Macy's CEO says it doesn't expect to shut down stores again, despite falling foot traffic and volatile brick-and-mortar sales in states experiencing coronavirus surges

• In a call with investors on Wednesday, Macy's CEO Jeff Gennette reported that sales at its physical store locations are down 35% for the first half of 2020 compared to the same period in 2019.
• Foot traffic and physical sales have been especially volatile in states like Texas, Arizona, and Florida that are experienced a surge in coronavirus cases.
• "We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level," Macy's CEO Jeff Gennette said.

Though nearly all of Macy's stores have reopened to the public, sluggish sales — particularly in states that have recently seen a surge in coronavirus cases — suggest shoppers are hesitant to return to brick-and-mortar shopping.

In a call with investors on Wednesday, Macy's CEO Jeff Gennette reported that sales at its physical store locations are down 35% for the first half of 2020 compared to the same period in 2019. However, he said "the digital half of our business has shown very strong performance," citing particular strength in the beauty, furniture, and home goods categories as many Americans remained homebound in recent months.

Gennette said physical store performance has been especially volatile in states like Texas, Arizona, and Florida which were among the first to reopen retail businesses and loosen stay-at-home restrictions. While these stores were at first experiencing momentum, he said the recent rise of coronavirus cases in these regions has caused shoppers to retreat.

"The situation is really fluid and it changes day by day," Gennette said on the call." Most recently, as an example of that, if you look at our stores in Texas, Arizona, and Florida, based on the COVID surge in those states, we've seen a noticeably worse trend in those states versus where we'd started and where we were gradually getting better."

Still, Gennette said the company plans to avoid another series of closures at these stores and is instead monitoring the situation as needed.

"We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level," Gennette said. "We are meeting our customers how and where they are shopping and have enhanced our fulfillment options and health precautions to ensure a safe and welcoming shopping experience."

Across Macy's store fleet, Gennette said "the Heartland is the strongest" performance-wise, while the coasts, which have been especially hard hit by the coronavirus, are "coming back more slowly." Overall, he said neighborhood stores are performing better than mall locations.

"When you think about social distancing, communities have been very focused on those neighborhood stores for years," he said. "They go there for basics and it's just a comfortable place for them to shop versus in the past where they would take some of their shopping trips and go into regional malls."

Looking ahead, Macy's continues to focus on its digital business. In recent weeks, Gennette said online sales are up in states were coronavirus cases have been on the rise, though he noted e-commerce performance didn't cover the gap from lost foot traffic as shoppers return to shelter-in-place practices.

"By all metrics — sales, traffic, conversion, mobile engagement, and new customer acquisition — we're pleased with the results of our digital business," he said. "It's encouraging to see that the newly acquired customers coming into the brand through dot-com are younger and more diverse than our core customer."