Macy’s Pins Holiday Hopes on Curbside After Staggering Quarterly Loss

While Macy's reported a staggering quarterly loss and is taking a “conservative view” for the remainder of the year, CEO Jeff Gennette said curbside pickup is going to be a “big secret weapon” for Macy’s this holiday season.

Macy's posted a net loss of $3.58 billion, or $11.53 a share, in its first quarter of 2020, down from net income of $136 million, or $0.44 a share, in the year-ago period. The department store retailer did not provide a financial outlook, but said stores are now running down about 35%.

“Based on where the pandemic may or may not go, we are taking a conservative view in pulling that trend through the back-half of the year,” said Gennette on the company’s earnings call. “If trends improve, we will react aggressively to meet customer demand.But I want to remind you that there’s still a high degree of uncertainty in the market that causes us to take a conservative approach in the back-half of the year.”

Gennette listed three factors impacting recovery from store shutdowns due to the Coronoavirus. He noted that, while Macy’s does not expect another national shutdown, most stores are currently on reduced hours. Additionally, while Macy’s has reopened nearly all its locations, many of the malls in which the retailer operates are closed or may be reclosed in areas with a COVID-19 resurgence, and in those that are open, other stores and services remain close, which impacts Macy’s store traffic. Finally, Macy’s large urban and flagship stores are opening more slowly than the earlier stores, due to being located in dense urban areas that were most affected by the pandemic and the “virtual disappearance of international tourism spending.” In 2019, international tourism accounted for just over 4% of Macy’s sales.

Macy’s Curbside Pickup

In a brighter spot, Gennette said digital sales “remain strong” in each market as stores reopen.

“We expect our digital business to continue to outperform,” said Felicia Williams, Macy’s interim CFO.

In Q1, digital sales penetration was approximately 43%.

“While we saw a low single-digit reduction in year-over-year digital sales in the first quarter, we expect a high teens increase in the fall season, as customers continue to shift to online shopping as the pandemic continues,” she noted.

Macy’s fulfilled around 9% of its digital demand through box and buy online, ship-to-store (BOSS) in 2019, which Gennette said has “gone up dramatically” as a result of curbside. The retailer now expects stores will fulfill about 30% of its digital business through the fourth quarter.

During the call Gennette mentioned Black Friday and the 10 days before Christmas, questioning what level of store traffic there would be if people are nervous about gathering with crowds.

“We’re working with our merchant and our marketing teams on options within the marketing calendar to reduce pressure points on big volume days and we’re learning a lot from the reopening of our stores,” he said. “Most of stores will not have any issues. But our biggest magnet stores during the Black Friday timeframe is the piece that we’re looking at.”

Gennette said curbside pickup, which Macy’s didn’t have last holiday peak, is “going to be a big secret weapon for us this holiday season,” as the retailer banks on shoppers who are uncomfortable walking into a store using the service. He noted what Macy’s will do with store fulfillment “is going to be big.”