The retailer has whittled its footprint, embraced fresh concepts and unleashed a new strategy. But the magic? It's now found elsewhere.
A little over a decade ago, Macy's celebrated its 150 years with a collection of clips from movies and television that showed just how indelible its brand is.
Or, at least, was. The sesquicentennial celebration took place in 2008, early into the new century, and the montage was dominated by celebrities and icons of the previous one. But the implications of the new millennium — notably, shifting consumer priorities, attitudes and opportunities —were perhaps not top of mind.
Rather, a few years earlier, in 2005, parent company Federated (later renamed Macy's) was embarking on an expansion that brought its footprint to some 950 department stores, along with approximately 700 bridal and formalwear stores.
That appears to have been a mistake.
In recent years, Macy's has gone to great effort to undo that expansion, closing up 100 stores in a brick-and-mortar contraction that, despite executives' insistence to the contrary, some analysts say is far from over.
Macy's, after gobbling up local and regional department stores, and as many rivals have disappeared from view, is the last department store standing in many areas of the country. But, despite some attempts at correction, the magic — a word the company has employed frequently in its marketing over the years — seems to be gone. That's showing up in results, with sales and profits down and weak comps in the latest quarter.
The problem isn't, as is often assumed, e-commerce, where the company has been strong thanks to an early entry. Rather, the department store has done little to reinvent the model, a captivating retail destination in the 1950s and beyond, to draw in shoppers that maybe aren't impressed by name-drops from Johnny Carson or Lucille Ball, or its prominence in the 1947 movie "Miracle on 34th Street."
Worse, it's left the magic up to others to accomplish.
It would be unfair to say that Macy's has stood completely still. Last year, for example, the company invested in retail-experience startup b8ta and acquired Story —a quirky New York City retail store that since 2011 has partnered with retailers and brands big and small —and hired Story founder Rachel Shechtman as its "brand experience officer."
Macy's has also established a pop-up enterprise dubbed Market@Macy's with more flexible lease terms for emerging brands, developed an off-price "Backstage" banner and, most recently, partnered with resale e-retailer ThredUp to bring second-hand apparel into stores.
"They keep acquiring things and bolting them onto a sinking ship."
Author of "Reengineering Retail: The Future of Selling in a Post-Digital World"
Missed opportunities all, according to Doug Stephens, author of "Reengineering Retail: The Future of Selling in a Post-Digital World," who had encouraged Macy's board and executive team to buy Story just months before they did.
"They keep acquiring things and bolting them onto a sinking ship," he said in an interview. "ThredUp is set up in stores in ways that are fundamentally not exciting or interesting."
But Stephens is most disappointed in how Macy's has treated Story, which he said should be driving a store-wide experiment that could evolve the very concept of a department store.
"What made Story unique was not just Rachel Shechtman's ability to merchandise nice colors side by side, but that she'd figured out how to make money in retail," he said. "She was creating an engaging product and brand story, built community events around it and included dozens and dozens of vendors, and charging those brands to do so."
"Macy's has two things, space and audience, and they're not leveraging that space and that audience to find new ways of making money beyond selling apparel and linens."
Author of "Reengineering Retail: The Future of Selling in a Post-Digital World"
Macy's doesn't seem to have the wherewithal or the confidence to embed the concept throughout each store —not even at the 150 locations it has slated for transformation into what the company says will be its signature offer, he said. In fact, that so-called "Growth150" strategy is "great," but inadequate, according to Stephens.
"The problem is you still have this negative message in all these other stores across the U.S. Department stores traditionally were places where customers really felt that they were going to be treated to something, but they've evolved into being purveyors of largely mid-tier products widely available in other places," he said. "This notion of staging experiences should be what department stores are good at. Macy's has two things, space and audience, and they're not leveraging that space and that audience to find new ways of making money beyond selling apparel and linens, ways to monetize experiences within that space that are richer for the consumer."
Where the magic is
Innovation isn't the end-all and be-all. Nordstrom (less of a "department" store than Macy's, centering its assortment on beauty and some home goods but mostly apparel and footwear), has sought to re-energize its model with subscription styling services, pop-ups and even a merchandise-free Local concept offering high-touch customer services and easy returns. Its off-price Rack unit dates back to the 1970s.
Yet it continues to struggle in part because of new attitudes about apparel, and UBS analysts recently deemed Nordstrom a "no-growth retailer."
In fact, it's been clear for years now that department stores are losing share, and those customers and their dollars have gone to a variety of other retailers, notably off-price retailers like TJX Companies and Ross, and, of course, Amazon.
The e-commerce giant has long threatened to overtake Macy's in apparel sales, but despite some efforts to develop its own fashion, its offer remains a scattershot affair dominated by its Marketplace sellers.
Off-price stores, however, have successfully siphoned many of Macy's missing customers, by fostering an environment of discovery with a constant turnover of merchandise, sending shoppers of all income levels in search of premium goods at slashed prices. "Off-price continues to drive apparel sales by resonating with millennials and continuing to experience improving traffic," Moody's analysts wrote. "Department stores, in contrast, continue to lag and suffer from the general malaise that has surrounded ladies apparel."
Macy's joined the party in 2015, and is adding 50 off-price Backstage locations to the more than 200 it has opened since its launch into the segment.
"I've said for years — and I'll stand by this — Target is America's best traditional retailer."
Managing Partner at RSR Research
But Nick Egelanian, president of retail development firm SiteWorks, notes that, while "TJX's number one target is Macy's," the department store has other competition to worry about as well — from perhaps unlikely sources, including membership warehouse retailer Costco.
"[Macy's] model is unsustainable and they lose market share every day that goes by," he said in an interview. "At $25 billion, and falling, Macy's is about a sixth the size of Costco, and Costco does more volume in its private label Kirkland business — which is something like $30 billion — than the entire Macy's chain. Costco's is a giant business with huge loyalty — part of the fabric of the way America shops. Coscto, TJX and Walmart are the three greatest retailers in America."
There's another mass merchant, with department store roots, that has done more to bring shoppers the level of convenience, merchandising and joy that in another era would bring them to a department store like Macy's. Target, whose origins were as a discount banner started in 1962 by Minneapolis department store Dayton's (which sold its namesake to Macy's during that big expansion), is also giving Macy's a run for its money, analysts say.
"I've said for years — and I'll stand by this — Target is America's best traditional retailer. They come across as an old school retailer but they're actually being quite innovative," Brian Kilcourse, managing partner at RSR Research, said in an interview. "They're doing a lot of things that consumers really want. For years you could walk into any Target and you would know exactly where the housewares department was. Now they're localizing the assortment, they're localizing the location, and that's a really complicated thing to do. At the same time they're servicing BOPIS customers, they're also servicing customers who want to use the store."
Target's value proposition is centered on service, price, differentiated goods like private labels and efforts like adaptive Halloween costumes designed to be useful to kids with disabilities, all supported by a strong loyalty program, according to Brian Kelly, president of consultancy Brian Brands.
"What is a traditional retailer in today's world ... Oddly enough, even though we're already 20 years into this century now, that's still being decided."
Managing Partner at RSR Research
By contrast, Macy's "with its huge footprint, is compelled to fill the store with irrelevant inventory," he said in an email. "Poof, there goes profitability."
Macy's has also neglected its own private apparel labels, according to Columbia University Business School retail studies professor Mark Cohen. Target, meanwhile, is proving how helpful such differentiation is, with a slew of new store brands across categories that are bolstering its top and bottom lines.
Target's merchandising these days recalls old-school department store discovery, according to Sanford Stein, retail analyst and consultant, and author of "Retail Schmetail."
"Any company that's in retail or has a brand has to have a store-based space that is as engaging and as fulfilling as the rest of all their brand touchpoints," he said in a recent interview. "You walk into the new Target store and it's as good as these department stores might want to be. They're doing all the right things — they've curated the private label brands, they've created spaces that are open and well lit."
That doesn't mean that Target is the new department store, even if it is probably taking share from Macy's and its peers.
"I'm not so sure that Target reinvented the department store, as its assortment isn't much different from 10 years ago. Grocery really helped," Kelly said. "'Department store' is a label. An organizing principle. So are Target or Walmart with diverse assortments 'Department Stores'? How about, Target and Walmart started redefining retail in 1962. (Along with Kmart, who lost its way.) Wherever they are or whatever they look like, these retailers outfit American families."
That leaves the department store yet to be redefined for the modern era, or, perhaps, to disappear. "What is a traditional retailer in today's world, not in a 20th century context but a 21st century context?" Kilcourse said. "Oddly enough, even though we're already 20 years into this century now, that's still being decided."
And so, assuming Macy's sticks around long enough to celebrate its 2058 bicentennial, it could yet have a say.
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