Good morning,
“The finance team will not report the news,” says Macy’s Inc. CFO Adrian V. Mitchell. “The finance team is going to help shape outcomes with our partners across the enterprise. That mindset shift was quite critical.”
As we head into 2023, I followed up with Mitchell about the progress of Macy's transformation to a digitally-led business. He says the finance, planning, merchandising, and supply chain teams are working together to modernize the retailer, which has been in business for more than 150 years.
“Much of the modern department store ambition is about retooling Macy's by building new capabilities, exiting legacy capabilities, and showing up for the customer,” he says.
By streamlining its supply chain, Macy’s improved inventory turnover by 15% compared to before the pandemic, the company reported in its Q3 earnings. A big part of supply chain and inventory management has to do with analytic capabilities using tools like machine learning and demand forecasting, Mitchell says.
With a deep focus on the supply chain in 2021, “We were able to get the vast majority of our inventory in time for the holiday, and very little [of 2021 goods] actually spilled into 2022,” he says. “In 2022, we've seen the supply chain loosen up. The fill rates continue to improve every month, and every quarter this year. So we've adjusted and we're watching confirmed orders.”
He continues, “If you think about the 2022 holiday, we had 55% newness, which is 30 percentage points higher than 2019. We're coming into the season with a lot of newness as a fashion retailer, and we can actually adjust in season based on the demand profile.”
Location-level pricing is an area where Macy’s uses machine learning, Mitchell says. For example, they can look at the velocity of a particular item like a black Polo sweater, its inventory availability in specific locations, and availability for the digital business. “Then we can predict for that black Polo sweater what the appropriate markdown magnitude and timing should be,” on a case basis, he explains. This is different from the past when looking at the sell-through rate and then making decisions on markdowns that would apply to every store in a particular region, he says.
“Pricing analytics continue to pay dividends for us,” Mitchell says.
Mitchell has replaced manual processes with technology that includes enterprise reporting “that’s one truth for how the entire leadership team and their managerial teams talk about performance,” he says. "We talk about inventory, sales, margin, credit business, marketplace business, all on one sheet of data and information.”
Macy’s reported net sales in Q3 were $5.2 billion, down 3.9% compared to the same time last year. However, the retailer beat estimates. “We're pleased to be on the higher end of our sales expectations,” Mitchell says. “We were able to beat the bottom line handily relative to expectations.”
“Our stores were ready for the holiday in mid-October,” he says. “This year, we believe the holiday pattern is very much a pre-pandemic pattern.” The demand is on Black Friday, Cyber Monday, cyber week, and the 10 to 12 days leading up to Christmas, he says.
“The consumer remains under pressure,” Mitchell says. “We do recognize that in dollars things are more expensive on the nondiscretionary side. So we have to continue to delight the customer.” The company will be able to share more data in January, he says.
For Mitchell's finance team, getting a 360-degree view of the business is critical, and you can't just do that from your desk. “My finance leaders and their teams are now going to [distribution centers], they're going to stores, they're sitting in working sessions with business partners to understand the levers that we need to pull in order to drive the financial outcomes,” he explains.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
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