Turning to 2023, there is conflicting data regarding the US consumer.
That’s the starting point for a dicussion around what the retail landscape looks like right now from Macy’s CEO Jeff Gennette. The basic message - it’s complicated. He explains:
As a modern department store operating from off-price to luxury, we have a full view of income tiers, aided by our high penetration of loyalty members and robust credit card portfolio. On the surface, the consumer is in better shape than 2019. Jobs and wages are strong and savings levels are elevated relative to historic levels. But prices for services and goods are higher. Inflation has surpassed wage growth and revolving credit is rising...We believe discretionary spend will be under pressure across income tiers and expect the allocation of disposable income to continue shifting towards services and essential goods.
That said, he adds:
Even as consumers re-prioritize spend, there is opportunity. With the continued expansion of a hybrid work model, there are more in-person meetings and flexibility for personal travel. We believe the desire to be with loved ones, go on vacation and attend events has not diminished and expect gift giving and occasion-based demand to continue.
So how does that backdrop map onto the reality of the situation on the ground for Macy’s? The firm has, in recent years, made significant efforts to re-invent itself as an omni-channel retailer, with some success. Like almost every other brand, it’s got a digital story with some twists and turns around the pandemic. Gennette says of the current digital contribution:
Digital obviously grew significantly over 2019. And when you look at our business in 2022, it was up 31% versus 2019, with traffic up 7% and conversion up 11%, but definitely a drop off from where we were in ‘21. So, kind of going through digital penetration through the years. It was at 25% in ‘19. In the pandemic, it hit the 40% level. In 2021, it abated and went to 35%. 2022, it went to 33%. We do see it stabilizing right now at the 32%-34% range. So, that reset has really now occurred post-pandemic, and we have a new baseline for digital penetration in ’23. But we do believe that digital will grow in the future.
To achieve that, there’s more work to be done, particularly around getting better with functionality and experience, but also looking at what can be done with the firm’s Marketplace offering. Gennette says:
We have a lot of work for us ahead for us on that, but we are quite excited about the early learnings in that. We have done a lot on our website. We have done a lot of our mobile app...we are leaving no stone unturned in terms of our opportunities in digital because part of the omni-channel flywheel is our presence there and how that basically addresses all the customer needs.
The online marketplace is a clear strategic priority according to Gennette:
Over the last year, we have built a team focused on identifying, recruiting, onboarding and supporting sellers. Since its launch last September, we had found that over 90% of our total marketplace customer base are Macy’s cross-shoppers. Additionally, Marketplace, number one, captures incremental sales opportunity in categories and brands where we have historically limited offers, such as videogames and electronics; two, drives a larger average order value and higher units per order; three, allows us to quickly move into new and adjacent categories without inventory risk; four, gives our customers more choice at scale; five, enables us to ship channels for certain customer wanted brands that do not have a high velocity of sell-throughs; and six, attracts a new younger customer. We have plans to add 2,000 brands on Macy’s marketplace this year and to launch on Bloomingdale’s marketplace in the back half.
Embedding more data analytics across the enterprise has been a major work over the past year, says Gennette:
We added and refined pricing science capabilities such as competitive pricing and enhanced channel and location level markdowns and there is opportunity to further maximize profitability and drive even more productive sell-throughs.
The firm’s Private Brands initiative is a case in point:
We have created a dedicated Private Brand team with new design, sourcing and merchandising roles and broad cross-functional support. The team is now executing our vision for a differentiated, defendable and durable portfolio. Our approach is rooted in consumer insights. Our team has conducted over 80,000 online surveys, 35 days of digital community engagement and hundreds of hours of in-store fit research and shopper loans.
This data has informed our go-forward strategy, which is focused on five key pillars: brand identity, original design, strategic sourcing, relevant size and fit and compelling value. The role of Private Brands is to drive customer loyalty, be a differentiator for our business, complement our matrix of national brands and benefit our gross margin. We currently have 24 private label brands in the Macy’s portfolio, which combined represented roughly 16% of Macy’s 2022 sales. Over the next 3 years, we will rigorously evaluate all of them and will refresh, reimagine and replace brands.
There’s also a need and an ambition to make more use of personalized offers and communications. Gennette explains:
By targeting at the customer level, we can build loyalty, grow customer lifetime value and further protect margins. This year, we have run tests with tens of millions of Macy’s customers, including our Star Rewards members, who represent roughly 70% of our Macy’s owned, plus licensed, comparable sales. The test to focus on individualized promotions and consistent cross-channel experiences. We are pleased with early learnings and we will continue to refine offers and communication to make the experience more tailored and intimate.
Overall, the ongoing omni-channel rebalancing is crucial to adapting to the new uncertainties in the retail space. Gennette concludes:
Even though we are in 49 markets of the top 50 markets, there are many ZIP codes where we don’t penetrate because customers are going to off-mall and that’s how they are satisfying their needs. That’s why we are so excited about what we are looking at in terms of Market by Macy’s and Bloomies. So, expect us to continue to fortify that. When we do that, the digital flywheel and the omni-channel business, starts humming. That’s how we are looking at where we are going to go with white space and new customer opportunities.
That’s the theory. The trick now is to continue to put it into practice.