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Macy’s Inc.’s Chief Executive Jeff Gennette used the Wednesday morning earnings call to underline the importance of bricks-and-mortar locations, even as digital sales grow and the company tests a smaller-size store format.
Gennette discussed the company’s ongoing strategy, saying the “recipe for success is e-commerce, healthy stores and a great mobile experience that ties it all together,” according to a FactSet transcript of the call.
E-commerce experienced double-digit growth, with the buy-online-pickup-in-store (BOPS) and buy-online-ship-to-store (BOSS) expanding across the store fleet, Gennette said. BOSS “is very popular” and is getting “greater than expected use.”
Read: Idle hands are Santa’s tools as more holiday shoppers use downtime for mobile buying
Macy’s
M, -6.48%
reported third-quarter adjusted earnings of 27 cents per share, ahead of the 15-cents FactSet consensus. And revenue was $5.40 billion, meeting the FactSet guidance. Same-store sales on an owned-plus-licensed basis grew 3.3%, also ahead of the FactSet consensus for 2.6% growth.
Still, shares are down nearly 7% in Wednesday trading.
The Wall Street Journal published a story on Monday in which Gennette said the department store retailer plans to shrink the size of the sales floor at underperforming locations, cut staff and reduce merchandise.
These “neighborhood stores” could be as much as a fifth smaller. A test is now under way. There are also plans to revamp 350 stores.
“The growth of our digital business goes hand-in-hand with the growth of our bricks-and-mortar business,” said Gennette on Wednesday’s call. “We’ve seen the trend improvement in our stores beginning a year ago and we’ve seen steady quarter-to-quarter progress throughout the year. This is important because [a] healthy bricks-and-mortar business is part of our strategy to build lifetime value with our existing customers and to bring new customers into the brand.”
See: Only weal retailers could miss out on consumers ready to spend this holiday season
So far the turnaround is showing some results, wrote Neil Saunders, GlobalData Retail’s managing director. And the 50 stores that have already been revamped are improved. But there’s still more that needs to be done.
“We are conscious that Macy’s has a long tail of underinvested-in properties, many of which are underperforming and do not reflect the company’s latest thinking,” Saunders wrote, saying that some could benefit by the addition of the off-price Backstage concept.
“However, we also believe that more decisive action is needed over the medium term, which includes shrinking floor space and potentially shuttering outlets where the return on investment is not viable.”
In an Oct. 18 report, Moody’s said department stores are using technology to offer more convenience to customers and move away from the old-fashioned way that they once did business. Things like free delivery, loyalty programs, easy payments and mobile apps are making department stores more enticing. Macy’s included many of these features in its upgraded locations.
“Bottom line, adaptation has been costly, meaning it will take time for most to work through duplicative costs they are carrying as they await for their investments to scale,” the report said.
Meanwhile, Moody’s thinks Macy’s is ready for this year’s big shopping season.
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“Macy’s continued to post solid comparable sales up 3.3% with double digit e-commerce growth and improving merchandise margins as it continues to invest across its business,” said Moody’s Vice President Christina Boni in a Wednesday comment. “A healthy consumer environment and additional investments to meet customer needs have positioned Macy’s well for the upcoming holiday season.”
Macy’s shares have gained 32.5% for the year to date while the Amplify Online Retail ETF
IBUY, +0.09%
is up 7.4% for the period, the SPDR S&P Retail ETF
XRT, -0.93%
is up 5.1% and the S&P 500 index
SPX, -0.20%
is up 0.7%.
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