Categories Analysis, Retail

Macy’s (M) has an elaborate strategy planned out for the upcoming holiday season

Macy’s will focus on four categories each in its segments to grow its market position and drive profitable growth over a multi-year horizon

Like many retailers, Macy’s Inc. (NYSE: M) was hurt by the COVID-19 pandemic that led to store closures and disruption of operations. These headwinds took a toll on the company’s second quarter 2020 results as well, leading to a 36% decline in net sales and an adjusted loss of $0.81 per share. Despite the year-over-year drop, both the top and bottom line numbers were better than what analysts had predicted.

The stock has dropped over 54% since the beginning of the year and over 19% over the past three months. For the back half of the year, Macy’s is banking on the upcoming holiday season and has quite an elaborate strategy to take advantage of the period.

Macy’s strategy focuses first on recovery and then on driving growth in the top and bottom lines. As several of its rivals in the retail industry continue to struggle or close down, the company sees opportunities to acquire new customers and gain market share.

Stores

During the second quarter, Macy’s saw sales decline 61% year-over-year at its stores. The company managed to reopen almost all its stores by the end of June with sequential improvement each month during the quarter. Despite the resurgence of COVID-19 in some places, the decline in store sales slowed to reach 40% in July.

Macy's Q2 2020 earnings infographic.

Macy’s stores form a key part of its holiday strategy. The company’s G150 strategy, which focuses on updating old stores and bringing new brands and experiences to select stores, is paying off. Through this initiative, Macy’s upgraded the stores that accounted for half of its 2019 brick-and-mortar sales and expects the benefits from these investments to continue.

Also Read:  Signet Jewelers tops Q2 earnings estimates: Infographic

The company is working on improving its fulfilment strategies to reduce friction for the customer irrespective of the way they choose to shop, be it in-store or buy online and pick up curb-side etc. It will also be taking steps to control occupancy levels like having separate areas for returns and pickups. The retailer is also adjusting its promotional calendar to spread out traffic to its stores.

Digital

In the absence of stores, the digital channel gained momentum helping to offset the weakness. During the second quarter, the digital business grew by 53% while digital penetration across the company increased to 54%, up around 10% from the first quarter.

However digital stress moderated by the end of the quarter as stores improved, with July penetration coming in at 42% on digital growth of 25%. The company expects this moderation to continue into the fall.

For the holiday season, Macy’s is adjusting its assortment to meet trending demands and also improving product availability information to improve the customer experience. The retailer is also providing more shipping options and better clarity on delivery dates.

Digital growth has significantly accelerated in the past three months and companies that invest in their digital retail infrastructure have significant opportunity going forward. Macy’s will focus on investing strategically in improving its digital experience across both dot.com and its app, growing its omnichannel customer base and driving profitable digital growth.

Categories

During the second quarter, Macy’s saw strength in the home category, particularly in housewares and textiles. The fine jewelry, fragrances, activewear and sleepwear categories also saw good demand while categories such as dresses, men’s tailored, and luggage witnessed softness due to reduced travel and work-from-home trends.

Also Read:  Kirkland's Inc. (KIRK) Q2 2020 Earnings Call Transcript

The dresses and men’s tailored businesses saw a sales decline of around 70% in spring and the company does not expect this business to see an immediate return to growth. On the basis of current demand and future potential, Macy’s has identified four categories in its segments to focus on in order to grow its market position and drive profitable growth over a multi-year horizon.

These categories, which are called Focus Four, will be fine jewelry, beauty, furniture and mattresses, and Backstage off-price in Macy’s and luxury, advanced contemporary, textiles and The Outlet off-price in Bloomingdale.

Macy’s will also focus on maximizing its high margin private brand offering. While the company saw some weakness in private brand apparel, the home and accessories category saw strong performance. Macy’s intends to increase the penetration in private brands to 25%.

All in all, strong execution of its strategies and improving the customer experience remains the key priority for Macy’s during the holiday season.

Click here to read the full transcript of Macy’s Inc. Q2 2020 earnings call

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

Most Popular

COVID-19 drove retailers up the digital path years ahead than anticipated

Earlier we looked into how, during the COVID-19 pandemic, retailers saw changing trends in terms of their assortments and how the acceleration of online shopping led many of them to

Snowflake (SNOW) creates a record as the most successful software IPO ever; stock more than doubles

Data is at the heart of business innovation. Recognizing this trend, companies are seeking ways to transform their businesses by capturing, analyzing, and mobilizing data. The public cloud is becoming

Adobe (ADBE) sees new tailwinds as virtual shift gathers steam

The second half has been highly rewarding for design software maker Adobe Inc. (NASDAQ: ADBE) amid stable demand for digital content solutions. The company has remained unaffected by the virus-related

Top