Executive Vice President, Chief Operating Officer & Chief Financial Officer, MACY'S INC
Bloomberg Chief Future Officer: Macy's Adrian Mitchell
Chief Financial Officers now play a critical role in shaping corporate strategy and positioning organizations to meet future ...
About Adrian Mitchell
Adrian Mitchell, who became Macy's chief financial officer in November 2020, has focused on the company's transformation and financial health. He stated that the primary mission became survival and that the time was right for transformation. Mitchell noted that the company's Polaris strategy was always intended to be digitally led, and that the pandemic required a stronger pivot to digital. He observed that in 2021, stores rebounded while digital remained strong, and argued that shedding real estate would mean shedding customers. Mitchell emphasized the importance of financial health in 2021 to strengthen the balance sheet and create capacity for shareholder returns through dividends and share buybacks. Mitchell has described the biggest challenge as the accelerating pace of disruption in retail, stating that a five-year strategy no longer exists. He has advocated for simplifying the company's data architecture to create agility, and advised that a CFO must understand the operation to manage capital allocation effectively. Mitchell has expressed that in ten years, Macy's will be a digitally led business with a distribution model of physical assets, and that the company must continue to listen to the customer to remain relevant.
Transcript (61 segments)
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Narrator0:03
When Adrian Mitchell became Macy's CFO in November 2020, he focused firmly on the company's future because the present for department stores seemed bleak.
Macy's was in a position where they had really gone through a pretty tough period in 2020. But as we approached the back half of 2020, the question was what are we going to be, where are we going to go?
Adrian stepped into this role after a period of many years of department stores struggling. I think he moved into the seat right at a point when investors were really questioning viability.
The depths of the negative sentiment were kind of right at the moment that Adrian stepped in. It was a student body left; everyone realized they couldn't continue to operate the way they were. The primary mission became survival.
The time was right for transformation. Looking beyond the immediate COVID crisis, Mitchell saw that the iconic retailer needed to drive forward with a fresh approach.
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Adrian Mitchell1:04
We had the opportunity to really define who we are and who we wanted to become, to really think about the path to recovery and how we're going to actually do that in a different way, and really challenge ourselves on the kinds of things that we lived with pre-pandemic.
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Narrator1:19
As a legacy department store, that's exactly what CEO Jeff Gennette brought him in to achieve.
Because he's just a great strategist; he sees behind the corners, sees opportunities, and has been a wizard at really looking at our capital allocation, restoring our balance sheet, and investing in the business.
The automation worked pretty well; it exceeded our expectations by about 20-30% in terms of throughput, which was very good.
He's a great communicator, very clear. The clarity of his messaging and the sequence of how he describes it works as well for the investor as it does for the internal colleague. Having the right CFO was really instrumental in us making the accelerated steps that we have made towards what we're now doing. So there's a new Macy's emerging, and that's what we're really excited about.
It's not as if Macy's hadn't been aware of the need for change. In February 2020, the company rolled out Polaris, a three-year growth and profitability strategy. Among the goals: to reset Macy's cost base, accelerate digital growth, modernize its supply chain, and optimize its store portfolio. Then in March 2020, the best-laid plans of retailers across the US were upended by the COVID pandemic.
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Adrian Mitchell2:47
Yes, we did introduce Polaris at the beginning of the pandemic. We had to kind of step back as we're going through the pandemic and say what's changed. How important is value? How important is convenience? Polaris was always based on how we needed to transform. We were always going to be digitally led, but we had to pivot much stronger to digital through the pandemic, and thank goodness we did that.
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Narrator3:09
Macy's digital sales as a share of revenue rose to 44% at the height of COVID spread at the end of 2020. And while the percentage share dropped as stores reopened in 2021, gross digital revenue in the second quarter was up almost half from the same quarter in 2019.
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Adrian Mitchell3:27
But a funny thing happened while the pivot was in process. When we went into 2021, our thesis was that digital will continue to remain strong and stores will probably have a real tough time. What we saw is that stores really rebounded and digital didn't miss a beat. As soon as those vaccine shots started going into people's arms, those feet started going right back into the retail destinations that they knew and loved. I think it reinforced one fact for us about American culture: shopping is entertainment.
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Narrator4:00
In 2020, U.S. retailers closed over a thousand more department stores than they opened, but those closures slowed dramatically in 2021. Macy's still has stores slated to shutter in 2022 under its Polaris plan but has said it may delay.
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Adrian Mitchell4:17
When you shed real estate, you shed customers. You're firing customers when you lose a store. Having stores really amplifies what you do in digital. Having an app connects all of it. Customers are doing research, price checking, checking with influencers, putting things on their social feeds, figuring out ways to use technology to understand what works for them, and brands better be there.
We continue to be very impressed with the relevance of stores. All the math indicates that markets do best and customers are most productive when they shop multiple channels. When we think about our store portfolio, it's about repositioning that distribution channel. We're looking at ways to make our mall-based stores more relevant, a lot of that is around fulfillment services within those bigger boxes. But the real unlock is new store growth in small format. A 30- to 50,000-square-foot box compared to the historical 200,000 square feet or bigger provides a simplified experience, high velocity sell-through, great engagement, clear sightlines across all categories, and power centers in neighborhoods where customers live and shop. It's really exciting, and we're in the early innings of that.
It's very clear that all retailers will have both brick and mortar presence and e-commerce presence. Even Amazon, the ultimate e-commerce retailer, increasingly has brick and mortar presence. But we have to keep in mind that this is a ticket to play, but not a ticket to win.
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Narrator5:48
Wall Street seems to endorse the approach Macy's is taking. Shares have rallied since Mitchell became CFO in November 2020, and that mirrors the trend for department stores in general, which were one of the highest performing groups in retail in 2021.
I think that the market got proven a bit wrong that these aren't dying and decaying dinosaurs, that these actually still have a relevant place in the broader ecosystem of retail. To the credit of the department stores, Macy's and Kohl's, they activated some really important changes in their business.
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Adrian Mitchell6:21
The whole notion of the Polaris strategy at its core is unlocking value for our shareholders. The biggest thing we had to accomplish in 2021 was financial health. The economy is going to have its ups and downs, but we needed to make sure we had the financial health and strength of the balance sheet to weather that storm. That's where we are today, and now we have capacity to return value back to shareholders in the form of dividends and share buybacks.
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Caroline Hyde6:49
How did you decide this is the right moment to be paying back debt? How did you ensure the money was there for the right financing to pay down that debt?
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Adrian Mitchell6:58
There are three key steps. First, do we have a strategy coming out of the pandemic that's going to work? We have to listen to the customer and make sure we have the right strategy. Executing the wrong strategy doesn't get you much. The second thing was a relentless focus on margin expansion. Whatever the level of sales we needed or expected to have in 2021, it had to come with a much more profitable business than we'd seen in 2020 and certainly even pre-pandemic. The third thing is you have to control inventory; you cannot be a successful retail business by having inventory get out of control. But as we got into the first half of 2021, we also had to make some bets. We saw demand exceeding our expectations and COVID variants disrupting our supply chain, so we made the bet to give it to us early, and that really paid off. We took all that cash flow, restored our balance sheet, made further investments, and we're stronger coming out of the pandemic than going into it.
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Narrator8:03
Macy's continues to hold the lead in market share among U.S. retailers, but Chief Future Officer Adrian Mitchell is under no illusions the road ahead is not going to be easy.
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Adrian Mitchell8:15
Supply chain challenges we believe are going to be prolonged into 2022 and to 2023. Labor challenges: we have to win talent, we have to fight for talent. We're making investments, but our mindset is that's the new normal. It's not a disruption; it's the new normal for the near term and medium term. Our mindset is continuous improvement, new ways of working, fresh ideas that are relevant for the future, and letting go of things that may have worked in the past but are no longer relevant. We may have been willing to live with them pre-pandemic, but we're not willing to live with them today.
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Narrator8:50
Coming up, Adrian Mitchell takes me on a tour of Macy's flagship store, where the company is making big bets on some new categories. You have to invest in R&D; you have to invest in experimentation. This is Bloomberg.
Adrian Mitchell's route to the CFO position at Macy's had unconventional beginnings.
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Adrian Mitchell9:16
I studied chemical engineering at Louisiana State University. I had a great experience, and one of the things I loved about that was just problem solving. But I also realized that I didn't want to be a chemical engineer.
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Narrator9:29
He took a job at McKinsey after college, stepping away for a couple of years to earn an MBA at Harvard.
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Adrian Mitchell9:35
When I think about the Harvard Business School experience, what was most impactful was translating the engineer's mindset on problem solving into a business context. That was a really magical experience. But I think some of my most formative years were at McKinsey, where I had the opportunity to work with clients on large-scale transformation in the consumer space. When I joined my first retail study, game over. I loved it. It was tangible, real, and ripe for opportunity.
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Narrator10:12
His first operational opportunity came at Target, where he led a redesign of the company's digital and mobile platforms. From there it was onto the C-suite at Crate & Barrel as CFO with a stint as interim CEO, followed by a tour as CEO of furniture and home decor retailer Arhaus. Then the seasoned leader took his talents back to consulting as a managing director and partner at Boston Consulting Group.
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Adrian Mitchell10:38
I really created a space for myself at BCG at the intersection of retail, operations, digital, data, and advanced analytics. Then Macy's comes knocking. When an iconic brand like Macy's comes calling with the opportunity to reimagine a 162-year-old business to be relevant for the next decade plus, what a great challenge.
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Narrator11:01
There's no better place to explore how Macy's is meeting that challenge than inside its flagship store in New York's Herald Square. The building dates back to 1902, but Adrian Mitchell sees it as fresh territory.
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Adrian Mitchell11:16
We're investing in a lot of different capabilities and features that make the in-store shopping experience that much easier, that much more compelling, whether it's price check or browsing inventory in this store, to really make that experience as convenient and simple as possible.
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Caroline Hyde11:34
Convenient and simple, that's what people have needed in the age of COVID. Is that here to stay? Do we go back when the pandemic is behind us? Do our changing shopping habits revert?
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Adrian Mitchell11:46
What's really interesting about retail in my 20-plus years of experience is that convenience never reverts itself. The form of convenience has shifted. Whereas in 2000-2010 a lot of convenience was driven by more stores nearby, now it's stores in addition to digital. There's nothing closer than the phone in your hand. There are so many more touchpoints: social shopping, curbside pickup, at-your-service, on your phone, ship to home. This real estate does not come cheap, but it's integral. The physical footprint is integral to Macy's success as an omnichannel retailer.
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Narrator12:24
For all of Macy's focus on convenience and simplicity, there's no decline in variety. While women's shoes, accessories, cosmetics, and apparel have traditionally led the company's revenue mix, there's a commitment to expand into new categories. Case in point: the pet department, where Chief Merchandising Officer Natan Weiner joined us.
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Natan Weiner12:46
One of the things we observed in the pandemic is that customers were giving us permission to sell a lot more than what we traditionally have as a Macy's department store. As we think about the opportunity to extend into toys, extensions, hair care, and other parts, pets was clearly in a category that's large and growing. We're really focused on bringing in the millennial mom and all the things they're shopping for, and many times those families also have pets.
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Caroline Hyde13:11
How do you know the best way to do it from a financial perspective? Do you build this wholeheartedly organically? Do we partner? What are those conversations like?
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Adrian Mitchell13:18
We do a lot of research, some experimentation, and some bets. The exciting thing for us is you have to invest in R&D, invest in experimentation. Having strong financial performance to make these choices and bets gives us that flexibility. Pets has done well.
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Narrator13:38
Also doing well: the revamped toy department, buttressed by a partnership with Toys R Us, launched in August as a store within a store.
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Natan Weiner13:49
They are expanding into categories that are part of that fluency exercise within omnichannel, and toys is a great example. The investments we're making—Adrian was really helpful in figuring out how we support and invest in a category that will take years to drive the type of volume we're looking for. It starts with a big investment. That's what I'm excited about: the investment in the future of toys starts now, and we start reaping those benefits over the years to come.
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Narrator14:16
One of the most important functions of Macy's stores isn't obvious to customers: they're becoming fulfillment and distribution centers, hubs for shipping and pickup that lower costs and increase efficiency.
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Adrian Mitchell14:30
We have all these stores across the country with a lot of real estate. How do we use a portion of that to be in market with product, to reduce the distance a product has to travel so customers get it faster? Shipping from a distant fulfillment center in the middle of a warehouse district is just not as efficient or as fast as needed in an environment where customers expect greater speed. And we have to do it economically because so many customers want low or free shipping. We did it through brute force before, but now we're being much more deliberate, using lean processes, Six Sigma, technology tools, and better information to make this process rival the efficiency of what you'd see in an upstream fulfillment center.
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Narrator15:14
Some of the merchandise is marked for in-store and curbside pickup, and that touchpoint—so critical in an omnichannel world—is getting a makeover.
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Adrian Mitchell15:25
This is the reimagined view of our At Your Service. Given the categories we're in, we have a number of returns, particularly from digital purchases, that come back to the store. It's important to have an At Your Service counter that's fast, efficient, and allows a customer to come in seamlessly. It's also your pickup spot for buy online, pick up in store. Last year, as we were going through the recovery, we invested in a number of stores to reimagine this experience. Hundreds of thousands of customers use this every year. Creating a seamless experience for returns is critical; a large part of our business is apparel, which by its nature has a high return rate. Making sure a seamless, efficient experience is available in every store is really critical for customer engagement and loyalty.
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Narrator16:27
Coming up: retailers across the US are facing shareholder pressure to spin off their digital businesses. Adrian Mitchell discusses the pros and cons. We have to take into account the benefits of that evaluation, the cost. And he tells me that his biggest challenge in the next 10 years might be just keeping up with the pace of change. As a management team, the notion of a five-year strategy doesn't really exist anymore. This is Bloomberg.
In March 2021, Saks Fifth Avenue split into two units as parent company Hudson Bay spun off its e-commerce division from its brick and mortar business. Since then, other retailers like Kohl's, Neiman Marcus, and Nordstrom have reportedly been mulling similar moves. In October, Macy's was urged by activist hedge fund Jana Partners to consider a split. The company has hired a consulting firm to help analyze its options.
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Adrian Mitchell17:29
This financial re-engineering step is being driven by a fundamental truth: the internet business in many of these brick and mortar companies is a pretty darn good business, maybe a growing and strong e-commerce business. These businesses could theoretically carry higher multiples than the company as a whole. The fundamental question you have to ask is: will the market actually do that over the long term, or will they simply value the e-commerce business very highly and then value what remains at a very low value, and we end up averaging out where you started? Nobody knows the answer. These are companies that have spent the last 15 years integrating two disparate businesses and honoring the consumer in finding one company—one Macy's, one Kohl's. To now have two separate entities, with a spider web of transaction service agreements, and try to maintain integrity in that consumer experience—there are serious risks in all scenarios. The customer experience cannot be disrupted. It has to be respected. Whether the synergies are frictional costs of operating separate businesses with intercompany agreements, we also have to understand the execution risk. The key thing is we have to be agile in the way we navigate the business; it's constantly changing.
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Narrator18:50
Adrian Mitchell isn't just navigating change; he's driving it. I asked Macy's Chief Future Officer what he sees when he looks ahead.
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Caroline Hyde18:58
Where do you see Macy's from your perspective as CFO in 10 years' time?
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Adrian Mitchell19:04
In 10 years, we will be a business that is highly relevant, very much digitally led, with a distribution model of physical assets around the country more than what you see today. We're excited about that. It's all about customer relevancy, so continuing to listen to the customer and think about different ways they're going to be shopping is really important. We have to let go of traditional legacy department store habits and evolve with the customer in a way that's productive, profitable, and good for our shareholders.
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Caroline Hyde19:35
Are those backward-looking habits the challenge, or what other challenges do you see in the next 10 years that maybe keep you up at night?
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Adrian Mitchell19:43
I think the biggest challenge is pace. If you think about the level of disruption we see in retail, we've been living with this for 10 years, and the pace just continues to move faster. In addition, consumer expectations are evolving and elevating and changing as fast, if not faster. So as a management team, the notion of a five-year strategy doesn't really exist anymore. You have to be responsive in the moment. You know directionally where you're going, but you may need to shift left or right, add things to the strategy, take things out, make adjustments as you go. That's the agility that Jeff and I and the management team have been doing with Polaris. We're constantly challenging the assumptions of our strategy, making adjustments, but most importantly our test-learn-deploy mentality has to prove that the strategies we're pursuing are working.
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Caroline Hyde20:35
How are you adjusting your own role? How will the role of a CFO change in the next 10 years?
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Adrian Mitchell20:41
I strongly believe that a CFO has to look around the corner. A CFO has to think not only about the finances and capital allocation but also about strategy, about getting to know the operation. I encourage my teams and colleagues within finance to get into the supply chain, walk the store, work with the digital team to understand what they're doing on the website. You have to understand the operation to manage capital allocation effectively. Our role in finance is really being shoulder to shoulder with the operators and having a seat at the table in strategy, so we can deploy capital most efficiently and effectively to maximize return.
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Caroline Hyde21:27
Is digital the new skill set a CFO needs as well?
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Adrian Mitchell21:31
I think it's more data science, analytics, being able to understand all the permutations and scenarios that can happen operationally and financially, and helping the organization create a system that can move with agility. Simple example: when you think about our technology platform, we have a dated technology platform that's highly fragmented. Should we invest in simplifying our technology stack? Absolutely yes. It may not have the financial ROI as investing in digital marketplace or enhanced experiences or small format, but strategically you can't compete with agility if you have fragmented systems that take too long to get information and make better decisions. So we're simplifying our data architecture to create that agility for the operating business to generate great results.
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Caroline Hyde22:27
That kind of strategic and operational mindset is going to be necessary to get the numbers to work and for the returns to be there. So your piece of advice to someone about to take on the role of CFO?
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Adrian Mitchell22:36
Get to know the business and challenge the strategy. Do you, if you put yourself in the role of the consumer, believe that strategy is what's going to make you more profitable, more engaged, shop more frequently, and choose that company over the competition? And get into the operation. There are lots of opportunities in the operation. Basic things like the store is staffed appropriately, inventory is in the right place. The basics of retail still matter. You have to execute on the fundamentals to create the capacity to invest in innovation.
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Narrator23:16
Innovation married to execution: that's Adrian Mitchell's calling card, and it's his formula for guiding Macy's into a bright future. I'm Caroline Hyde. This is Bloomberg.