Macy's (M) Up 79% in 6 Months, Focuses on Polaris Strategy

Efficient operating strategies and investments to enhance digital capabilities have helped Macy's, Inc. M stay afloat, despite challenges in the retail landscape. This well-known retailer of a wide range of consumer goods is gaining from efforts undertaken as part of the Polaris Strategy, which includes rationalizing store base, revamping assortments as well as managing costs prudently. Moreover, efforts undertaken to boost onmni-channel strength have been yielding. Shares of this Zacks Rank #3 (Hold) stock have gained 78.7% in the past six months compared with the industry’s rise of 66.9%. That said, let’s take a closer look at the factors bearing an impact on the company.

Polaris Strategy Paves Way for Growth

Macy's is on track with its three-year Polaris strategy, which focuses on strengthening customer relationships, expanding assortments, accelerate digital growth, optimizing store portfolio and reducing costs. In respect to cost management, the company expects that the Polaris strategy will help it attain gross savings of nearly $2.1 billion by 2022. Additionally, the company is on track with expanding brand offerings to support customer self-expression at all price points. Apart from these, the company is committed toward boosting supply chain infrastructure. It also strives to drive value across product categories and boost merchandise margins by adopting effective pricing as well as reduced promotions.

Moreover, the company’s expanded Star Rewards Loyalty program, which was initiated in 2018, is driving better customer engagement. Macy’s is evaluating its store portfolio and is on track with plans to shutter stores in lower tier malls that are least productive, while upgrading the rest. Apart from these, the company’s focus on inventory management and private label offering is helping it meet customer-oriented demand as well as enhance in-store shopping experience.

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Sturdy Digital Wing

Macy’s digital platform is a constant feather on its cap. During first-quarter fiscal 2020, the company’s digital sales surged 34% from the year-ago quarter’s figure and contributed 37% to net sales. Nearly 22% of online sales were generated from stores, including curbside pickup and same-day delivery. Moreover, management highlighted that 47% of new customers acquired during the quarter came from the digital channel. Additionally, 82% of the digital orders came from repeat customers. Mobile devices contributed nearly 60% to digital demand sales.

Management continues to focus on extending the availability of online assortments as well as the expansion of omni-channel capabilities. In this respect, its tie up with DoorDash for expediting delivery service is encouraging. It also collaborated with Sweden-based buy-now, pay-later group — Klarna — for offering online shoppers financial ease and payment flexibility. The company is constantly improving its mobile and website features to enhance shopping experience. Markedly, expanding digital capabilities is a vital component of the company’s Polaris Growth Strategy. The company anticipates online sales to reach nearly $10 billion by fiscal 2023.

Wrapping Up

Although higher online sales has been a boon for the company, it has however led to the added disadvantage of rise in delivery expenses.  Markedly, rise in delivery expenses were a drag on the company’s gross margin during the first quarter. Moreover, a tough operating environment amid the pandemic has been causing supply chain disruptions, leading to port delays and hampering inventory levels.

Nevertheless, the company is undertaking measures such as the use of regional carriers to make deliveries more efficient. To address supply chain disruptions’, the company is adjusting its freight strategies and working closely with overseas carriers as well as brand partners. Such efforts along with the aforementioned prudent operational strategies are likely to keep the company well-placed for growth in the forthcoming periods.

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