Just how can Macy’s Inc. forge a path to greater profitability and relevance?

With Macy’s Inc. chairman and chief executive officer Jeff Gennette disclosing he’s retiring next 12 months, there’s been a burst of curiosity and concern in regards to the retailer’s future. But on Thursday, Gennette, together with Adrian Mitchell, chief financial officer and chief operating officer, laid out the roadmap on the longer term for Macy’s and pinpointing strategies for growth.

Speaking on the Morgan Stanley Retail Roundup, they cited:

As reported, Gennette, in a surprising announcement Wednesday, said he’s retiring in February 2024, that he will probably be succeeded by Tony Spring, who has turn into Macy’s Inc. president, and that a seek for Spring’s successor as CEO at Bloomingdale’s began.

“I’ve spent 40 years on this company. It’s been my life’s work. I’d not have felt good about turning it over unless I had the suitable strategies and the suitable team in place,” Gennette said Thursday. “We imagine we are able to deliver low-single-digit topline growth and a double-digit EBITDA profile in 2024 and beyond.”

The $24.4 billion Macy’s Inc. saw declines last 12 months and expects more this 12 months, and that’s on account of macroeconomic pressures, in addition to declines online and at Macy’s, though Bloomingdale’s and Bluemercury performed well.

“We see pressures on the buyer continuing in 2023 and it looks like it’s going to proceed into 2024,” said CFO Mitchell, who added the COO title this week. “The stimulus shouldn’t be here. Inflation continues to be elevated. The roles market has been holding up. But we’re seeing a number of different indicators as we have a look at our proprietary bank card data with credit balances constructing. There’s pressure on all income tiers. We feel that each one of those consumers are going to be quite discerning in all of their purchases. But what we’ve focused on is ensuring we’ve got the suitable stuff for them — the suitable level of inventory, the suitable composition of inventory, and really specializing in profitable sales.”

He said Macy’s Inc. entered 2023 with inventory down 3 percent from 2022 and down 18 percent from 2019.

Getting category-specific on where he sees market share opportunities, Gennette first cited electronics and video games sold on Macy’s online marketplace, which launched last September. “We didn’t expect that to be a robust. Those were gigantic sell-throughs for us.”

Gennette also cited private brands. “That has been a complete rebuild for us. You don’t start seeing that until August of this 12 months, after which it goes all over 2025.”

With Macy’s portfolio of 24 private brand, “We made a commitment that every of them needed to be either refreshed, amplified, retired, and recent ones join,” Gennette said. He said based on customer research, “What it got here all the way down to was number-one, comfort; number-two, versatility, and number-three, how did it express their unique style.”

Macy’s top private brand, INC, began its overhaul a 12 months and a half ago, and a recent private brand will probably be launched in August, Gennette said.

“Expect that each brand in home accessories and ready-to-wear goes to have an entire revamp over the following two and a half years. Private brand is 16 percent of our business. It’s been as high as 20 percent. There’s nothing but growth ahead.”

Gennette said luxury at Macy’s Inc. is “typified” by Bloomingdale’s, Macy’s beauty business and Bluemercury. Bloomingdale’s just had its record 12 months with record customer satisfaction, and is taking market share from the posh neighborhood.

“It is a brand game and that is about having an environment that these brands need to coexist with you, because we share customers. They’ve very developed direct-to-consumer businesses, nevertheless it’s sort of a misnomer that they’re all going to go to d-to-c and that the retailer or the wholesale channel goes to be cut out. Now we have not seen that. Now we have an enormous luxury opportunity at Macy’s and wonder. We’ve been mainly sizing down the large brand behemoths on our floor which have broader distribution and bringing in these area of interest luxury players to great success.”

Macy’s chief merchant Nata Dvir and her team have been reshaping the wonder floors of Macy’s over the past six years, and the web site in beauty was redesigned.

Gennette said Bluemercury is a “gem” and being built to greater scale. “It’s an incredible cocktail of skincare, fragrance and color brands.…The key sauce of Bluemercury is the service,” Gennette said, adding that Bluemercury’s digital business has gotten a lot better, though there’s way more to do “getting a loyalty program that sticks the way in which that we expect it to.”

With the emerging Macy’s marketplace, “We won’t see a meaningful impact by way of 2023, but actually we are going to see a meaningful impact on growth [in] future years,” Mitchell said. “What I get really enthusiastic about is the flexibility to have a curated marketplace that gives customers with more selection. So, we win with the shopper by having the several styles, the several brands, all these different offerings” making Macy’s a more attractive destination, he said.

“What’s also exciting is the margin profile,” Mitchell said, noting that with the marketplace business model, there’s more selection with less risk with slower-moving items. “Not having the inventory liability to give you the chance to increase it to those additional brands or additional opportunities is basically exciting for us. Once we take into consideration where we’re today, we’ve been introducing video games. We’ve been introducing electronics. We’ve been extending our children’ apparel with recent brands and recent styles, and we’re seeing the shopper respond very favorably.”

He said Macy’s marketplace ended 2022 with 500 brands and the goal is to finish 2023 with an incremental 2,000 brands.

Up to now in Macy’s Inc. off-mall strategy, there are two Bloomie’s and eight Market by Macy’s currently operating. A 3rd Bloomie’s will open soon.

Mitchell said these smaller off-mall retail boxes, generally around 30,000 to 40,000 square feet, offer “speed of checkout, availability of colleagues and quality of shopping experience. All of the metrics are significantly higher,” in comparison with Macy’s malls, often within the 180,000- to 200,000-square-foot range.

Off-mall represents “an enormous opportunity for us,” Mitchell said. “We’ve found out quite a bit thus far. We found out the format. We found out the dimensions. We found out the layout. What we’re really focused on straight away is stitching together the several elements of the operation to be way more localized within the assortment.”

Gennette addressed the state of the Macy’s malls, indicating, “There’s just a number of opportunity to essentially proceed to raise the experience in those big boxes. And there’s a fabric number of huge boxes which are still quite relevant for us.”

Macy’s operates 441 malls and since 2019 has closed 80, resulting in significant reductions in costs and headcount, though other areas have seen personnel reductions as well. Gennette said Macy’s coming out of 2022, had about 30,000 less colleagues than in 2020, representing a few 27 percent reduction in headcount.

Macy’s has installed Retail Next technology in stores “to essentially understand traffic patterns,” Gennette said, akin to when customers are coming in, how the flow of traffic plays out, and determining the “hot spots” which is able to help inform on easy methods to deploy staff based on when and where customers are shopping.

Personalization is of particular interest to Mitchell considering as COO he now leads technology, store operations and provide chain teams while continuing with finance and real estate responsibilities. Mitchell said the corporate has been through several personalization tests this 12 months.

“We’re seeing really exciting results. The flexibility to send a relevant communication, whether it’s a proposal, a category based on timing and various other aspects, what we’re seeing is that they’re responding way more effectively than the broad-based promotions.…As we undergo this 12 months, we’ll proceed to check and learn, we hope to scale it [personalization] next 12 months. That’s going to be one other major contributor to our growth.

“Number-one is basically understanding where can we get a broader base of shoppers across all demographics and all geographies. We wish younger customers, but we also need to serve our older customers as well. And we predict that personalization capabilities, not only by way of how we communicate, but with the style decisions in fashion and as we’re expanding across multiple categories, goes to be critical.”

Gennette said the corporation saw a “real drop off” in pandemic-related categories, namely home, energetic and casual, starting in the primary quarter starting in 2022. “That didn’t abate, but it is going to abate,” Gennette said. “Fashion is all about cycles.”

As home, energetic and casual merchandise slowed, occasion and travel-related merchandise including luggage and dresses, picked up and was strong the the fourth quarter. Toys, sold through Macy’s Toys ‘R’ Us shops, was one other strong category.

In terms the capital budget, Mitchell underscored preserving money because the priority, while continuing to issue “a modest but predictable” dividend. Money can even be spent to construct Market by Macy’s and Bloomie’s, on data science capabilities, and benefiting from the $1.4 billion share repurchase program.