Dive Brief:

• Inventory management has become an advantage for Macy’s even in a tough retail environment, according to analysts and company executives.
• Macy’s CFO Adrian Mitchell pointed to inventory productivity as a “value creation lever” for Macy’s in a call with analysts last week. “We made significant progress in leveraging data and analytics to better forecast sales demand, receipt timing and flow across the supply chain,” he said.
• The company’s inventory levels declined 3% last year and have fallen 18% compared to 2019. Inventory turnover, while down 4% last year, improved by 15% since 2019, Mitchell said.

Dive Insight:

Inventory excesses have long been the bane of the department store sector. Analysts for years chided retailers for buying more than they can sell and compromising margins by discounting the overages. 

Yet Macy’s in 2022 maintained relative discipline while others across the industry were caught with heaps of products that consumers wouldn’t buy as they came under mounting inflationary pressure. 

“Looking back on 2022, we began to see signs of consumer weakness and a shift in category demand late in the first quarter,” CEO Jeff Gennette said on the earnings call. “We adjusted the timing, amount and composition of receipts by channel, category and brand.” 

The economic challenges for consumers did not let up during the year, and the retailer adjusted purchasing accordingly. During Q4, Gennette said that Macy’s “bought closer to need, held open-to-buy reserves and bought into areas of strength,” all of which meant the retailer could be “measured with promotions and markdowns” and didn’t “chase unprofitable sales.”

The retailer has been relying more on data and analytics to calculate pricing and forecast sales demand. More than two-thirds of Macy's $1.3 billion in capital expenditures last year went toward data analytics or other supply chain modernization projects, Mitchell noted on the call. 

Macy’s has more "more advanced inventory productivity initiatives” coming in 2023, including efforts to improve automation and drive more flexible inventory allocation, the CFO added.

Jefferies analysts said the company has “peer-leading” inventory levels and that its "lean position is fundamental to helping the co's pricing science initiatives of better managing promotion levels.”

Telsey Advisory Group analysts described Macy’s approach to inventory as “disciplined” and also expected it to lower the rate of discounts and promotions this year. “Overall, we believe that management deserves credit for operational discipline in a volatile macro environment,” the analysts said in an emailed note. 

While Macy’s margins and profits fell last year with a small sales decline, the impact was not nearly as stark as some of its peers in the sector. Kohl’s, for example, saw margins plummet last year as it grappled with excess inventory and has had to scramble to shrink its inventory position. Nordstrom has also had to take a large hit to margin from markdowns so it could clear out inventory in a hurry.