Macy’s Solid Plan…on Agile Footing

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At last week’s JP Morgan Chase Annual Retail Roundup, Macy’s CFO Adrian Mitchell laid out a very clear-eyed path forward, recognizing the obstacles and issues. He also identified numerous opportunities Macy’s is preparing to capitalize on, expressing the need for agility in uncertain times.

I heard personalization, localization, off-mall smaller formats, (including Market by Macy’s, Bloomie’s and Backstage), reimagining real estate assets, an expanded and curated digital third-party marketplace, decentralized decision making, inventory optimization, and continued growth in Macy’s Media Network. In short, I heard a lot of visionary ideas and a lot of work to get it done.

Winds of Change

Mitchell did acknowledge headwinds indicating the need to be agile as they move forward.

The biggest challenge that Macy’s has in terms of thinking about managing through the beginning of 2022 is where is the demand going to come from? Macy’s believes the demand is out there and that the consumer is going to be spending. But are they going to be spending on discretionary items that Macy’s sells?

One macro question he posed was: “The biggest challenge that we’ve had in terms of thinking about managing through the beginning of 2022 is where is the demand going to come from? We do believe the demand is out there. We do believe that the consumer is going to be spending. But are they going to be spending on discretionary items that we sell? Or are they going to be spending on an airline ticket to Florida or going out to restaurants more? So that level of unpredictability is something we just have to be very measured around.” This, of course, is the core issue for the entire industry.

Mitchell cited specific headwinds facing Macy’s and retail in general:

  • Continuing evolution of Covid-19
  • Inflationary pressures on both Macy’s and consumers
  • Continuing supply chain disruptions (the war in Ukraine as an unknown)
  • Uncertain industry-wide promotional behavior
  • Competition for talent
  • End of stimulus money

On the other hand, there are favorable tailwinds:

  • Consumer demand will remain healthy as the job market improves and wages continue to rise
  • As people return to the office and events, demand will increase, particularly in the apparel and accessory categories
  • The full recovery of international tourism to pre-pandemic levels

Good Neighbors

Personalization, localization, off-mall smaller formats and reimagining Macy’s real estate assets are all ideas that focus on physically expanding Market by Macy’s, Bloomie’s and Backstage brands (30,000 to 50,000 square-feet) into neighborhoods (read convenience).

Macy’s has 10 developers who are reimagining how to convert select stores across the country into mixed-use properties, or turning other properties including parking lots into restaurants, offices, residences or other such concepts.

Personalized Service

While Macy’s has had personal stylists for years, they have elevated this service to a more strategic and formalized level. They recently launched what they call the “Own Your Style” program. It’s a strategy geared to project fashion authority and serve customers on a more individual basis.

Rich Lennox, Macy’s chief brand officer said, “We will help our customers express their personal style through personalized data-driven recommendations and expert advice that will differentiate us in a cluttered marketplace. This brand transformation will enhance our customer’s shopping experience with more personal touchpoints and offer them true value and style that they can own.”

Macy’s also changed its dress code for its colleagues, so they can better express their personal style and encourage customers to do the same.

And in a conversation I had with Marc Mastronardi, EVP, Macy’s Chief Stores Officer, he said this personalized service will be rolled out to every Macy’s consumer touchpoint, both digital and physical, and including the off-mall small store formats (Read: personalized experience).

The Promotional Conundrum, Inflation, and Inventory Personalization

Another major shift is decentralizing promotional decision making from five regional structures to the individual stores. Mitchell said, “We’re also being very thoughtful about how we navigate the promotional intensity. The pricing science for us is actually quite important. So, if you think about pre-2021, a lot of what we had in terms of our pricing sophistication was in five regions, where in each region the pricing cadence was fixed.

“The [promotional] depth was fixed— 25 percent off on the first markdown, 50 percent off on the second. The entire region, regardless of sell-through rates and inventory availability by location, had been just much less sophisticated. By the end of this year, however, Macy’s will have a very different pricing cadence, where any given store location or local market will have the ability to control its pricing, as opposed to pricing changes on a regional level. It just gives us a lot more flexibility to kind of manage areas where we may have excess inventory and manage demand and margins where we have less inventory.

“There is no question in our mind that we’re likely going to be moving into a more promotional intense environment. There’s still uncertainty. There’s still pressure on the consumer. Even though the consumer is healthy, we do see that inflation is elevated more so than what we expected coming into the year.

“And we also recognize that the supply chain disruptions are not solved. Even though it’s better than months ago, there are still challenges. There are still delays. For us, it’s about pivoting away from broad-based promotions and getting into much more personalized offers. We can maximize margins better. We can speak to the customer in a way that they’re engaged and active and engaging on product that is relevant for them.”

Expanded Digital Marketplace and launched a third-party digital marketplace strategy. They will be curating and expanding select third-party product categories aligned with each of their core customers’ desires, which Mitchell said is “a whole new ecosystem and a whole new capability for us.”

Macy’s Media Network

In August 2021 Macy’s launched its media network as a new revenue stream essentially selling advertising to its and vendors. Speaking to analysts, CEO Jeff Gennette billed the service as “a new fashion and beauty publishing model.” An in-house advertising team runs the platform, which offers formats like sponsored product, website display and physical media ads. It combines existing loyalty capabilities through its Star Rewards Loyalty program with digital advertising, which also capitalizes on obtaining first-shopper data which is then used to upsell ads to vendors. While the revenue is still small compared to giants Google and Amazon, Macy’s has an advantage over digital pure plays by using its physical stores as additional advertising platforms.

Back to the Unknowns

Back to Mitchell’s core question about consumer demand: Will it be strong enough in the face of all the headwinds. And how will the demand be satisfied? Goods that Macy’s sells, or travel, leisure, entertainment, dining out, etc.?

Mitchell commented, “On the uncertainty side, the things we are looking at are record inflation, the lack of stimulus, the increase in interest rates, instability in the stock market and challenges with the war in the Ukraine.

“When we look at the low- to middle-income customer, we think there is more pressure. On the other hand, higher income customers seem to be resilient and continuing to spend as they

progress through 2022. Domestic tourism is really healthy. People are traveling, going on spring break, going to see family. We feel really good about the momentum.”

Is Macy’s Trending?

I started this article by mentioning the many positive strategies CFO Adrian Mitchell outlined in his presentation. I also said that it would require a lot of work: read implementation. Having lost a year as a nonessential during 2020, I do believe they are coming out of a recovery year and are poised to take off down a long runway.



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