Macy’s is making investments on different fronts to show it’s relevant in today’s changing mall landscape. Photographer: Victor J. Blue/Bloomberg© 2018 Bloomberg Finance LP
The woes of department stores – having lost share to rivals from T.J. Maxx to Amazon and to consumers’ spending more on gadgets and experience over fashion – is by now a familiar storyline, evidenced by the bankruptcy filings and store closings of Bon-Ton and Sears and the continued losses at J.C. Penney. But Macy’s is making a case it can still thrive against the backdrop of the changing face of American malls.
The department store chain on Wednesday reported its fourth straight quarter of same-store sales gains following three straight full-years of declines, an encouraging sign that some of its turnaround efforts are paying off. It also raised its per-share profit outlook for the year and sounded an optimistic note about the holiday fourth quarter.
“There’s a big difference between our store portfolio versus others,” said Jeff Gennette, Macy’s chairman and chief executive, on a conference call with analysts Wednesday following the earnings release. “We have a multi-year strategy to increase interest in those stores.”
Elaborating on a Wall Street Journal report that Macy’s is shrinking some stores, Gennette described them as “neighborhood” stores that are still profitable and will play the role of servicing the “convenience” needs of its shoppers. They will function as online fulfillment centers for customers to pick up or return online orders, as well as pick up skincare and other replenishment items, he said. Macy’s also will add more self-service options there. Like its off-mall rival Kohl’s, Macy’s is also looking at breaking out some vacant space to lease to other tenants to help drive traffic.
Meanwhile, for Macy’s top-performing flagship locations and what it describes as “magnet” stores – the focus of the company’s capital spending– the company is widening their selection. It is also adding its Backstage off-price concept to them, aiming to keep discount shoppers from going to the likes of Marshalls and T.J. Maxx. Macy’s said the locations that have Backstage have seen higher sales and traffic.
Meanwhile, similar to the moves made by mall owners like Macerich and Simon Property, Macy’s is adding more restaurants and other categories to help drive store traffic.
“We are really changing chemistry in content in those stores,” Gennette said. “Mixing square footage and pulling out more apparel and adding more entertainment and restaurants.”
Kohl’s Has Eaten Some Of Macy’s Lunch?
Macy’s, while faring better than many of its department store rivals, has still closed at least 124 stores since 2015. With total fiscal 2017 sales of nearly $25 billion, it has about 690 department stores under its namesake brand and upscale emporium Bloomingdale’s. It also owns 180-plus specialty stores, including Bloomingdale’s The Outlet, Bluemercury, Macy’s Backstage and Story.
With those and many other closings, U.S. brick-and-mortar department stores have lost $20 billion in sales between 2012 and 2017, declining an annual average of 4.6%, to $81 billion last year, according to Euromonitor. While Macy’s remained the market leader, its share of the market declined to 18.2% in 2017 from 22.3% five years earlier, while rival Kohl’s showed its off-mall concept gaining ground with its market share rising about 1 percentage point to 18.1% over the same period, Euromonitor data shows.
A JLL research last year showed American consumers have more department store space than their counterparts around the world, echoing other studies that show the per-capita shopping square footage of American consumers is much higher than their counterparts in other developed countries. In the U.S., 46% of gross leasable area throughout malls was allocated for department stores, followed by the U.K., at 27%, according to the JLL study.
Like other retailers, Macy’s is also doubling down on mobile apps and other technology spending. It said Wednesday online sales have continued to rise in the double digits and expects mobile sales to top $1 billion this year. Macy’s has also introduced mobile scan-and-pay service to allow shoppers to skirt the checkout line.
The company has added virtual smart mirrors to some stores, which allow shoppers to see how beauty products would look without actually trying them on. And some of its locations have virtual reality stations that allow shoppers to play with how furniture would look in their homes, a move that it said has both increased furniture sales and reduced returns. The company said it’s also using data analytics to help with inventory planning to reduce discount sales.
Macy’s has also revamped its loyalty reward program and has made it available to all shoppers regardless of how they pay for their purchases, which it said has helped to attract new customers.
With the retail industry increasingly seeking help from all types of startups, Macy’s has a stake in Silicon Valley tech-retail startup b8ta, which has a location inside its New York flagship and is using its technology to expand The Market @Macy’s pop-up shop concept. Macy’s also bought Story, famous for its New York shop that drives traffic by regularly hosting different brands with unique themes. Macy’s stores will begin to see the work of Story’s founder Rachel Shechtman, who was named Macy’s “brand experience officer” to help replicate a Story-like in-store experience at Macy’s, Gennette said.
“We are really focused on experience,” he said. It’s among the things “we put a lot of initiatives against. It’s table stakes.”
A case in point, for this holiday, Macy’s New York flagship has a 270-square-foot “experiential space” in its beauty department on the main floor, in the company’s words, to offer “the perfect Instagrammable moment.”
But how fast – and at what cost – can Macy’s bring some of these potential traffic-driving experiences to the rest of its store fleet?
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