Macy’s Embraces ‘Omnichannel Digital Retailer’ Mantra, But Lags Behind Peers


Macy’s reported on its Q4 and FY results on Tuesday (Feb. 23), which were led by a 21 percent increase in digital sales and rising delivery costs. The retailer also forecast that its eCommerce business would hit $10 billion by 2023. The company, best-known for its flagship 34th Street Manhattan location and sponsorship of the Thanksgiving Day Parade, told investors that it sees itself as a “digitally-led, omnichannel retailer” that’s facing a year of “recovery and rebuilding”.

In announcing its fourth-quarter and full-year results, Macy’s said that increasing digital sales allowed the company to post its third consecutive quarter of sequential growth during the critical holiday shopping season. “We saw solid holiday demand in November and December, which continued into January,” Macy’s Chairman and CEO Jeff Gennette told investors on the company’s earnings call.

Officially, Macy’s said its net sales fell 18 percent to $6.8 billion for the three months ending Jan. 30. At the same time, the operator of 750 stores said its digital revenues rose 21 percent and accounted for 44 percent of net sales, with 25 percent of online orders being fulfilled in stores, including curbside pickup and same-day delivery. Macy’s also said it returned to profitability with adjusted net income of $253 million or $0.80 per share. It also noted that it added seven million new customers in the quarter, many of which were younger than 40 years old.

“2020 was a year of unprecedented disruption,” Gennette said, noting that the company’s “Polaris transformation strategy” unveiled a year ago would see continued investment in digital and omnichannel selling, and underscored the vital link that its stores and website play in supporting each other.

A Digitally Led Omnichannel Retailer

For a company that has been referred to as the country’s leading and largest “department store” chain for decades, it is notable that Macy’s management never uses that term anymore, and instead repeatedly refers to itself as a “digitally-led omnichannel retailer.”

“We understand that our business model was challenged prior to the COVID-19 crisis, and that the pandemic has underscored the need for us to rapidly evolve toward a more compelling omnichannel model,” CFO Adrian Mitchell said on the company’s call. To that point, Macy’s said it expects to do $10 billion in digital sales by 2023 and will continue to work to improve profitability.

“We all know that the pandemic has accelerated the use of digital channels, including our own, and that our customers’ preference for digital shopping experiences is a permanent shift,” Mitchell continued. “We’re excited about the opportunity to lean into digital growth. But make no mistake: Our strategy revolves around growing omnichannel sales and profitability, regardless of which channel our customers use.”

By comparison, Walmart — which is also undergoing a digital transformation — said last week that its fourth-quarter eCommerce sales rose 69 percent. Amazon’s Q4 sales rose 44 percent.

A Bifurcated 2021

Macy’s said it expects to see continued COVID-related challenges through the spring, with more post-pandemic momentum starting in the fall. As it progresses in its digital transformation, it said one of its biggest challenges will be meeting customers’ delivery expectations, noting that the lower real estate, payroll and benefits costs in the digital channel will offset the pressure it faces from increased delivery expenses, which rose three percentage points last quarter. “Nonetheless, we also know it is vital to improve our delivery efficiency and better manage and reduce delivery expense,” Mitchell said.

That said, Macy’s told investors that it saw 2021 “as a recovery and rebuilding year” and a “foundation for growth.” forecasting net sales of $19.75 billion – $20.75 billion versus $20.1 billion average estimates, and adjusted diluted earnings per share of $0.40 – $0.90 versus a $0.76 estimate.

“We plan to continue our focus on right-sizing SG&A (sales, general and administrative costs), improving working capital efficiencies and modernizing our supply chain to support the omnichannel shopping experience and customers’ evolving expectations around fulfillment speed,” Gennette said. “We understand there is much work ahead to capitalize on the opportunities now available at Macy’s; however, we have the aspiration, the fortitude and the agility to successfully transform our legacy in the months and years ahead.”