Dive Brief:
- Tight inventory management at Macy’s continued into Q1, with inventories down 7% to $4.6 billion. Lean stock levels going into the year helped maintain merchandise margins even as sales fell in the quarter, the company said in its earnings release.
- The sales decline drove a 2% decrease in the retailer’s turnover rate. CFO and COO Adrian Mitchell told analysts that management expects changes to timing, volume and composition of receipts in Q2 to boost inventory productivity in the year’s second half.
- Despite the retailer’s discipline, it still made inventory missteps in Q1. Chairman and CEO Jeff Gennette noted that the retailer converted its assortment too early to warmer-weather merchandise, losing out on sales during a prolonged period of cold temperatures across the U.S.
Dive Insight:
While many retailers struggled to keep inventory from piling up last year, Macy’s remained relatively disciplined. Executives spoke at length about sticking to that strategy in 2023, with economic uncertainty looming.
The stakes around those efforts are amplified by deteriorating consumer demand, which Gennette said Macy's saw starting in mid-March. The company lowered its outlook for the year and tweaked operational plans as “macro headwinds continue and potentially worsen,” Gennette said.
For now, customers are currently still buying close to their needs, Gennette noted. “If demand improves, we will use our ample inventory receipt reserve, which is above last year's levels to chase into areas of strength as they materialize,” he said.
As Macy’s tries to stay nimble, Mitchell noted that the company has added to its pricing capabilities since the start of Q2 to help the retailer move inventory speedily and as profitably as possible.
“This gives us the opportunity to bring an automated pricing solution that incorporates category elasticities, maximizes inventory turnover and optimizes unit sales left and margin dollar expansion to our owned inventory portfolio,” Mitchell said.
Meanwhile, keeping its reserve of receipts open and allocating less in advance gives Macy’s “the liquidity that we wanted to build into the system, and that when a customer is signaling something in season, we're able to jump on that,” Gennette said. He added that “we're ordering every single week based on how things are trending.”
And as the company keeps space and budgets open to chase product as needed, Gennette noted that “there's plenty of inventory in the market” out there currently.
To stay lean, the retailer is currently clearing through spring inventory with discounts, meaning pressure to its Q2 margins.
TD Cowen analysts led by Oliver Chen said in a research note that they have “confidence in management's ability to clear through spring inventory during 2Q and pivot the merchandise planning through the remainder of the year” to protect margins.
