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How Macy's Is Fighting Back Against Amazon

By Parkev Tatevosian, CFA – Sep 30, 2020 at 8:19AM

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The coronavirus pandemic and the surge in online shopping are opening a window of opportunity.

The coronavirus pandemic is having many adverse effects on Macy's (M 1.21%). However, there may be at least one silver lining. When the company closed all its stores to the public, the only way it could generate revenue was from online sales. Macy's then had no choice but to turn its attention to improving its digital capabilities.

The company is realizing a side effect of focusing its attention on online sales -- it's going to help it fight against Amazon (AMZN -1.44%).

The outside of the worlds largest Macy's store.

Macy's is increasing its online capabilities. Image source: Macy's.

Macy's is making progress in capturing online sales 

Adjusting to customers' changing forms of shopping, Macy's is upgrading some of its existing omnichannel capabilities, which allow consumers to buy online and pick up in-store (for items that are in stock) or have orders shipped to a local store for pickup. Additionally, Macy's has added new fulfillment options this year, including same-day delivery and curbside pickup -- all of which will help it compete against Amazon. 

One of the challenges for companies during the pandemic has been logistics. Amazon has gained a competitive advantage for years by offering free two-day shipping to its Prime members. But the pandemic disrupted existing schedules and routine operating procedures, causing delays in shipping times and the unavailability of many items.

During Amazon's second-quarter conference call, CFO Brian Olsavsky said in response to a question regarding slowdowns in Prime shipping times, "We've seen the one-day and two-day recovery through the quarter, but it's still probably considerably behind the going rate before any of this happened." The disruption reduces the advantage for Amazon, which is known for fast and reliable fulfillment during normal times.

The upgrades to Macy's digital platform make it easy for customers to identify what's available at their local store for same-day pickup, adding convenience for shoppers. Store pickup is also more profitable for retailers than shipping to a customer's home. The difference in the profitability for transactions that require shipping to customers' homes versus all other types will be especially evident during this year's holiday shopping season; the United States Postal Service, FedEx, and UPS have already announced surcharges on shipping rates.

During Macy's second-quarter conference call, CEO Jeff Gennette said, "In an odd way, we've been able to move further and faster on our digital agenda because of this disruption." Indeed, digital sales made up 54% of total sales for the company in its most recent quarter. The 53% increase in online sales could be a silver lining in an otherwise awful time for the company.

The outside of a Macy's store.

Macy's is improving convenience for shoppers. Image source: Macy's.

What this means for investors 

Macy's was struggling to grow sales and earnings even before the pandemic, in part because many consumers preferred the convenience of shopping on Amazon. If Macy's can continue building out its digital capabilities, it can reduce the advantage Amazon has in fulfillment. Consumers will likely value additional options even after the pandemic. Therefore, Macy's success in improving its fulfillment capabilities will go a long way in making it a stock to watch in the consumer discretionary sector

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Macy's. The Motley Fool owns shares of and recommends Amazon and FedEx and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Macy's Stock Quote
Macy's
M
$23.46 (1.21%) $0.28
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37

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