Macy's 2015 Annual Report Download - page 3

A Look Back
Macy’s, Inc. came into 2015 with an exce
p
tional winning streak o
f
fiv
e
consecutive years of growth in sales, earnings, cash flow an
d
return on investe
d
ca
p
ita
l
. Macy’s an
d
B
l
ooming
d
a
l
e’s
b
ecame wi
d
e
l
y
recognized as the industry leader
f
or our omnichannel approach to
fashion retailing, and we moved fast to adjust our o
p
erations t
o
serve the evolving sho
pp
ing
p
references of customers.
In 2015, however, we experienced a convergence o
f
negativ
e
factors that im
p
acted our sales, margins and
p
rofitability – some
external to our company, some o
f
our own making. Our inventor
y
flow earl
y
in the
y
ear was sidetracked b
y
a labor slowdown in West
Coast
p
orts. Holiday season sales of cold-weather goods suffere
d
in the historically warm weather o
f
early winter. A strong dolla
r
d
eterred s
p
ending by international visitors in our flagshi
p
stores
t
h
at are
p
o
p
u
l
ar tourist
d
estinations. We im
pl
emente
d
some
k
e
y
organizational changes at the end o
ffi
scal 2014 that took longe
r
than ex
p
ected to settle
.
The end result was a disappointing financial performance in
2015. On a year-over-year basis versus our record results in 2014
,
comparable sales in 2015 were down by 2.5 percent on an owned
p
l
us
l
icense
db
asis an
d
earnings per
d
i
l
ute
d
s
h
are
d
ecrease
d
14.3 percent exc
l
u
d
ing impairments, store c
l
osing an
d
ot
h
er costs.
(See
p
ages 18 to 21 of the com
p
any’s 2015 Form 10-K for informatio
n
on our non-GAAP
fi
nancial measures.)
Evolving Our Strategies with M.O.M. .
Going
f
orward in pursuit o
f
pro
fi
table sales growth within our
e
x
i
sting retail businesses, Macy’s remains rooted in the M.O.M
.
strategies that have resonated over the past five years with customers
seeking
f
ashion, value, quality and convenience in stores and digitally.
But we are rede
fi
ning, updating and redirecting our e
ff
orts in eac
h
letter of M.O.M. to carr
y
us forward – with M
y
Mac
y
’s evolvin
g
from localization to personalization, Omnichannel now focused o
n
providing Omni Choices
f
or customers, and engaging customers by
making Magic Connections
.
We believe that, as this ver
y
focused strate
g
ic work leads t
o
incrementa
l
sa
l
es-
d
riving tactics, Macy’s wi
ll
continue to
d
eve
l
o
p
as a
p
referred sho
pp
ing destination
.
Testing and Learning
M
acy’s continues to test a wide range of concepts and ideas on
a
l
imited scale to understand what resonates with sho
pp
ers. We lear
n
f
rom our success and our failures and are
q
uick to roll out wha
t
w
orks and adjust or discontinue what does not. Examples include
:
M
ACY’S BACKSTAGE: We o
p
ened our first six Macy’s Backstage
off-
p
rice stores in metro New York City in fall 2015. In s
p
ring 2016,
w
e will bring the Backstage concept inside about 15
f
ull-line Macy’s
m
all stores. By the end o
f
2016, we expect to have approximately
22 Mac
y
’s Backsta
g
e locations
.
LA
S
TA
C
T: As an outgrowth of our research behind the
p
ilot of
M
acy’s Backstage, we also tested a simpli
fi
ed pricing approach
f
o
r
our dee
p
clearance a
pp
arel merchandise in all Macy’s stores. Last Act
w
as established as se
p
arate s
p
aces on our a
pp
arel floors, both in th
e
w
omen’s and men’s departments. Based on the success
f
ul test, Las
t
Act now has been rolled out to all of Macy’s stores
.
B
L
U
EMER
CU
RY
:
M
acy’s, Inc. ac
q
uired Bluemercury, a highl
y
regarded and fast-growing beauty specialty store business, in 2015
.
T
he com
p
any continues to su
pp
ort the ex
p
ansion of freestandin
g
B
luemercury stores in upscale neighborhoods (to a total o
f
115 b
y
year-en
d
2017) w
h
i
l
ea
l
so improving its
d
igita
lb
usiness an
d
pi
l
otin
g
B
luemercury shops within four Macy’s stores in 2015, with 1
8
a
dd
itiona
l
in-store s
h
ops expecte
d
in 2016.
J
EWELRY: We teste
d
a new approac
h
to Macy’s jewe
l
ry
b
usines
s
i
n stores in southern Cali
f
ornia in 2015. It involved strengthenin
g
associate selling skills, including changes to talent, training and
compensation; improve
d
associate avai
l
a
b
i
l
ity; increase
dd
irec
t
s
upervision; and a broader and higher-quality product offering
.
B
ased on its success, we are rolling out this robust approach to jewelr
y
t
o 300 Macy’s stores across the country in
f
all 2016, with the balanc
e
of all stores
p
lanned for 2017
.
C
HINA J
O
INT VENTURE: Macy’s
b
egan
d
irect se
ll
ing in
l
at
e
2015 through a joint venture with Hong Kong-based Fung Retailing
L
imite
d
.T
h
e joint venture, w
h
ic
h
is 65 percent owne
db
y Macy’s an
d
35 percent owne
db
y Fung Retai
l
ing,
b
egan wit
h
an e-commerce pi
l
o
t
on Alibaba Group’s Tmall Global, a premier marketplace that connect
s
overseas
b
ran
d
e
d
retai
l
ers to C
h
inese consumers
.
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Retailing is a dynamic business that requires continuous reinvention. Our company ha
s
ex
p
erienced great times and challenging times throughout its long history, but we hav
e
at all times embraced change. I believe that is one of the reasons we experienced such great succes
s
and generated an impressive 412 percent total shareholder return over the last seven years. There is no
q
uestion that 2015 was disruptive to our company and our industry. It presented challenges that caused
us to pause, reflect, and hit the reset button on our priorities and ambitions. But it was also instructive,
forcing us to let go of some of the things that worked in the past and pushing us to be more aggressive
in the way we address the rapidly changing consumer market. Throughout that process my confidence
in this company and our team never wavered, and my belief in the vision for growth and leadership fo
r
Macy’s, Inc. remained steadfast. However, the way in which we plan on achieving our vision has changed.
In business a tough year can be a great teacher. Our company learned a lot in 2015 – we carefully
studied our performance, looked at the changes in the consumer market, and gained many insights. It is clear that many of our existin
g
strategies already
focus
y
o
n
c
h
anging
c
onsume
r
preferences and buying behaviors, but we have placed a greater level of urgency on evolving
r
t
h
em. For exam
pl
e our omnic
h
anne
l
strategy at Macy’s an
d
B
l
ooming
d
a
l
e’s continues to
b
e
b
est-in-c
l
ass in t
h
e retai
l
in
d
ustry,
b
ut we
h
ave
a
renewed focus on driving the
p
erformance of these models. As
p
art of this, we are testing and learning from various
p
ilots that will allow u
s
to serve new customers and in new ways over time. Regardless of whether it is online, mobile, or in store, our commitment to our custome
r
c
ontinues to
d
rive w
h
at we
d
oan
dh
ow we evo
l
ve
.
Our work has just begun. Over the
p
ast year, we have taken ste
p
stoo
p
erate more effectively and efficiently with an organization that is flatte
r
and faster because as the rate of change among our customers’
p
reference increases, so too must our s
p
eed to res
p
ond. In some cases, there ha
s
been short-term
p
ain as we tightened our belt and realigned our resources, but our management team has resolved to stabilize the business in
2016 and lay the foundation for renewed growth in 2017 and beyond. Our eye is on a long-term vision of Macy’s, Inc. as a
p
rogressive retailer tha
t
serves existing customers and ac
q
uires new ones through innovative a
pp
roaches to the market
p
lace. We look ahead with o
p
timism and hig
h
ho
p
es grounded in solid strategies and an intensified focus on agility within our organization
.
Terry J. Lundgren
Chairman and
Chief Executive Officer
Macy's, Inc. 2015 Annual Report |
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