Macy’s Inc.’s slowing digital sales growth raised concerns with the department-store chain entering the crucial holiday season.
Digital sales grew 27% compared to the same quarter last year, though that was a deceleration from the second quarter’s brisk 53% rate. Digital sales accounted for 38% of third-quarter total sales, up 14 percentage points from last year.
“Macy’s may point to its success in online,” Neil Saunders, managing director at GlobalData Retail, said in a statement. “This is a reasonable performance, but it is a long way below the online sales growth of many other retailers. It also doesn’t make up for the severe sales declines in stores.”
Retailers like Macy’s need a strong showing in ecommerce this holiday because many shoppers plan to stay away from stores, especially with COVID-19 cases setting new highs in many states. In response, the chain has expanded its curbside pickup service and other ecommerce offerings. This season is also important because in a normal year department stores can bring in about a quarter of annual sales in November and December.
Macy’s CEo Jeff Gennette said the retailer’s three brands (Bloomingdale’s, Bluemercury and Macy’s) had solid performance in the third quarter. Still, “we continue to watch the resurgence of COVID-19, and its potential impact on our business,” he said in a statement. Key cities such as New York and Chicago have already moved to place some restrictions on businesses. Those urban stores are the worst-performing in Macy’s fleet, given the loss of international tourism and office workers.
Poonam Goyal, an analyst for Bloomberg Intelligence, said there will be more pressure on the digital platform to deliver on holiday than there was a month or two ago.” Gennette told analysts on a call Thursday that he sees his department-store chain’s digital business growing at an “aggressive rate” in the near future.
Macy’s results come after major retailers like Target Corp. and Lowe’s Cos. posted robust sales growth that blew past analysts’ expectations as online revenue more than doubled.
The company offered limited guidance on the final quarter of the year. The measure of earnings known as EBITDA, which excludes items like taxes and depreciation, would improve “sequentially” in the fourth quarter from the one that just ended, it said in a presentation.
Margins “are expected to peak in the third quarter,” the company said, suggesting more challenges ahead. Macy’s gross margin rose to 35.6% in the most recent quarter, compared to 23.6% in the second quarter, thanks to “disciplined inventory management” that resulted in fewer markdowns.
While Macy’s executives see robust growth online carrying it through the holiday season, that will also come with higher shipping costs in the fourth quarter that will weigh on profitability. That’s a challenge many retailers are facing in this socially-distanced holiday season.
Macy’s is No. 14 in the Digital Commerce 360 Top 1000.Favorite