts of the company’s business model and do away with the unhealthy parts. When initially laid out, the company was in the process of closing underperforming mall-based stores, consolidating its corporate headquarters and laying off more than a thousand employees. It also laid out, at the beginning, ambitious plans for private label fashion brands, a new loyalty program and a more intense focus on eCommerce. Then the pandemic happened.

Since then the company has axed 3,900 more jobs, mostly in its corporate ranks, and has not been able to capitalize on the Polaris plan. The company has promised to revisit it in the press release announcing Wednesday’s earnings call.

“The Polaris strategy is a long-term plan to reinvigorate Macy’s same-store sales growth … The original priorities of the plan were to enhance shoppers’ digital experience, decrease expenses, and upgrade the best-performing stores,” says The Motley Fool. “As its stores were closed, the company’s online sales penetration in the quarter increased to 43% … For Macy’s, digital sales continued to be strong even in areas where stores reopened. Management therefore realized that to thrive in the post-pandemic environment, it would need to focus more on the digital experience.”

As part of the Polaris plan, giving more inertia to the digital experience has been easy for Macy’s, as it has for other retailers. But as it enters the heart of Q3, those digital sales face a potential hiccup named Amazon Prime Day, which rumors put in early October. It will lead to more pressure to discount heavily online to keep up.

“From a retailer perspective, your goal is how do you do the same amount of volume but shifting the eCommerce penetration very significantly,” said former Macy’s executive and Bakertown Consulting Founder and President Stephen Rector, per S&P Global. “While retailers have spent recent months beefing up their digital strategies in response to COVID-19, filling a larger portion of holiday orders in October would be a new test. The typical consumer doesn’t buy all their holiday gifts in October.”