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 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.
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.
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