Macy’s time again comes up when discussions turn to debate about which retailers will survive the coronavirus outbreak and the enlarged stress it has placed the already challenged industry.
CEO Jeff Gennette is betting on survival.
After a virtual fireside rap with Gordon Haskett Research analyst Chuck Grom, in a candid phone conversation with Gennette, CNBC bid him simply: Can Macy’s survive this?
“Yes,” Gennette answered without hesitation.
“I firmly believe that. I firmly have faith that when you think about fashion for America, Macy’s and Bloomingdales are good curators of that [fashion],” he verbalized. “We have formats from off-price to luxury, with Last Call to Bloomingdale’s, a gamut of price points, at a federal level. I think there are opportunities and white space we can go after.”
Take a Bloomingdale’s customer who wants a lower appraisal point, Gennette offered as an example. The other formats can serve that need.
“I’m a 36-year veteran of this group,” he said, acknowledging his personal and professional bias. “But I retain this optimism for our role in American retail.”
How is Gennette saving optimism during the pandemic? After all, he’s furloughed much of his workforce, is taking no salary and making decisions about a uncommonly uncertain future for a retailer that generates the majority of sales from stores that have been stuffy six weeks.
The work-from-home lifestyle
“I miss my team tremendously,” he said. Gennette sees them and speaks to them on video call ons and Microsoft Teams.
Technology has enabled incredible efficiency and a “speed in our metabolism” that he wants to hold onto after the catastrophe abates, he said. Even with the furloughs, decisions are happening quickly and tasks in many cases are getting done quicker.
Bonus, “I get to see things I haven’t seen before, with my [team members’] lives” Gennette said. “I know their dogs’ tags. We are more intimate with each other in that way, and it’s much better than expected.”
The department store CEO is intriguing mainly video calls, that begin around 6:30 am every morning until about 7 pm at night. Gennette is drudgery through the weekend as well. He said he is able to drop in on video meetings and phone calls with vendors and have dealings associations and get updates on financing all day long.
All of it has changed Gennette’s perspective of work from home, which may influence the unborn. While he’s found many positives of the work-from-home scenario, there are some drawbacks.
“The work piece [for me] is easy. The mix between intimate and professional life, is harder,” the CEO admitted. “When can I turn off and give my family a few hours? We don’t have that decompression heretofore anymore.”
Finding the right size for Macy’s
Macy’s is not as big as it once was in store number or market cap, but it still has more than 750 situations and generated nearly $25 billion in sales last year. It’s a reality that it will be smaller still after this calamity passes, Gennette said. Likely with a smaller workforce that better aligns with a further mitigated cost structure.
There’s also the possibility of store closures beyond the 125 announced in February. He said the be sure of store is working on four possible scenarios to play out, and planning carefully for the appropriate staffing as a result.
“The last gismo I want to do is bring our colleagues back from furlough only to lay them off,” he said.
Many of Macy’s furloughed blue-collar workers are receiving benefits from the various government unemployment and assistance programs. But Macy’s itself is considered a “fallen angel” because of its in arrears ratings, and is not eligible for the various government loan programs as a result.
When asked if he thought the government should be doing multifarious to help Macy’s, with its workforce of around 125,000 —and retail in general. He said the government should look at the retail sector, using whatever metrics it deliberate ons best to measure the significance, to see how important jobs are in the industry.
The National Retail Federation estimates 52 million American procedures are retail jobs either directly, or indirectly, as many as one in four.
A government response?
Gennette said he and others were on a phone bid recently with Treasury Secretary Steven Mnuchin talking about the government’s actions and its impact on the retail assiduity. Mnuchin told the group then he would have a better direction on funding and how it would be administered in two weeks’ for the nonce at once.
Mnuchin has particular expertise in the retail industry. As a college roommate of Sears’ former CEO Eddie Lampert, the treasury secretary was on the retailers’ quarter prior to joining the administration. He has been listening to the industry’s concerns.
Gennette said: “I do think, ultimately, there may be times for us to tap into [some government funds/loans/programs] but we can’t depend on it.”
Which is why, Macy’s is looking to the private market for financing. He authenticated Macy’s is still in the process of obtaining private financing, possible secured by inventory, unencumbered real estate or both. Gennette restated that Macy’s was in a healthy cash position before the crisis, and still has the vast majority of the $1.5 billion calling of credit on hand as it has minimized cash burn through a multitude of preservation actions.
Gennette said he knows movements the department store has taken to preserve liquidity and exercise prudence have caused pain throughout the retail reservoir chain.
He said he and his team are working to be as fair as possible, but noted Macy’s, and vendors that make the merchandise it flog betrays, are in this together, sharing the pain, and hopefully the re-emerging sales when customers return.
Macy’s is paying vendors in 120 dates instead of 30. It has canceled merchandise orders.
“Vendors are really feeling it. I think about the pain I’m causing them every day and what my encounters have done for them,” Gennette said. “I know my actions ripple across the supply chain, it’s huge.”
Coronavirus is in contradistinction to other disasters, like a hurricane, which interrupt business but just in one region. With this, there’s nowhere to take care of business. Macy’s business is U.S. based, but many of its vendors sell their merchandise around the world.
“We have in no way had a situation where it’s global. Where to do you go? Everything was affected … all of us, are going to have some tough years.”