Macy’s, Inc. (NYSE:M) Jefferies Annual Consumer Conference June 20, 2022 8:00 AM ET
Company Participants
Nata Dvir – Chief Merchandising Officer
Conference Call Participants
Stephanie Wissink – Jefferies
Stephanie Wissink
Hello, everyone. I’m Steph Wissink, Senior Research Analyst and Managing Director on the Consumer team at Jefferies. Thank you for joining us for our Nantucket Conference 2022. This session is actually a real treat for me personally, but I think it’s going to be for you too. We have the Chief Merchandising Officer of Macy’s, Nata Dvir, who’s with us today. And Nata I was looking at your background, if you’ve been at Macy’s over 16 years, which is really remarkable.
So I’m going to ask you to talk a little bit about your background. But what’s so special about this is, we very rarely get a chance to engage with merchandisers and people that are in the business of deciding what we’re going to be buying. And so I’m excited to hear what you’re seeing from a trend perspective, what you’re seeing from a consumer perspective, and then hopefully giving us some ideas for fashion in the back half.
So let’s start with your background. Thank you for joining me.
Nata Dvir
Yes. Thank you, Steph. I’m excited to be here today and share a little bit about what we’re up to at Macy’s and merchandising. But I started 16 years ago in executive training program at Macy’s East, and I’ve had the opportunity to hold many different positions within the merchandising organization since then across many different categories.
I spent much of my career in men’s and intimate apparel and jewelry and women’s shoes. But many of the roles that I had were in planning. And so I was focused around assortment building and financials, really the science part of the merchandising function. And one of the things that I was always really passionate around was how we show up to our customers.
And I had that opportunity to lead our beauty business most recently prior to this role for about five years where I had the chance to lead planning and merchandising, and really reestablish how we show up to our customers, how we think about training our beauty advisors and stores, and the partners that we work with to really bring a new evolved beauty experience to Macy’s.
And in this role, I get the great opportunity to really think, you know, how we’re going to continue to serve our customer, both the customer that we have today, the one we look to acquire, and, you know, the history that I’ve had across all these great categories that Macy’s, has given me the opportunity to really think about how we think about the customer and all the different categories that they shop together. So I’m really excited for this role because I’ve had a great history of knowing that Macy’s customer for so long.
Question-and-Answer Session
Q – Stephanie Wissink
That’s great. Share with us a little bit about how your buying and merchandising team is set up. Just give us a sense of is it an org chart or is it really more organic and collaborative?
Nata Dvir
Yes, it’s a great team of leaders that I have that actually serve many different functions within the merchandising pyramid. The teams have really evolved over the past few years too, not just because of a pandemic where roles and responsibilities had to be challenged due to shifting customer behavior, but really to modernize the way that our merchants have been thinking. And so that blend of art and science is such an important characteristic and trait that we look for, for the leaders within our organization.
The role of the buyers has really evolved and their scopes have really expanded to have a more holistic view of the category, not only by price point, but also thinking about brands so that we can make sure that we really can win across the category from a best, better, good perspective. They’re much more omni-focus, more customer focus, and they manage the inventory productivity and assortment.
And so they’re not only, you know, building out great assortments from an art perspective but they’re also using data to help make decisions and really get deep into the customer mindset. And that team is also responsible for really building out, you know, what our future AURs are going to look like based off of the assortments that we curate.
They partner really closely with assortment planners that sit within my team. And so they are really responsible for the breadth and depth that we carry on our site and in stores. And so together, they’re the how we show up part of the organization.
In addition to that, I also have a design team that reports into me. I recently hired a new SVP of design. That came on and we’re in the process now of really evolving what our private brand portfolio looks like, really in the early stages of reimagining it, thinking through what’s the right portfolio for the customer that we’re looking to acquire and, of course, to continue to delight the customers that we have today.
And then we also have our back stage team that’s really focused on off price to luxury, what a great team that’s really agile in the moment, able to chase trends very quickly, and we’ve seen great success from their results. And it’s a lot of really good learnings for how we think about the main box as well and vice versa.
And we have a fashion office team that also helps us think about the trends, forecasting, and also thinking about, you know, what are those trends that are just incoming versus peak and then really also thinking through what’s post peak so that we can really manage inventories against that as well. They also lead collaboration. So there’s a great creative team that that leaves that work.
And then lastly, it’s that big heavy science part of my team that we rely on to really think about how we’re going to be productive with our inventory and pricing in the future. So we’ve got a pricing and merch operations team that’s really thinking about the pricing strategy of our future. Leveraging data science today to think about how we can be more profitable at the location level and by channel and by category, and also, you know, really helping us think through what are those inventory productivity guidelines that the merchants then buy to.
And so together, what I loved your question around org chart versus collaborative is all of these functions, you know, while they have very clear roles and responsibilities within their own function, we think of them as a pod where they work together to get work accomplished. And that collaborative spirit and that that team spirit has been a really nice way for our merchants to really think about how we’re going to serve our customer in the future. So it’s been a pleasure leading this very diverse team of leaders and also gives us the opportunity to all be very aligned as we move forward in the merchandising strategy.
Stephanie Wissink
And Nata, I want to just compliment you because when I listen to you talk about how you work with your teams and how your teams are motivated to do what’s best for your customer, it doesn’t sound like the Macy’s that I think maybe the market sometimes proceeds to be there — the use of data science is just really intriguing to me and how modernizing your thinking. So I also want to dig in a little bit to the process improvements. One of the things that came up in our deep read with management on the most recent conference call was how not only does the strategy of the execution and corporate level translate down into the P&L, but in — if we get into some of the line items of the P&L that you’re responsible for it, you really seen process improvement. So tell us a little bit about that. How does the Polaris strategy and the big kind of executional strategies at the enterprise level. How does that translate down to what you do every day with your teams?
Nata Dvir
Well, I appreciate Steph the recognition to how we’re thinking about data and serving our customer. You know, one of the things that I pride myself and the team around is being curious leaders and really not only thinking through how we can serve our customer, how we can do better partners to the vendor community, and how we can do better partners to one another.
And so how we use data to make decisions is important, but also how we collect, you know, really nice inputs from all those around us, helps us be stronger merchants. And I try to lead that way, and I see that come through with the team as well.
One of the pieces that I’ve seen really happen from a process improvement with the Polaris strategy has been just great alignment across the entire organization. Really having a clear view of where our strategy is, that alignment also has helped for speed to decision making. So when we’re aligned, it’s easier to make those decisions. We’re smaller, we’re more agile. And really, what is the role of the customer? How we keep the customer in the room for a decision? How we make sure that we’re thinking through the right decisions for customers? Both the customers that love us and the customers who’ve — served up opportunities and how we can do better. We want to hear from them all, and how we use data to make those decisions. So that alignment has really happened across the organization and across functions.
Within the merchandising function, I think one of the things that has really helped to reinforce this alignment and this team mentality has been that we’ve actually shifted to a team incentive. And so one of the opportunities that, you know, we always know as merchants is that sometimes we can be competitive with ourselves rather than competitive with the external partners. And so part of what we’ve really reestablished is that we’re one team. And what that has served is that especially as categories continue to shift and preferences of our customers continue to evolve, it’s not about me delivering to my one P&L as a merchant. It’s about all of us working together.
And if that means, I’ve got to pull back receipts and active to fund dresses, we can do that because we’re all cheerleading each other. We’re all supporting one another. And we’re all incented that way. And so that alignment only worked, I think, when we also changed the incentives of the organization, and more specifically in merchandising. I also think that one of the opportunities we had under Polaris is really outline where our key priorities are within merchandising. I’m very much focused around sequencing the priorities, keeping us focused, and trying not to add anything that’s going to distract us.
And a team that is focused can continue to deliver. And so we’re focused around categories and what role each category has in our customer journey, it’s not about winning in one or two categories. It’s about building a category strategy that complements each other so that we can really round out the customer’s shopping basket. We can build with the customer over time and really see that LTV happen as we’re investing in the right category mix for our customer. It’s about strong relationships. And I really pride myself in focusing on building strong relationships with our partners. I learned that skill set, build that muscle in the beauty industry, and I’ve been able to translate that across all of our businesses.
And I believe that’s important, not only with our market brands, but also as we build out private brands with the right vendor matrix and supplier matrix there as well. And then assortment architecture, maybe it’s the planner in me that’s very maniacal about it, but it’s about having the right mix of key items and must haves and having the trends. And you can’t win as a retailer by just having one. It’s the balance of that that’s really important. And I call that the, like, how we show up, which is really, you know, what does the customer see, whether that’s online or in store, it’s that assortment that they see, that we need to really spend that time merchandising and styling out.
And then lastly, it’s about our pricing strategy. And we’ve invested already in so many capabilities to help us be smarter and that pricing science is really starting to be implemented. We can see it in our results. We can see it in our profitability. And it’s not only been a shift because of the tools that we now have. It’s a mindset shift as well. And so that has been part of, you know, the big shift within our teams to be thinking through what does pricing look like in the future as well.
So we’re very focused not only on those four pieces, but all of that on how it then shows up for our customer which, you know, through Polaris, we’ve been able to launch our Own Your Style campaign. And this campaign really helps us talk to our customer differently across all of our channels.
In store, online, and through marketing and those touch points now show up very differently because of our assortment changes. Now we also have a fresh way to talk to our customer. And so I think Polaris has not only organized us across function, but also organized how we show up to our customer, in a very different way that continues to get better as we learn how to work better together to execute it.
Stephanie Wissink
Maybe share this a little bit because on the outside looking in, we see the benefits of this in gross margin, the quality of the sales going up. But certainly in the inventory level, which every quarter you report, it just blows my mind how much tighter the inventory has gotten. So maybe just double click on that a little bit. This idea of, you know, simple, fewer curated choices can actually result in much better high quality sales. But balancing that with taking some risk to have some fashion change and guiding your consumer into whatever’s the next trends. Help us just think through that balance?
Nata Dvir
Yes. I would say that that’s the job. That’s the fun part of the job. Having the curation, you know, having the curiosity to try new things, doing the research so that they’re calculated, not always a rest. Like, I think one of the things that I always talk to with the team is the products that we love, the products that we all react to end market, the products that we do the research around from a trend forecasting perspective, those are the things that are going to work for us.
Being safe and just relying on where we’ve been isn’t going to be what our customer is going to get excited around. And so what we need to do is have that right mix of key items, those great products that customers come back to and replenish that white t-shirt that you just love. You love the quality of it, the fit of it, and maybe it’s got a stain or a hole and it’s time for a new one. But we also need that very special completer piece, that great dress that makes you feel ready for an event. And that mix of product is really important.
And part of what really we got sharp on through the pandemic was how we thought about inventory productivity. A lot of this work was in flight but really using the pandemic as an opportunity to think through how we’re going to focus on inventory productivity? What should the sell through of an item be? What’s the life cycle of a product has really taught us to think differently about every receipt dollar we spend, but also making it easier for our customers to shop.
There’s nothing better than a table of well folded denim in size with the most important fits. And that takes time to really build out from style out perspective, a curation perspective, and an investment perspective. And those investments are paying off for us because we’re making bigger bets, and we’re making it easier for the customer than in turn to shop.
And so part of this is a strategy that, of course, feeds all the way down to the bottom line and it helps from a profitability perspective. But I’m also proud that we’re seeing our customers react to it as well because they’re able to find the products that make them light up much more simply than they’ve been able to in the past.
Stephanie Wissink
That’s great. Okay. We’re going to jump into a section I’m really excited about, which is talk about trend.
Nata Dvir
Yes.
Stephanie Wissink
And one of the things that came up on your most recent call and it’s exciting because I think it’s a signal that we actually might be returning to some degree of normalcy. But this idea of basics, you know, starting to kind of pull back a little bit in trends starting to really work. So take us into the trend discussion, the passion discussion, and what are you most excited about for fall?
Nata Dvir
Yes. You know, I’m so excited about so many things that are starting to check when we look at our categories and the mix of businesses that are starting to really, start to really check for us as our customers are going back into everything. Events, working, real life every moment now feels like a special occasion. I don’t know how you feel, but I feel the same way. Everything in my closet’s got to go. I need something new. I think the way that customers are wearing product, whether they need to one up a size or down a size, you know, I think that’s been part of what they’ve had to do is really replenish their wardrobe.
And Macy’s has such strengths in occasion based categories. We do so well in dresses and tailored clothing, And so when those businesses start to check, it’s really just something that we have the engine, we know how to drive, and that’s been part of what has been a lot of success for us more recently as we think about that shift.
But part of the muscle we’ve also been able to build is having a great refined sportswear and casual assortment too. And part of what’s important there is as customers’ trends continue to shift, now we have a much more well-rounded assortment that we can really tailor based off of what’s happening. But I see it now in our business. Those occasion based categories are doing well. We’re seeing a softening in some of the active more casual comfort assortments and that everyday dressing has evolved and the way that people are putting together their looks today has just really changed.
And we saw this even prepayment that people are getting more casual. But now we’re seeing this, like, casual occasion, we’re calling fine sportswear really start to check as well. And I think we’ll continue to see that as we go further into the season. But as I look at where we’ve experienced gifting, whether that’s Valentine’s Day or Mother’s Day or holiday, you know, that is an extreme strength of Macy’s. And we are a gifting destination and I was just kind of reviewing our full holiday assortment with the team yesterday, and I feel really energized about the way that we’re thinking about it gifting.
And we’re seeing that having this great assortment from best that are good, having enough balance between occasion and casual, and really making sure that we’re going to have a differentiated assortment from last year will continue to set us apart.
So, you know, we are that gifting destination. I know that our customers will be lit up by the assortments that we have for them. But, you know, I’m excited to see this occasion part of the business start to come back. And while there’s been slowdowns in other categories with the right amount of newness, when you refresh the category, you know, there’s still — there’s still desire for it. And so that’s what our focus has been is really updating some of those items that they made them bought multiple times throughout the pandemic. How do we make it feel fresh? Did they still need something new in their closet or in their home, and that’s a big priority for our teams as well.
Stephanie Wissink
Now you’ve probably been seeing the headlines around some of your competitors announcing big excess inventory situations. As you think about Macy’s and you think about the categories, and how the discipline of inventory management has really infused the way you’re thinking and the culture of the merchandising and buying organization. Just talk us through kind of how you think about managing the flow of inventory into that fall season because clearly that’s a big season for your class of retail and certainly your business directly. So just help us think your inventory flow as it relates to what you just talked about with respect to trend.
Nata Dvir
Yes. You know, I think part of what’s important and I talked about this earlier about being aligned and focused on the priorities, we have identified the things that we must win in, this holiday season. And because we know what’s important, we must make sure those receipts get here. And prioritizing that, that means there are things that we might not need anymore. And those might be things that we need to cancel or we need to move out of. And that’s where the strong partnerships really come into play as well.
And so it’s a priority of mine to make sure that we’re going to have the right assortment for holiday, which means that we’ve got to get back to school. Right? We’ve got to get the holiday setups, right. And we’ve got to think about categories that have slowed down, and we’ve already started to do that earlier this year where we started to pull back on those buys so that we could invest in the things that are most important.
I think the other piece that’s really important is staying agile with your receipts. Being able to chase was such a fun part of the pandemic while there was a lot of challenges that happened. One of the things that was most energizing was when we saw these trends starting to check, being able to go after them and buy into them, was really one of the best parts. And the only way you can do that is being agile with the receipts that you have.
And so that discipline is something that we’ve now — we haven’t learned it. It’s not part of our culture. It’s part of our method. It’s part of the science. And then the priorities up against that helps us make sure that we’re going to invest in the right types of products. I think there is still a lot of uncertainty with supply chain and that’s part of what we need to navigate. So having that inventory productivity mindset is important because there’s still so much disruption that happens. And so part of what we need to make sure is we’re always watching that and always thinking through how that impacts us.
But, you know, the prioritization also helps from a supply chain. Making sure that we have the right goods coming at the right time helps us at least try to control what we can control through this time.
Stephanie Wissink
That’s great. I want to take you back to your beauty days for just a little bit because one of the things I observed as a beauty analyst watching Macy’s evolve was the way in which you went out and identified some uptrending independent brands. So using that experience and what you learned about how to engage with new partners and also thinking about your marketplace strategy as an organization, how do you think about reimagining your brand partnerships? How does that list or roster of brands evolve over time at the total company level versus just in beauty?
Nata Dvir
Yes. You know, I think one of the things I was so proud of with the beauty team was we had to be ready for the new and deep brands. And part of the work that we had done prior to really bringing on a lot of new brands was training our beauty advisors to be able to sell anything.
Changing our environment to be more flexible so that we could have many brands show up in that experience. Changing our marketing to be more inclusive of a breadth of brands versus individual brands. When we built those capabilities, we could then bring on the new brands. We couldn’t bring on the new brands before we had built out those capabilities. That goes back to this, like, very important sequencing work that has to happen.
With the launch of On Your Style and with the focus around categories, pricing, assortment structure, and vendor relationships, marketplace is a very obvious next strategy for us to be launching. Because now we’ve built out the capability to really talk about brands and products in a new way with our On Your Style campaign. We have very clear line of sight in which categories we want to go after. And marketplace gives us this great opportunity to fill some white spaces that we’ve seen in categories and also find opportunities in new categories and tests before we scale them.
So it really helps us kind of meet some of the needs around emerging trends, learn around some new brands with very little risk in terms of inventory, and I am excited to see how we can round out our customers basket based off of that.
Stephanie Wissink
All right, last one. This one might be a tough one, but I wanted to just think back over the last couple of years. What has surprised you most about whether it’s consumer attitudes, consumer behavior? Just from a merchants view, what has been the biggest surprise to you?
Nata Dvir
You know, I think it’s this never ending change in our customer. And as somebody who is so curious and excited about staying close to our customer, these surprises, you know, have been there. Although, some of them we’ve been able to watch so closely, we’ve watched that tipping point happen. One was the return to stores. I was so energized to see how quickly our customers were excited to come back to stores. And that wasn’t just because our store teams are ready for them, and they had done so much from a health precaution perspective to be prepared.
But what it showed me was that, when there were experiences that our customers could no longer participate in, like traveling, or going to the movie theater. They chose Macy’s as a place to come back and have that experience. And so it reminded me of the great benefit of our store. And how it’s an experience for generations to shop together. And that’s really helped me think differently about how we think about the stores in the future.
The second is the shift of categories, and this is just like a fun one. I think this is part of what makes being a merchant, a merchant, right? It’s this never ending change of the customer. But what surprised me was, I think in the past, we would able to predict that. We were able to see some signs of that or borrow from other global trends that were happening. Now it was happening in the moment. You could see it on social, you could live it yourself and participate in what was happening and start to predict how that was going to impact the customer behavior, but the shift has been just so, so quick.
And I think it’s giving us all a challenge and you got to be up for that challenge, which we are. But that has been one of the surprises is how quickly our customers have been able to just move and grow between categories, and it’s a fun one to watch.
Stephanie Wissink
That’s great. I mean, masters of change does feel like one of the themes and you talked about agility, you talked about data and science and culture and collaboration. But to your point, the speed of change just seems to be accelerating. So I love that thought. And I also am encouraged. I keep saying to people on the investment side as soon as the shots went in the arms, the feet started going right back into stores and something cultural about shopping in stores, particularly in America. It’s part of the fabric of our culture, and so really encouraging to see consumers come back and engage. So thank you so much. I think this is so interesting for us to be able to hear from you. And to really to complement the work that you’re doing, we’re seeing it real time, we’re seeing in the financials, and I know investors are generally excited about the merchant story, but also the disciplines as well. So thank you very much, Nata. It’s good to see you as well.
Nata Dvir
Yes, thank you so much, Steph, for letting me share a little bit about what our team is up to. We’re really encouraged about what’s to come.
Stephanie Wissink
Awesome. Likewise, thanks, everybody. Have a great day.
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