Since taking charge in 2017, the Macy’s chief has been focused on retooling the 163-year-old retailer to compete in a world dominated by Amazon and rest of the e-commerce pack. We met Gennette at Macy’s historic New York HQ to talk about what makes stores so vital, how he’s responding to supply-chain chaos, and why there are still so few LGBTQ CEOs in the Fortune 500.

This edited Q&A contains follow-up questions and has been condensed for space and clarity.

What’s in store

Fortune: Macy’s has had a strong rebound year—and is projecting a big holiday shopping season.¹ But you’re still not back to pre-pandemic levels. In a world dominated by e-commerce, make the case for the future of the department store.²

Jeff Gennette: Our competitive moat is our ability to curate fashion for someone’s individual style—either for themselves or for whoever they buy for. When we do that right, and we do it across all of our touch points [stores and digital], that’s really our reason for being.

Just think about the origin of the department store, where you could be all things to all people. With digital, you really can do that if you have the imagination for it, if you’ve got the merchants for it. We don’t dictate style to people but we want to provide a menu to enable people to find what they want. I think that fashion and style curation is our unique place. If we didn’t have department stores, I believe that today somebody would invent them. I really do believe they’re as relevant today as they have been in the past, but they have to be different.

So long, sales?

In part because of the supply-chain crunch, which has ramped up demand for hard-to-get products, many retailers—including Macy’s—are doing less discounting and therefore seeing higher profit margins. Is this an opportunity for the industry to wean shoppers off their “deals deals deals” mentality?

Our customers love deals—this Black Friday will be huge.³ The opportunity for the future is how you take that need that customers have for great value and make it an individual conversation. And you do that through everything we’ve done with data, thanks to our loyalty programs.⁴ So you are going to see the opportunity for all of us to wean ourselves from broad-based promotions. And that comes from knowing our customer. We used to have 100 sale events a year—two per week—and that’s down dramatically. We’re still going to have great sales, but a lot of the content is going to be individualized.

For example, if you’ve been looking at Coach accessories and put them in your basket, but you haven’t [completed the purchase], we might give you an offer. But I wouldn’t give that same offer to somebody who hasn’t signaled that interest. I think the “deal” is always going to be required. But I think the way we’re going to deliver it is going to be more personalized.

How about inventories? Are these changes permanent?

We are deeply committed to leaner inventories, and we’re benefiting from that. Our customers are saying our stores feel less cluttered, and “I can see more of what you have to offer.” You’re getting better sell-throughs and higher average unit retail [a proxy for prices] and margins.

Has the chaos with the global supply chain affected how you source products? What shifts have you made to manage the situation?

You have diversification opportunities at suppliers with factories in multiple countries, where vendors can shift supply back and forth between them. There’s also making sure that you’ve got maximum flexibility in your raw material purchasing: Can the fabrics you’ve invested in be used across brands, used across products for both genders?

Diversification of ports in America is going to be really important too: We can’t have 80% of our freight from East Asia going through [the Port of] L.A. At Macy’s, we were at 80% before—now we’re at 60%, and it probably needs to go south of that. We’ve looked at smaller containers going into smaller ports, getting rail and truckers into those areas, bypassing consolidators to pick up speed.

Winning hearts and wallets

For stores like Macy’s, brand loyalty has long been essential. Are shoppers becoming less loyal?

That depends on the demographic and on the product category. What I’d say in general is that the younger customer is not as loyal to particular brands as the older one. But in certain categories they can be; if you’re a luxury customer, you can be quite loyal to a particular brand, and certainly to a department store. In fragrances, shoppers are quite loyal, but in categories like apparel, they jump all over the place.

You’ve got every day to win a new customer. You can lose them with a bad experience. But just because they have a great experience with you, that doesn’t mean you’re going to keep them, so you’ve got to continue to raise your game to stay relevant.

Shopping for a new career

What do you make of the Great Resignation?

That’s real. We have a lot of open jobs.⁵ Many people are sitting on the sidelines. When they come back, we want to make sure that retail is a place that they can call home.⁶

So how do you do that? You started at Macy’s in 1983 and worked your way up to the corner office. Can Macy’s still offer young people that kind of career track?

I think much more so than a generation ago. When I was coming up, it wasn’t clear the variety of jobs that you can now get in retail. Today, almost half of all retail jobs are not customer facing. Think about what we’re doing with just STEM needs. One of the biggest needs we have is to get universities looking at us in a modern way and recognizing how many technology jobs and analytics jobs we offer. Retailers are technology companies now in many respects. If you’re coming into retail today, the world is your oyster in terms of the places that you can go. It’s our job from a PR perspective to make sure that our industry gets the respect for the jobs that we can create.

You’ve been clear that you believe Macy’s best operates as a marriage of e-commerce and brick-and-mortar stores. What’s the case for operating in that way?⁷

There are some examples, obviously, where e-commerce has thrived without stores. But I would tell you that even Amazon is looking for brick-and-mortar locations. First off, customers love stores. A store can be a great marketing tool for a brand. Where we have strong stores is where we’ve got a really strong digital business. It’s irrefutable that this is the way forward in retail.

Mall rat no more

You have a long history as a mall-based big-box chain, but now you’re branching into new store sizes and off-mall locations. Why?

We’re experimenting with our smaller formats,⁸ and looking at [mixed-use developments and large strip malls] and outlet centers. The second we put down stakes in a market, you also get all these spikes in the digital business in those zip codes. And so that’s how we evaluate what we’re doing with the “small door” strategy. My desire is that we’re going to walk out with a strategy where we’re going to have more units, more stores in the future. But we’re going to have less square footage overall.

Given the increasing urgency of climate change, how do you see Macy’s responsibility in terms of sustainability? Is it bad for your business if people stop consuming more things?

We’ll respond to where the customer goes on this. I think the American consumer is just that—a consumer. What will customers pay for sustainability? Will they pay extra? We have not seen that yet. But when you think about ESG and you think about how these younger consumers are holding brands accountable to what they’re doing with sustainability, we’ll see how that plays out. We’ll be ready.

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Between the lines

(1) A retail revival: Macy's estimates its net sales for 2021 will reach $23.75 billion, just below 2019 levels. (Source: Bloomberg)

(2)Shop drop: The retailer currently operates about 507 namesake department stores, down from 737 about a decade ago. (Macy’s Inc. also owns Bloomingdale’s and Bluemercury.)

(3) Black Friday in the black: Macy’s recently raised its 2021 revenue forecast by $450 million in anticipation of a big holiday season.

(4) Loyalty pays: Almost 70% of Macy’s sales come from customers in its loyalty programs. That’s up 10 percentage points from 2019.

(5) Holiday wish list? More workers: Macy’s has said it wants to hire 76,000 workers ahead of the holidays. The company is also asking corporate employees to work shifts in the stores over the busy season.

(6) Bulking up benefits: Macy’s is among the retailers who’ve raised wages to a minimum of $15 per hour and, starting in 2022, will cover tuition, books, and fees for employees in certain educational programs.

(7) Face-off over a spinoff: Activist investor Jana Partners is pressuring Macy’s to spin off its e-commerce business, which is expected to hit $10 billion in revenue by 2023. The company says it has hired a consulting firm to look into the impact of a potential split.

(8) Small but mighty: There are currently five Market by Macy’s stores, which are one-sixth the size of the regular stores and offer a curated selection of products.

A version of this article appears in the December 2021/January 2022 issue of Fortune with the headline, “The Conversation: Jeff Gennette.”