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Macy’s often comes up when discussions turn to debate about which retailers will survive the coronavirus outbreak and the added stress it has placed the already challenged industry.
CEO Jeff Gennette is betting on survival.
After a virtual fireside chat with Gordon Haskett Research analyst Chuck Grom, in a candid phone conversation with Gennette, CNBC asked him simply: Can Macy’s survive this?
“Yes,” Gennette answered without hesitation.
“I firmly believe that. I firmly believe that when you think about fashion for America, Macy’s and Bloomingdales are good curators of that [fashion],” he said. “We have formats from off-price to luxury, with Last Call to Bloomingdale’s, a gamut of price points, at a national level. I think there are opportunities and white space we can go after.”
Take a Bloomingdale’s customer who wants a lower price point, Gennette offered as an example. The other formats can serve that need.
“I’m a 36-year veteran of this company,” he said, acknowledging his personal and professional bias. “But I retain this optimism for our role in American retail.”
How is Gennette retaining optimism during the pandemic? After all, he’s furloughed much of his workforce, is taking no salary and making decisions about a very uncertain future for a retailer that generates the majority of sales from stores that have been closed six weeks.
The work-from-home lifestyle
“I miss my team tremendously,” he said. Gennette sees them and speaks to them on video calls and Microsoft Teams.
Technology has enabled incredible efficiency and a “speed in our metabolism” that he wants to hold onto after the crisis abates, he said. Even with the furloughs, decisions are happening quickly and tasks in many cases are getting done quicker.
Plus, “I get to see things I haven’t seen before, with my [team members’] lives” Gennette said. “I know their dogs’ names. We are more intimate with each other in that way, and it’s much better than expected.”
The department store CEO is taking mainly video calls, that begin around 6:30 am every morning until about 7 pm at night. Gennette is working through the weekend as well. He said he is able to drop in on video meetings and phone calls with vendors and trade 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 future. 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 personal 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 time 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 locations and generated nearly $25 billion in sales last year. It’s a reality that it will be smaller still after this crisis passes, Gennette said. Likely with a smaller workforce that better aligns with a further reduced cost structure.
There’s also the possibility of store closures beyond the 125 announced in February. He said the department store is working on four possible scenarios to play out, and planning carefully for the appropriate staffing as a result.
“The last thing I want to do is bring our colleagues back from furlough only to lay them off,” he said.
Many of Macy’s furloughed workers are receiving benefits from the various government unemployment and assistance programs. But Macy’s itself is considered a “fallen angel” because of its debt ratings, and is not eligible for the various government loan programs as a result.
When asked if he thought the government should be doing more 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 thinks best to measure the significance, to see how important jobs are in the industry.
The National Retail Federation estimates 52 million American jobs 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 call recently with Treasury Secretary Steven Mnuchin talking about the government’s actions and its impact on the retail industry. Mnuchin told the group then he would have a better direction on funding and how it would be administered in two weeks’ time.
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’ board prior to joining the administration. He has been listening to the industry’s concerns.
Gennette said: “I do think, ultimately, there may be opportunities 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 confirmed Macy’s is still in the process of obtaining private financing, possible secured by inventory, unencumbered real estate or both. Gennette reiterated that Macy’s was in a healthy cash position before the crisis, and still has the vast majority of the $1.5 billion line of credit on hand as it has minimized cash burn through a multitude of preservation actions.
Gennette said he knows actions the department store has taken to preserve liquidity and exercise prudence have caused pain throughout the retail supply 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 sells, are in this together, sharing the pain, and hopefully the re-emerging sales when customers return.
Macy’s is paying vendors in 120 days 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 actions have done for them,” Gennette said. “I know my actions ripple across the supply chain, it’s huge.”
Coronavirus is unlike other disasters, like a hurricane, which interrupt business but just in one region. With this, there’s nowhere to shift business. Macy’s business is U.S. based, but many of its vendors sell their merchandise around the world.
“We have never 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.”
