Macy’s Inc. relied on digital in 2020, as the coronavirus pandemic kept its customers out of stores and fueled a 30% decline in total revenue in its fiscal year ended Feb. 1.

The department store crossed $7.71 billion in online sales last year, up 20.9% from the year prior, Digital Commerce 360 estimates. Net sales had a steep decline of 29.3% and totaled $17.35 billion in 2020, down from $24.56 billion. That means digital represented 53% of Macy’s total sales in 2020, double the 25% ecommerce penetration in 2019.

Macy’s says it acquired 7 million new customers in Q4, contributing to digital sales growth of 21% year over year to $3 billion. Ecommerce accounted for 44% of the retailer’s sales in the fourth quarter.

Omnichannel is critical for Macy’s

Like many retail chains in 2020, omnichannel was key for digital growth at Macy’s. In fact, in Q4, 25% of Macy’s digital sales were fulfilled from stores, including curbside pickup and same-day delivery, according to Macy’s. And looking forward, Macy’s stores will continue to play an important role in its ecommerce growth.

For example, Macy’s digital sales per capita are two to three times higher in markets with Macy’s stores, chief financial officer Adrian Mitchell said on a call discussing the results with investors, according to a SeekingAlpha transcript. Conversely, the retailer learned over the past five years of store closures that the growth of ecommerce drops “meaningfully” when Macy’s closes a store in a market with multiple stores and “significantly” when it closes the only store in a market, Mitchell said.

“One of the important lessons we learned in 2020 was that we need to meet the rising digital demand from our store inventories if we are to satisfy our customers’ need for speed and convenience and achieve our inventory productivity and turn goals,” Mitchell said on the call. “We know that channels such as buy online pick up in store, curbside pickup and same-day delivery will continue to be critical operating practices for us as a digitally led omnichannel retailer.”

Macy’s ecommerce channel is profitable

In many cases, ecommerce growth comes at a cost, as fulfillment expenses rise. For Macy’s, however, its digital channel is contributing to its profit at a higher rate than its stores.

“Given that digital’s cost model is primarily variable in nature, while the stores channel incurs more fixed costs, we know that the lower payroll and benefits in the digital channel can help to offset the pressure from delivery expense. That results in a higher contribution margin from digital, as do lower real estate costs,” Mitchell said.

To increase profitability and efficiency, the company is focusing on where inventory is stored, reducing packages per order, increasing the percentage of orders picked up at stores and linking the best shipping offers more directly to its loyalty program members and Macy’s credit card holders.

Additionally, the retailer plans to launch a refreshed homepage with more visual content, better search and browse functions and a more intuitive checkout experience with more payment options. In more interactive categories such as cosmetics, Macy’s has added immersive online buying experiences, such as virtual consultations with its own beauty consultants and augmented and virtual reality.

Looking forward, Macy’s expects its total sales and digital sales to go back to more normal levels, with ecommerce accounting for a projected 35% this year. Macy’s anticipates digital sales will grow to $10 billion by 2023. That means Macy’s ecommerce sales will need to grow approximately 10% for the next three years.

Macy’s is No. 14 in the 2020 Digital Commerce 360 Top 1000.

For its fiscal fourth quarter ended Feb. 1, Macy’s reports:

• Net sales of $6.78 billion, down 18.7% from $8.34 billion in Q4 2019.
• Net income of $160 million, down from $340 million.

For the full year, Macy’s reports:

• Net sales of $17.35 billion, down 29.3% from $24.56 billion a year ago.
• Net loss of $3.94 billion, down from a $564 million gain from fiscal 2019.

Percentages may not align with dollar figures due to rounding.