Macy’s Q1 Earnings Show Digital-First Strategy Pays Off

Department stores are so 2020. At Macy’s, even though it defined the category for decades, the company worked hard during its earnings call Tuesday (May 18) to introduce a new phrase into its positioning. Get used to “a digitally-led omnichannel retailer.” That was the oft-repeated phrase as the company announced its surprisingly positive Q1 results. At Macy’s, eCommerce has been raised to a higher priority level than its iconic stores.

“We intend to generate 10 billion in sales from digital by 2023,” Macy’s CEO Jeff Gennette told the company’s earnings call audience. “As you recall, we began to reorient our business as digitally led a year ago when we started consulting in your digital team into New York. Today is fully integrated with our merchandising, marketing, and supply chain teams, collectively, they’re working to enhance the customer experience on our websites and apps by constantly improving our digital platform in launching new offerings. This work is delivering results in the first quarter.”

Specifically, digital sales outperformed Macy’s expectations, bringing in $1.7 billion and accounting for 37 percent of total sales up from 24 percent in 2020. Gennette noted that mobile devices delivered approximately 60 percent of digital sales and added improvements to average order value and units per transaction. Gennette also attributed the digital performance to the company’s Polaris strategy, which was introduced before the pandemic. Among the online changes that resulted from that strategy: better search functions and redesigned product pages which he said increased online conversion by 9 percent.

Gennette spent a lot of time on the call detailing further commitments to its digital effort. It is investing in online infrastructure and transportation and launching a new version of its mobile app. It is also investing in more immersive, experiential strategies led by a renewed commitment to the beauty category. It is also testing shoppable commerce with Instagram and will test livestreaming at some point this year.

“We’re also personally mitigating the impact of high digital penetration by continuing to ship customers to the lower cost, store pickup and increasing store fulfillment of digital orders in the first quarter,” he said. “Approximately 20 percent of Macy’s digital sales were fulfilled in our stores. We are also acutely focused on improving our inventory allocation, while using data and analytics to better place inventory at our stores and distribution centers, as well as across our markets. So we’ll continue to become more efficient as we get smarter on allocation.”

Macy’s is finding that not only is the digital channel adding to desperately needed revenue, it is attracting a younger customer, which is also part of the Polaris strategy. For example, during Q1 it launched a redesigned apparel, footwear and beauty site aimed at the bridge millennials and younger.

“We’re already seeing positive response from these customers online, and we will expand this under 40 merchandising strategy,” Gennette said. “Personalization is one of the biggest digital opportunities for the Macy’s enterprise. Through personalization, we can develop a true understanding of a customer’s style, we can help our customers assemble outfits and design rooms with products that inspire them, we can suggest the right sizes and colors, and even customize the entire browse experience around what we know about our customers.”

By the numbers, Macy’s did surprisingly well across the board. Net sales grew to $4.71 billion for Q1 from $3.02 billion a year earlier. Comparable store sales, bouncing back at least partially from last year’s lockdowns, rose 62.5 percent. Macy’s said it added 4.6 million customers during the quarter, a 23 percent increase from the same period in 2019. Gennette said 47 percent of those new shoppers made online purchases.

The Q1 stimulus package and vaccine rollout both boosted store and online traffic, according to the company. Gennette believes consumers are ready for a post-pandemic shopping lifestyle.

“One of our most improved categories in the quarter was luggage,” Gennette said. “Clearly our customer is ready to get on with life.”