Are strip centers where it’s at for Macy’s and Sephora?

Discussion
Photos: Getty Images/anouchka
Mar 04, 2020
Tom Ryan

Macy’s and Sephora recently announced plans to focus their expansion on non-mall locations to take advantage of steadier traffic flows seen there vs. indoor malls.

At its Investor Day held on Feb. 5, Macy’s CEO Jeff Gennette said the department store operator would be “proactive in addressing stores in unhealthy malls,” but also pursue expansion with smaller stores in non-mall locations. Mentioned were two units making use of the retailer’s off-price Backstage and Market by Macy’s concepts.

The first new Market by Macy’s concept, which opened in a lifestyle center in Dallas, measures 20,000 sq. ft. and features an ever-changing collection of merchandise, a beauty shop, café and bar. It also serves as a space for community oriented events.

Mr. Gennette noted that consumers no longer purchase the majority of their apparel and home needs at mall-based stores. For example, only 43 percent of handbags purchases are now made at the mall versus 57 percent in non-mall. In housewares, only four percent of purchases are now made at the mall.

He continued, “The reality is we have a large base of customers who are no longer shopping regularly in malls, but we know they have shopped Macy’s in the past.”

In early February, Sephora announced plans to open 100 locations this year in North America, double 2019’s openings. The focus will be on local neighborhoods and community centers that are “close to where customers live and work.” Locations for new stores include street and local centers as well as a mix of new and established shopping centers.

Jean André Rougeot, CEO of Sephora Americas, said in a statement, “As we look at ways to continue to be more inclusive and accessible, brick & mortar continues to be a huge opportunity for us to deepen emotional connections with our clients and local communities.”

A recent Wall Street Journal article noted that grocery sellers — a category largely immune from online selling — often help drive regular traffic when located in strip centers. Fitness centers, plentiful food and entertainment options and banks also support more routine visits versus enclosed malls.

DISCUSSION QUESTIONS: What’s driving the apparent healthier traffic trends at strip centers versus enclosed malls? Do you see big growth opportunities for Macy’s and/or Sephora at non-mall locations?

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"Strips malls are where the people are so it makes sense to put store locations there. With that being said, what’s inside of the stores still matters."

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21 Comments on "Are strip centers where it’s at for Macy’s and Sephora?"


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Art Suriano
Guest

The convenient in-and-out that strip malls offer is what drives the traffic. It is an entirely different experience than when shopping at an enclosed mall. The latter is an opportunity to walk around, browse many stores, perhaps stop at the food court, and so on. Strip malls give the shopper a chance to park close to the store they wish to visit, walk-in, make the purchase and leave. I see both Sephora and Macy’s having success because both retailers have loyal shoppers. One could argue that the Macy’s anchor stores still provide an opportunity to park close to the store, walk-in, and walk out without having to walk the mall. But even so, malls typically have more cars to navigate around. And of course, Sephora’s free-standing stores require the shopper to walk to the mall to get to them. I see both chains having success in strip malls, at least until we come up with the next new shopping concept.

Dr. Stephen Needel
BrainTrust

Go where the traffic is. If Macy’s and Sephora believe their target customers are shopping in strip malls, then going there makes sense. Of course this should be tested to ensure that strip mall shoppers are interested in stores like these. I might go to the strip mall for very specific purposes, which may not be what is sold in these stores.

David Naumann
BrainTrust
David Naumann
Retail Industry Analyst
6 months 15 days ago

Convenience is one of the biggest factors driving foot traffic to strip malls instead of traditional malls. Visiting a traditional mall is a much bigger time commitment than a strip mall as they are usually a further distance from home, parking is horrible, and then you often need to walk through the mall to get to the store you want to shop. Strip malls are often closer to home and you can get in and out quickly, which is ideal for time-starved consumers. A big advantage for retailers is that the rent cost at strip malls is, on average, 50 percent lower than traditional malls.

Brandon Rael
BrainTrust

The market has spoken. The traffic levels are down record levels at the malls, and customers are gravitating to their local town Main Streets and strip centers. Macy’s and Sephora are taking the right approach, as the off-mall locations will offer an additional revenue stream, are typically smaller scale, far more efficient to operate, and have steadier customer traffic compared to the traditional malls.

We are also seeing mall owners re-imagining what the shopping center could be, and finding ways to make the mall a destination once again. This is evident with the West Side Yards, SoNo Collection, American Dream etc. However with mall anchors dropping off at the same time, the Macy’s and Sephoras of the world are right on target to go where the customers are.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
6 months 15 days ago

It makes sense. It allows Macy’s to appear in a larger number of locations and would provide greater market reach and awareness than large footprint stores in fewer locations. This is probably necessary but not sufficient. The headwinds are strong. Macy’s has to think long and hard about how it could differentiate in terms of things that consumers truly value.

Kathleen Fischer
BrainTrust

It’s all about convenience and time savings for consumers. Enclosed malls are struggling to create enough traffic to be viable as consumers want shopping to be a quick and easy process.

Richard Hernandez
BrainTrust

Town centers are where it is at and definitely something which drives traffic into the facility. This is a great option for expansion. You already see other large mall-based stores migrating to outdoor town centers.

Neil Saunders
BrainTrust

Sephora, yes! Ulta works well in these locations and there is no reason that Sephora can’t too. The customers are there and the offer is strong. For Macy’s, as much as the location is more solid that second- and third-tier malls, success is dependent on the format and offer within stores. The Market by Macy’s looks more attractive and attuned to what consumers want but the jury is out on whether this will work or not.

Ken Morris
BrainTrust

I believe the new anchor stores at these town center locations are driving the traffic. These anchor stores just happen to be stores like Whole Foods. This is a smart move by both Macy’s and Sephora as these smaller footprints allow them access to folks that are time starved, families with both parents working and little time to hike to the mall. It also allows them to showcase a limited merchandise mix curated for that demographic rather than attempting to planogram a full size mall location with product that by geography and store size needs to appeal to a wider audience.

Stephen Rector
BrainTrust

Strips malls are where the people are so it makes sense to put store locations there. With that being said, what’s inside of the stores still matters – if Macy’s isn’t improving their merchandise assortment and customer service, then they will not succeed.

Dick Seesel
BrainTrust

The traditional mall business has split into the haves and have-nots. Unfortunately, Macy’s has many sites in sick malls that have lost other anchors, with a snowballing effect on the surviving tenants. Off-mall has always made sense for the right kind of store, from Kohl’s to Best Buy, and its lower operating costs are another attraction.

But one word of caution: Can Macy’s really be “Macy’s” in 20,000 square feet? A standard-sized store may be unsustainable in a power center, but isn’t part of the Macy’s brand about variety and assortment? Turning Macy’s into a glorified pop-up shop may not be the answer.

Jeff Sward
BrainTrust

This is a good way to tee up the question. I see strip malls as a place for a convenient, focused, targeted (no pun intended) buying mission. You know what you want/need and the strip mall has it. It’s about Knowns. There is a high probability you will find what you want/need. The mall is more of a shopping excursion. It’s more open-ended. Maybe you’ll find what you are looking for, maybe you won’t. Unknowns. But there is a higher probability for a more rounded shopping experience. It’s not surprising that time-pressed customers would start to go the more efficient route.

Verlin Youd
BrainTrust

Convenience, it’s all about convenience. Shoppers are more focused than ever, driven by the fact that there is less time they are willing to spend shopping. They don’t want to walk the mall but rather hit the store that has what they’re looking for or where their BOPIS order is being delivered. There is an interesting relationship between this story/question and the Target story/question today. It’s all part of the same trend and adaptation to consumer preferences.

There are growth opportunities for both Macy’s and Sephora. The question is which is more likely to succeed.

Gene Detroyer
BrainTrust

My colleagues and I seem to agree. Convenience! Convenience! Convenience!

Isn’t that what is driving all retail today?

I am not sure how this works for Macy’s, but how about the new Target concepts? Sounds right. Sephora, on the other hand, can fit nicely with this local access.

Patricia Vekich Waldron
Staff

After all these years it’s still Location, Location, Location! Busy strip centers are of course better venues than ghost malls.

Lee Peterson
BrainTrust

Sephora is just catching on to what Ulta has known for a long time now: you don’t need a regional center to help you sell cosmetics — go to the customer. Macy’s, on the other hand, is grasping at straws.

Craig Sundstrom
Guest

Strip centers have a different composition — more day-to-day goods (groceries, sundries) and services — from malls, so the traffic patterns are naturally different; hence I think the premise (that locating a “mall type” business there will benefit them) is fundamentally flawed. I suppose the thinking is “go where the people are,” but I’m skeptical. And it seems like a massively expensive undertaking — at least for Macy’s — to build a whole new store base.

Harley Feldman
BrainTrust

Strip malls tend to be smaller, easier to park, closer to home and configured with store to meet the local demand. Rather than fight the crowds and parking issues at the large malls, consumers can typically be in and out more quickly and not saddled with big crowds. Macy’s (in smaller stores) and Sephora should be successful in strip malls as they will be easier to get to and probably closer to the consumer’s home. As there are many more strip malls than large malls providing more location opportunities for both Macy’s and Sephora.

Ricardo Belmar
BrainTrust
If malls aren’t attracting foot traffic, then where do shoppers go? To the strip mall locations, of course! That’s where the experience is driven by convenience — the ability to park right in front of the store you want to visit, get in and out, and drive away. No need to fight endless hordes of cars in parking garages only to then walk through gigantic malls to get to where you want to go. Online shopping has trained consumers to look for that convenience, so yes, Sephora and Macy’s are right to pursue these locations. Sephora need look no further than Ulta for a successful example. For Macy’s, it may require a bit more work to find the right type of format that satisfies customers. The Market by Macy’s concept may be the answer, or it may be Backstage stores, or it may be something else. Given Kohl’s recent performance, however, I don’t believe the answer is to just drop a Macy’s full-line department store into a strip mall and expect success. Nordstrom has demonstrated… Read more »
Richard Layman
Guest
6 months 12 days ago

The sad thing is that Sears had this idea/realization not quite 20 years ago (Sears Grand), but didn’t stick with it. Doing it now is probably not quite too late, but probably too late to make a lot of difference.

William Passodelis
Guest

For Sephora — I think it is a TOTAL win!

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Braintrust
"Strips malls are where the people are so it makes sense to put store locations there. With that being said, what’s inside of the stores still matters."

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