Annual report pursuant to Section 13 and 15(d)

Revenue

v3.21.1
Revenue
12 Months Ended
Jan. 30, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

 

3.

Revenue

Net sales

Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. Macy's accounted for approximately 89%, 88%, and 89% of the Company's net sales for 2020, 2019 and 2018, respectively.  In addition, digital sales accounted for approximately 44%, 25% and 23% of net sales in 2020, 2019 and 2018, respectively. Disaggregation of the Company's net sales by family of business for 2020, 2019 and 2018 were as follows:

 

 

 

2020

 

 

2019

 

 

2018

 

Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and

   Fragrances

 

$

7,206

 

 

$

9,454

 

 

$

9,457

 

Women’s Apparel

 

 

2,909

 

 

 

5,411

 

 

 

5,642

 

Men’s and Kids’

 

 

3,486

 

 

 

5,628

 

 

 

5,699

 

Home/Other (a)

 

 

3,745

 

 

 

4,067

 

 

 

4,173

 

Total

 

$

17,346

 

 

$

24,560

 

 

$

24,971

 

 

(a)

Other primarily includes restaurant sales, allowance for merchandise returns adjustments, certain loyalty program income and breakage income from unredeemed gift cards.

The Company's revenue generating activities include the following:

Retail Sales

Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.

Merchandise Returns

The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $159 million as of January 30, 2021, and $213 million as of February 1, 2020. Included in prepaid expenses and other current assets is an asset totaling $103 million as of January 30, 2021, and $147 million as of February 1, 2020, for the recoverable cost of merchandise estimated to be returned by customers.

Gift Cards and Customer Loyalty Programs

The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $616 million as of January 30, 2021, and $839 million as of February 1, 2020. During 2020 and 2018, the Company recognized approximately $30 and $40 million, respectively, in breakage income related to changes in breakage rate estimates. Changes in the liability for unredeemed gift cards and customer loyalty programs are as follows:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(millions)

 

 

 

 

 

Balance, beginning of year

 

$

839

 

 

$

856

 

 

$

906

 

Liabilities issued but not redeemed (a)

 

 

262

 

 

 

554

 

 

 

570

 

Revenue recognized from beginning liability

 

 

(485

)

 

 

(571

)

 

 

(620

)

Balance, end of year

 

$

616

 

 

$

839

 

 

$

856

 

 

(a)

Net of estimated breakage income.

 

Credit Card Revenues, net

In connection with the sale of most of the Company's credit card accounts and related receivable balances to Citibank, the Company and Citibank entered into a long-term marketing and servicing alliance pursuant to the terms of an amended and restated Credit Card Program Agreement ("Credit Card Program"). The Program Agreement expires March 31, 2025, subject to an additional renewal term of three years. The Program Agreement provides for, among other things, (i) the ownership by Citibank of the accounts purchased by Citibank, (ii) the ownership by Citibank of new accounts opened by the Company’s customers, (iii) the provision of credit by Citibank to the holders of the credit cards associated with the foregoing accounts, (iv) the servicing of the foregoing accounts, and (v) the allocation between Citibank and the Company of the economic benefits and burdens associated with the foregoing and other aspects of the alliance.

As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.

Pursuant to the Program Agreement, the Company continues to provide certain servicing functions related to the accounts and related receivables owned by Citibank and receives compensation from Citibank for these services. The amounts earned under the Program Agreement related to the servicing functions are deemed adequate compensation and, accordingly, no servicing asset or liability has been recorded on the Consolidated Balance Sheets.

The Company’s credit card revenues, net were $751 million for 2020, $771 million for 2019 and $768 million for 2018. Amounts received under the Program Agreement were $882 million for 2020, $985 million for 2019 and $966 million for 2018, and are included within credit card revenues, net on the Consolidated Statements of Operations.

Under the terms of the Program Agreement, if sales decrease by more than 34% over a twelve-month period as compared to the Benchmark Year, defined as the twelve-month period from July 2006 to June 2007 in the Program Agreement, Citibank has the ability to provide written notice to terminate the agreement prior to the end of its current term.  Based on the results for the Company’s February 2021 fiscal period, sales for the most recent twelve-month period ended February 27, 2021, have decreased by more than 34% as compared to the Benchmark Year.  We are in on-going discussions with Citibank concerning the Program Agreement and as of the date of this filing, the Company has not received a notice to terminate the agreement.  The Company is currently unable to estimate any impact this event might have on the Program Agreement or on the Company’s future financial results.