Macy's CEO - coming out of COVID-19 emphasizes "the beauty of omni-channel"...and where the gaps are

As stores begin to re-open what will the shift towards e-commerce that has been seen during the COVID crisis mean for demand for the physical side of the omni-channel retail balance, especially when combined with ongoing public health nervousness?

That’s a question that’s too early to answer with confidence, but Macy’s CEO Jeff Gennette says that his firm is seeing a better-then-expected response to the 400+ stores it has re-opened to date:

The store openings are going well. We're thrilled that Bloomingdale's 59th Street as well as Macy's Herald Square [are] opened for curbside pick-up. That was a big milestone for us. And while all this is going on, our digital business continues very strong, We have weathered the pandemic.

That’s not to sugar-coat the reality of Macy’s situation which is set to see the retailer turn in nearly $1 billion in quarterly losses. Overall sales are down 45% year-on-year with store business down “substantially” and digital revenue down by single digits, at its weakest in March as the pandemic hit home.

The re-opening of the physical store network has been phased. April saw a number of outlets open for fulfilment and curbside pick-up. Things have improved slowly, although the firm isn’t modelling a return to normalised trends until well into next year, if not 2020.

Performance 

Speaking during a session at the Cowen Department Store Summit this week, Gennette was in glass-half-full mode:

We expected stores to be down between 80% and 85%, which is really how we modelled based on how other countries had opened up. All retail in America has opened up much better than that. Our average was down about 50% as we opened. It's pretty broad based. The first tranche of stores that opened were May 4th, and they opened around that number. Then we opened another tranche on May 11 and this week, you're going to see us open with 400 stores. A little over 400 stores will be fully open. Each tranche that we're opening up is opening up a little better and each week that they're open, they're getting a little bit better.

In the meantime, digital business has been on a steady rise, up 80% year-on-year in May, a growth rate that Gennette is candid he doesn’t expect to see hold up into the second half of the year. But the lesson that has come out of the crisis is simple and that is, “the beauty of omni-channel”:

Companies that have an absolute friction-free omni-channel strategy for their customers are the ones that are going to win. The opportunity to transact whenever and however they want, [the ways] to get online, via mobile, via the [various] fulfilment options, are so critical.

Store-centric aspects of that omni-channel vision have come into play at Macy’s, emulating successes of other retailers:

Through the COVID crisis, we found, as a non-essential retailer, how important curbside pick-up would be and could be. Watching what Best Buy and Target and others have done so expertly, what would that be like with a retailer that's predominantly apparel and accessories?

This meant playing catch-up for Macy’s:

Give the team a great deal of credit for how fast they developed it. We went from basically getting it into 300 stores in like 17 days, and  by [today] we'll be in virtually every single store in the Macy's, Bloomingdales and Blue Mercury chains.

But that is a huge boost. Customers love it. They love the safety of it, they love the security of it, they love the speed of it. So omni-channel in how you're using stores for fulfilment options, how we're going to take what I think is clearly going to shift to a more digital business in the future, but then using your omni-channel entire ecosystem to fulfil that in a customer-friendly way, that is really important.

Objectives

Gennette can identify elements of the omni-channel mix that will demand renewed focus:

We want to have the best-in-class omni-experience, and we're really clear eyed about where our gaps are and where our friction is. But we've got the gas pedal on to make sure that from digital to app to in-store, that the entire omni-journey is as seamless as it can be for our customer.

A to-do list includes: 

What we're doing with search, what we're doing personalization, just looking at the content of your pages and making sure that every one of them is you're getting credit for all the most important elements. What do your click through rates look like? What do  your sell through rates look like?  Seamless checkout [is] going to be a big objective, so continuing to push that curve.

When I look at fulfilment. about 9% of our digital demand was being fulfilled out of Boston in 2019. That's dramatically going to go up as a result of curbside [pick-up] now as a part of it. What does that mean in terms of your inventory placement? What does that mean in terms of...the fulfilment costs? So thinking through all that, about the way you're using inventory to ensure that you've got it for the customer.

Then, obviously, mobile. We made a big deal about mobile, so continuing to improve that, that’s in the short term. And really how we're connecting that in-store, that offline and online experience, for longer term is again building on those fundamentals. Expanding same day delivery, that's going to be very important. Contactless returns to stores from curbside. Instant credit for returns, that's something has been a big call out for our customers.

Those customers may be changing in nature and demographic as a result of the COVID-19 crisis, he added:

We had a lot of new customers coming into the brand and they were younger and they were more diverse. So now how do we make them an omni-customer? We know that [person] is a much more powerful customer for us. They use multiple touch points. They're going to be a more profitable customer. Our journey right now is how do we take advantage of some of these additional eyeballs who've gotten onto our site as a result of the crisis?

Away from the customer-facing elements, Macy’s has had to make a number of internal transformations, not least around running a business remotely - and for the better as a result:

For a guy who believed his team needed to be there in the office, I'll tell you my perspective on that has changed dramatically. I'm seeing our team scrappy and agile and doing more with less and the efficiency of virtual meetings. We use Microsoft Teams at Macy's and Bloomingdale’s. The connectivity is fantastic, the intimacy and what you're able to do with your teams and the agendas that we're working. I think operating in a virtual environment has been much better than we expected.

The big question is going to be, what's the mix going to be like when people come back? Some days they might be in the office; they might be working remote other days What do we look like when we're a hybrid between virtual and in office? We're thinking through that right now. What are those areas of the company where collaboration and creativity is sparked by being [there] in person? What can you continue to do virtually? We think that any brand is going to have to think through that in order to be the employer of choice.

Customer loyalty to the brand is also seen as a differentiator moving into the post-pandemic period, says Gennette:

We've got customers that are rooting for us, we've got colleagues that are just fighting for us. As we have emerged from pandemic and started to open stores, it's amazing how happy and engaged our customers are. When you look at the service scores, both online and in-store or on the app, they're very happy to engage with us once again. There certainly have been hiccups, there have been longer lines at our call centers, but we've worked through all that. To be a resilient brand and come out of this with the competitive cycle as it is, we're encouraged by that. The stores that we reopened have been better and digital has been better.

My take

In recent years, positive news out of Macy’s has been thin on the ground, so the claimed positivity around store re-openings is encouraging. That said, like all other retailers, having the omni-channel balance between online and offline is crucial, but in the current reality there are so many unknowns and variables that it’s impossible to have certainties. Gennette admits:

We’re looking at what happens to the pandemic. You know, is there a resurgence? We're also wondering all over what is it like for Black Friday in America in brick-based, retail? What is it like on the last 10 days before Christmas or five days. Do customers exhibit different behaviour because they feel the digital is either safer, or it's easier?

That last question is particularly pertinent and one that we’ll pick up next week as we consider what the future of the omni-channel retail looks like in practice for both brands and consumers. Which group is the most anxious about what comes next?