Just as Macy’s beagn making inroads toward improving its financial performance during the COVID crisis, the struggling department store company’s executives say the resurgence in case numbers is posing a renewed threat to its business.
The retailer reported on Thursday that comparable sales fell 21% during the third quarter—a smaller drop than in the two previous quarters—and that its gross profit rate on merchandise had soared thanks to deft inventory management and cost cutting.
But with new cases of COVID-19 exceeding 150,000 per day, and uncertainty about when unemployed Americans might get some relief from a new stimulus package, CEO Jeff Gennette listed two ways in which the incoming Biden administration could help.
“One way is that we get a stimulus package passed and the second one is that we accelerate, as much as we can, a safe and scalable vaccine plan,” Gennette tells Fortune.
While Macy’s sales results were terrible compared to those Target and Walmart reported earlier this week, they represent progress for the retailer, whose heavy reliance on apparel for going out or work have hurt it during the pandemic. But those improvements are fragile, especially in markets where it relies on tourists and in city centers.
“COVID is surging again across the country and that continues to impede our recovery in international tourism and urban areas,” chief financial officer Adrian Mitchell said on a conference call. The absence of office workers in markets like Chicago and New York is hurting stores in city centers there.
The CFO added: “We remain conservative given the uncertainty.” Macy’s expects sales to again decline during the fourth quarter at a similar rate.
When COVID struck in March, forcing Macy’s and countless other physical retailers not deemed essential to close stores for weeks, Macy’s was able to set up services like curbside pickup quickly and get relief from its large online business. Since re-opening stores, Macy’s has limited the number of shoppers allowed inside at once and required them to wear masks. Additionally, it has installed plexiglass at cash registers, among other measures.
Gennette says whatever happens, barring mandated closings, the retailer is prepared, and such measures will help to keep its stores open, particularly as the Black Friday weekend approaches. “We’ve played through all the scenarios and my team is ready,” Gennette says.
And it will need in-store sales to improve significantly to return to growth overall. For all of Macy’s e-commerce firepower, its online business grew only 27% year-over-year last quarter, a fraction of the pace Target and Walmart saw, and a more modest pace than it experienced earlier this year. The stodgy growth reflects the retailer’s broader problems that precede COVID, one analyst said.
“One of the issues with online is that Macy’s is not a destination of choice in the same way as Amazon, Target, or Walmart are. Neither does it have the specialist pulling power of retailers like Best Buy, Ulta or Wayfair,” GlobalData managing director wrote in a research note.
Overall sales fell 23% to $3.99 billion compared with $5.17 billion a year ago, but it reported an adjusted profit, helped by gross merchandise profit margins that were almost back to pre-COVID levels. Inventory was way down, meaning Macy’s had to sell far less merchandise at clearance prices.
On sounder footing now, despite the cloud cast by COVID, Macy’s will next year resume its turnaround plan announced in February, which entails opening a small fleet of smaller stores away from malls with amenities like cafes and a more stylish presentation of merchandise, as well as improving its e-commerce site.
“We’re back on that horse,” Gennette said.
