Macy’s Says No to eComm Spin Off

After a comprehensive three-month review of its business to assess the possibility of separating its eCommerce assets from its traditional physical stores, Macy’s has concluded that its existing integrated strategy is the best path forward for customers and the company.

In announcing the findings, Macy’s Chairman and CEO Jeff Gennette told analysts and investors that an omnichannel Macy’s, with multiple nameplates from off-price to luxury, was the most appealing way to serve the retailer’s diverse and multi-generational customer base.

“In every single scenario we considered we found that the combination of our profitable digital platform with our national footprint will deliver greater value to shareholders than a separation of our digital and physical assets,” Gennette said, noting the company’s objective to provide convenient and seamless shopping experiences for customers across all touchpoints.

In reaffirming its commitment to its ongoing “Polaris” transformation strategy, which is designed to remake the nation’s largest department store chain into a “digitally-led omnichannel retailer,” the company added that a primary objective of the review conducted with Alix Partners was to “respect the omnichannel behavior of customers.”

Critical Interplay

The comments come as the 190-year-old New York-based operator of over 700 stores reported its fourth-quarter and full-year results for the period ending Jan. 29, in which its Q4 digital revenue increased 12% versus a year ago and 36% from 2019 and accounted for 39% of total sales.

In concert with its digital-first strategy, Macy’s also announced that it was delaying further store closures as it said the role of stores has evolved with customer shopping habits including what Gennette called the critical interplay between digital and physical assets.

“Today, the consumer is increasingly more omnichannel and we are focused on establishing the more appropriate [physical] footprint in markets to drive sustainable and profitable omnichannel growth,” Gennette said, noting Macy’s aim of maintaining a physical presence in smaller markets and weaker malls as it scales-up its optimal format stores.

“Our stores are also fulfillment hubs supporting our digital operations through ‘buy online, pick up in store,’ curbside pickup and same day delivery,” the 33-year company vet who has held the CEO job for five years said. “Keeping these cash positive stores open also helps us to fund the investments we’re making to reposition our fleet over the next several years,” he added.

According to CFO Adrian Mitchell, the changing store approach is all part of Macy’s effort to lower delivery expenses.

“Our focus is on reducing split-shipments and increasing the efficiency of in-store fulfillment,” the CFO said, noting positive early results seen at the redesigned test stores it deployed in November. “Based on these results, we plan to roll this initiative out to an additional 35 locations before holiday 2022.”

Heads and Tails

With its commitments to digital and omnichannel cohesion set — at least for the time being — Genette told analysts the retailer is in a much more solid position today, both operationally and financially, to weather a mix of logistical and economic challenges in the coming year than in the past.

In addressing the macro-economic environment, Gennette said Macy’s should be able to navigate a dynamic environment of both tailwinds and headwinds this year, yet projected net sales and comparable store sales would rise only by about 1% for the coming year.

“We believe consumer demand will remain healthy as the job market improves, wages continue to rise and we expect demand to increase, particularly as people return to the office and social events,” he said, adding that rebounding international tourism should also provide a lift after falling 50% last year.

On the flip side, the Macy’s chief is on guard for impact of continued inflationary cost pressures — both on itself and consumers — as well as uncertainty surrounding  industry promotional behavior, supply chain disruptions, competition for talent, and the absence of stimulus packages.

“We are confident that our financial health and operational agility have put us in a stronger position to navigate the dynamic environments and challenges that we expect in 2022,” Gennette said.