Physical SpacesFebruary 21, 2020

Will Less Mean More for Macy’s?

By SIMONE BRATHWAITE | Staff Writer‍

Macy’s is pulling out all the stops to turn around its struggling business. Announced earlier this month, the retailer will implement a major restructuring plan, which includes closing 125 stores and cutting 9% of its corporate workforce. The “shrink to grow” effort will save the retailer $1.5 billion by the end of 2022 and $600 million this year.

 

A long time coming

The Macy’s as we know today is a conglomeration of acquisitions done in the ‘90s. Regional department stores were acquired and rebranded into Macy’s to create one national store. What resulted was a multitude of store locations in underperforming markets without much initial effort to localize merchandise to match the varying needs of different communities.

While these missteps were initially shielded by increased sales, the past decade was hard on department stores.

The “retail apocalypse” brought with it numerous historic brick and mortar store closings as eCommerce giants like Amazon took foot traffic away from traditional malls. Consumers’ changing preferences – including a shift to more experience spending – was also a contributing factor to what was being described as “the end of retail.”

Macy’s shifted to play the “heavy promotions game” to remain competitive. However, it was a race to the bottom as other retailers joined in on the fun, offering similar discounts, and consumers demanded more sales in exchange for less loyalty.

To combat these dynamics, Macy’s closed 100 stores from 2016 to 2019.

 

To grow, Macy’s must shrink

Those initial efforts were not enough to regain share, leading Macy’s to announce multiple cost-cutting initiatives to stabilize profitability, including:

  • Closing another 125 stores, roughly 1/5 of its total department stores and laying off 2,000 of its corporate employees.
  • Scaling down Story by roughly 50%. Story, a magazine-like curation of merchandise, was introduced in 36 locations in 2019. It was meant to be an innovative new experience that made shopping about more than just buying things.
  • Moving e-commerce headquarters from San Francisco to New York City, while expanding its presence in Atlanta, its new technology hub.

 

The path forward

It’s not all doom and gloom for the retailer. The retail is evolving to focus on smaller format stores, private labels and a more curated selection of goods. Macy’s understands that the key to success in the long run is to develop an innovative strategy centered on the customer experience.

 

Market by Macy’s: Macy’s is testing a smaller format, off-mall concept. Market by Macy’s will feature a mix of curated Macy’s merchandise and local goods, as well as local food and beverage options and special events. The first location will open in Dallas in February with plans to expand.

 

Backstage: Backstage is Macy’s off-price offering. The outlet store offers apparel and accessories brands not available at Macy’s stores, along with a limited selection of overstock inventory. In 2020, the company plans to open an additional 50 Backstage store-within-store locations and 7 additional freestanding, off-mall Backstage stores.

The decision to expand Backstage locations comes as no surprise given the track record of off-price retailers to withstand the threat of e-commerce giants. In the past two years, TJ Maxx and Marshall’s have seen continued sales growth, showing that the treasure-hunt shopping experience cannot be easily replaced.

 

Private Label Growth: Macy’s plans to grow four of its “best” private label brands – International Concepts, Alfani, Style & Co., and Charter Club – to be worth $1 billion each.

“We’re already well on our way,” Patti Ongman, Macy’s chief merchandising officer, told investors at the New York Stock Exchange. “Private brands are already among our highest margins, but we continue to find ways to improve. We’re building new sourcing and supply chain capabilities.”

We’ve seen similar success from Target with $1B dollar brands such as Cat & Jack and A New Day, along with Kohl’s, in which private labels make up nearly 45% of the company’s overall sales.

 

Success on the horizon?

It remains to be seen whether the more fashion-focused Macy’s shopper will respond positively to the changes laid out by the retailer.

As Brandon Rael, Director at Alvarez and Marsal, pointed out on a recent episode of the Retail Rundown, “As [Macy’s goes] forward in the next couple of years, the innovation strategy should be centered 100% on the customer experience and retaining their base and really aggressively going after the newer customers… challenging times ahead for Macy’s for sure, but there are chances to reignite the brand in the next couple of years.”