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Macy’s Inc.’s CFO on How It Is Modernizing

With Macy’s developing an online marketplace, it’s so far, so good.

“Marketplace gives us a very different way of thinking about inventory,” said Adrian Mitchell, Macy’s Inc. chief financial officer, speaking at the Morgan Stanley Global Consumer & Retail Conference on Wednesday. “With marketplace, you don’t have inventory liability and presents a whole new generation about how we can think about inventory productivity.”

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Macy’s launched its marketplace format last September after noticing consumers searching the retailer’s website for products and categories that weren’t there, in particular electronics, toys, pets, home, kids and maternity, Mitchell said.

Now, with the digital marketplace, “We are learning and testing new categories without the inventory risk. It’s a huge unlock for us.”

Mitchell said the Macy’s marketplace is attracting younger customers, generating larger baskets in terms of units per order, and that 96 percent of marketplace customers are tapping into “broader Macy’s,” meaning they are shopping what Macy’s has traditionally bought wholesale and listed on its website.

“We are hitting on a lot of our key objectives,” Mitchell said. “Right now we are continuing to test and learn. We are adding categories. We are adding skus. It’s a margin driver for us.”

With the traditional website, “there is much operating expense to move products through our own supply chain. In marketplace you can have slow movers and it’s OK.…It’s really a great opportunity for us to monetize the traffic on our website. With marketplace, we don’t have the inventory liability, but we have the opportunity to have the sales demand. That gives us a lot of flexibility to really lean into the notion of sku productivity.”

Macy’s Inc.’s Bloomingdale’s division will launch its own online marketplace format next year, Mitchell said.

Adrian Mitchell
Adrian Mitchell

On the wholesale side, “We’re fundamentally changing the way we buy,” Mitchell said. “We have an integrated team. They’re thinking about things end-to-end. We’re literally in one room having the merchants, the planners, the supply chain team and the finance team all discussing about where we need to be, what trade-offs do we need to make in order to make sure that we’re maximizing full-price sell-through, minimizing our inventory liability and driving healthier margins.…We are buying more conservatively, and we’re building reserves into our buys. So that reserve gives us flexibility to be able to adjust in season. If demand picks up, we can chase.”

He also said the company is not doing pack and hold, and “making sure we’re exiting old inventory in season.”

He defined Macy’s “modern department store positioning” as offering “multiple categories, serving a diverse group of customers and building capabilities for the next generation. Our recent success is not an accident. We are executing on our Polaris strategy. We are deliberate about paying down debt, returning value to shareholders. Inventory control is key. Pricing science has served us really well and continues to serve us well this holiday.”

Before, price promotions were at the same level at each store. Now with pricing science, markdowns can be done “by store, by location, by style, and we can actually drive pricing decisions based on the availability of inventory, the level of sell-throughs, and when we actually [hit] end of season. There is just so much more sophistication,” Mitchell said.

He cited making capital investments in personalization, pricing science and the loyalty program, in addition to digital marketplaces.

In terms of consumer shopping patterns, “We think it’s more pre-pandemic,” this year. “You would expect to have a peak around Black Friday, a peak around Cyber Monday and a peak kind of two weeks leading up to Christmas.”

Though Mitchell sees a higher level of competitiveness for holiday, he said Macy’s is “well positioned for holiday. First and foremost, we are the gifting destination. So when you think about the holiday season, you think about jewelry, you think about fragrances, you think about gifts under $50 or under $100, you think about toys with our collaboration with Toys ‘R’ Us. We are really ready for the holiday season. And when we think about holiday, we have 55 percent newness, which is 30 points higher than where we were in 2019.”

“Our flexibility to respond to consumer demand and trends in season, we believe that’s a differentiator and positions us well, not only for this holiday season, but for the future,” he continued.

“The mindset of the consumer is that they’re going to shop this holiday season,” Mitchell said. “They’re going to get out there. They were cooped up in the pandemic. They’re kind of getting their lives back. They’re going on trips or seeing family. They have access to credit. That still remains pretty strong. We do see in the data that the spend on services, whether it be hotels or travel, still is pretty resilient and people are going to see their families. So that’s definitely the positive. We do believe that even with all the pressures, those are positive signs.”

But with inflation, the capacity to spend on discretionary items gets limited, Mitchell noted.

“So you may have to be more on a budget. We’re watching that pretty closely. Interest rates are continuing to rise. That has real impact on mortgage rates, on the cost of homes. So when you think about housing, that’s a real constraint, and that’s typically a pretty big ticket in the budget. Savings levels are down. Folks had a lot of money a year ago put in their savings account. That’s certainly been dwindling. All the data that we’re seeing is that’s definitely coming down.…We’ve seen a real challenge in terms of consumer sentiment. The consumer is concerned about kind of where things are, their ability to not just fund their essential purchases, but how much do they have left over for other things.”