Macy's blamed a 'mounting problem' of unsold inventory and heavy discounting for weaker-than-expected earnings

Northgate Mall MacysIrene Jiang / Business Insider

  • In a call with investors on Wednesday, Macy's executives cited excess inventory and heavy markdowns as a significant driver of low performance in the second quarter of 2019.
  • Macy's CEO Jeff Gennette specifically attributed the retailer's inventory woes to select underperforming sectors like women's sportswear and home goods, as well as to slow sales of warm weather apparel and a decline in international tourism.
  • Traditional retailers like Macy's continue to fight an uphill battle due to dwindling foot traffic and shifting consumer demand for e-commerce and buzzy direct-to-consumer brands.
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Macy's has an inventory problem.

On a call with investors on Wednesday, Macy's CEO Jeff Gennette said performance in the second quarter of 2019 fell "well below expectations," citing surplus inventory as a "mounting problem" during the period. In an effort to clear excess product, the retailer made significant store-wide markdowns, contributing to a net sales drop to $5.546 billion from $5.572 billion at the same time last year. Same-store sales grew by 0.2%.

Gennette attributed Macy's inventory troubles to three main factors: low performance in sectors like women's sportswear, private labels, and home goods; slow sales of warm weather apparel; and a decline in international tourism.

Read more: Macy's says it will pull 'mom jeans' plates from stores after furious customers accused them of 'fat shaming'

Macy's CFO Paula Price said on the call that while the brand was "not pleased" with its performance, it's focusing on more strategic inventory allocation moving forward and she's confident it will make a bounce back.

"Taking the markdowns was certainly tough medicine, but it was important to enter the fall season," she said.

Both Gennette and Price noted the industrywide challenges plaguing traditional retailers, as consumers flock to e-commerce and buzzy direct-to-consumer brands. In an attempt to attract younger, more eco-conscious shoppers, Gennette announced a pilot partnership with ThredUp, which will feature resale clothing in 40 select stores.

Additionally, Macy's-owned Bloomingdales is looking to capitalize on the booming rental industry with a recently announced rental program called My List, which Gennette said Macy's aims to emulate down the road.

"We're testing opportunities in re-commerce and rental, especially among millennials and Gen Z," he said. "We know many consumers are passionate about sustainable fashion and shopping resale."
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