Best Buy to open shops inside of Macy’s stores
During Best Buy’s second quarter earnings call, CEO Hubert Joly pointed to vendor relationships, specifically store-within-a-store concepts, as one of the key advantages that has helped the retailer increase same-store sales in the U.S. for four straight quarters. Now, it seems, the chain is such a believer in the store-within-a-store strategy that it sought out and reached a deal to open its own branded shops inside of 10 Macy’s locations in time for the Christmas selling season.
The shops, each about 300 square feet, will be staffed by Best Buy personnel and feature Samsung smartphones, tablets and smart watches as well as a variety of audio devices and accessories from a variety of brand manufacturers.
"We are delighted that consumer electronics will be returning to selected Macy’s stores through this test, which will allow us to learn how we can best serve our customers’ needs in this very sophisticated category," said Jeff Gennette, president of Macy’s, Inc., in a statement. "Our customers have expressed interest in electronics for self-purchase and gift-giving, and this collaboration with Best Buy reinforces Macy’s as a shopping destination throughout the year for the products that are most in demand."
Best Buy showroom – Photo: Best Buy
The two retailers plan to test the store-within-a-store concept through the holiday season and into 2016 before deciding on "next steps," according to Mr. Gennette.
The addition of Best Buy shops provides a tentative step back into consumer electronics for the department store chain. Macy’s, which presently has a J&R Music World shop in the basement of its Herald Square flagship in Manhattan, has also placed consumer electronics kiosks in select stores in recent years.
In partnering with Best Buy, Macy’s has chosen a partner that has rebounded under the leadership of Mr. Joly after years of trying to find a path back to profitability and top line growth.
This is not the first time Best Buy has partnered with another major retail chain. Back in 2012, Best Buy placed Geek Squad members at Target stores in Denver and Minneapolis before calling off the test after six months to focus its resources on its core business.
- Macy’s and Best Buy Partner to Test Consumer Electronics Departments in Macy’s Stores – Macy’s, Inc./Business Wire
- Best Buy Testing CE Shops in Macy’s – TWICE (tiered sub.)
- Best Buy to open mini-shops inside of 10 Macy’s stores – Star Tribune (tiered sub.)
- Best Buy in on a roll – RetailWire
- What now with Geeks out at Target? – RetailWire
Discussion Questions
What will the Best Buy store-within-a-store concept inside of Macy’s mean for the respective chain’s businesses? Do you think the concept’s test will be successful and rolled out to more Macy’s, Inc. locations?
Poll
BrainTrust
Joel Rubinson
President, Rubinson Partners, Inc.
Nikki Baird
VP of Strategy, Aptos
Macy’s will be providing its customers access to an electronics department (albeit a small one with a limited selection) that has been missing from its product mix for some time. Best Buy will have access to customers that may not have ever shopped in one of its full-size stores. Further, it gains additional brand awareness for a retailer many thought was down and out. Who gains the most will not be determined until the end of the test.
If the concept were to be rolled out I would expect that the space devoted to Best Buy would have to grow beyond 300 square feet and the item section expanded. If not, customers would quickly place it in the “been there, done that” category. What benefits Macy’s and Best Buy had accrued would soon be lost.
I think this is a great idea. Two big-equity brands coming together, and Macy’s returning to the concept of a department store where you don’t have to go anywhere else for anything.
You know, I didn’t understand how Sephora and JCP could work, but apparently it does. So I find myself in the same boat here. I don’t understand how Best Buy in a Macy’s, with a limited selection, is somehow going to be more successful than just going to the Best Buy across the mall parking lot. And yet, here we are.
However, the comparison is in no way apples to apples (JCP and Sephora vs. Macy’s and Best Buy). You could argue that cosmetics has a large element of impulsivity to it, and JCP is capturing some of that by having a Sephora in store. I don’t think that works for electronics. Certainly no one in my family has ever walked through a department store to get a new pair of pants and come out of the store with a new TV, and I don’t think this store-within-a-store concept is going to change that.
But I was wrong about JCP and Sephora, so who knows? Certainly nowadays, electronics is sexier than apparel!
Much of Best Buy’s resurgence has been due to Samsung’s immersive involvement and financial support of Best Buy’s brick-and-mortar infrastructure. Best Buy’s emergence as a consumer electronics retail powerhouse was funded directly and indirectly by Microsoft. More recently, Samsung has financed the latest comeback.
The store-within-a-store concept is one that you’ll see become more prevalent across the big box landscape. It offers brands a way to feature their products on their terms leveraging existing infrastructure and shopper traffic. The retailers benefit from the financial support they get for renting their existing real estate.
The cohabitation of several brands under a single banner will continually emerge as a popular and successful method to leverage brand awareness, shopper traffic and existing real estate.
Unlikely bed partners or brilliant marketing and cross-promotion? Of course time will tell for certain whether this latest store-within-a-store is the right move for both Macy’s and Best Buy.
From my vantage point, I see no downside. This fills a void in Macy’s product mix, the shopper demographics align well, and Best Buy is looking to strengthen its branding. What can be wrong with that? I personally believe it will be a success and roll-out to other Macy’s locations.
I have been saying for quite some time that two of the most powerful retail “opportunities” of our time are stores-within-stores and pop-up stores. Sure omnichannel retail is trendier, but physical presence is still vitally important.
This is where things are going, as the big players are working together to grow their sales. I see this as a good thing, especially for Best Buy, as they continue to re-invent how they do business. This could keep consumers buying more from them instead of buying online from their competitors.
With the holiday shopping season already approaching this should do very well, and also help Macy’s in making the shopping experience better for their customers.
I think this will be a series of tests to properly sort out the limited assortment per store location (urban vs. suburban). What role will the category play?
Houget repeatedly mentions the lack of relevance to Millennial women who are shifting spend to non-Macy’s categories. Tech is one of them, but what aspect of tech?
This seems too tactical to really make much difference in 300 square feet, versus JCP and Sephora where brand Sephora adds credibility to brand JCP fashion/beauty and builds frequency and basket.
Macy’s has to rationalize the selling square footage. Other partnerships offer rent and some sales revenue.
Either way, opening Macy’s Backstage and closing around 40 stores proves Macy’s is in trouble and is aggressively testing options.
The store-within-a-store concept is going to be a major game changer in 2016 as block chain and distributed ledger creeps into retailing solutions. Similar to bitcoin, a CPG or retail inventory item can now be located anywhere and leveraging scan-based trading and slotting techniques, a manufacturer/retailer can determine in real-time the movement of remote inventory in remote stores.
There’s a parallel to the Sunglass Hut and Finish Line shops inside Macy’s today. It gives Macy’s the halo effect of a brand name that is closely associated with a niche business like electronics or athletic shoes.
The benefit to Best Buy? Expand its “small footprint” locations beyond the Best Buy Mobile concept into a department store that already has healthy traffic and a compatible customer base.
The store-within-a-store concept can be successful if each of the partners involved creates realistic business performance expectations. Serious preparation must go to selecting the right test stores for both parties and identifying an appropriate assortment.
For the traditional Macy’s customer they will now have convenient access to electronics and for Best Buy, they will have greater exposure to store traffic to augment their existing stores. The trick here is having the right assortment given the limited space and for Macy’s to gain their expected performance per square foot from the store-within-a-store concept.
I applaud both retailers for exploring new concepts while managing risk through a limited test for further assessment and potential roll-out.
Macy’s customers will be seeing a small version of what is available at a Best Buy store. Yes, Macy’s will benefit. But it seems Best Buy will get the greater share. I can’t see a typical Macy’s employee having the technical skill or training to assist the customers. Others have tried the store-within-a-store concept with some degree of success. But this not the same with an electronics retailer having limited space in a major retail space. Training and being equipped to adequately serve the customer is still my big concern.
There have been times a clerk working in the shirt department was not able to help me when I needed a pair of shoes. Imagine that clerk selling me a laptop.
I think that this expands the thought process around omnichannel to omnibrand. Think of the scenario…consolidated customer information analyzed by the department store identifies a shopper, who they know is in the store because of beacons and smart phone connections, really likes consumer electronics. Information and potentially, promotions are provided to the customer for the store-within-a-store to attract that customer that might not even know the electronics are there. Sales for the store-within-a-store and maybe incentives for the department store? Expand your thinking and this could be new exciting territory.
Having voiced my opinion before about the store-within-store concept, most of you know that I am a big advocate. I like the concept on many levels, one being having the access to brand representatives who know their products.
That said, and while I do love the concept, had they said that this new store-within-store would be located in the Macy’s furniture store, I would be shouting my hoorays from the rooftop. Looking for new bedroom furniture? Did you think about a larger TV?
I love the concept and I do think these two brands will pull it off but, Macys, do think about what I just said.
For my 2 cents!
The key will be what merchandise category Best Buy will put inside Macy’s. I can see Best Buy curating gift category items, like electronic gift items such as FitBits, headsets, and other personal electronics items that fit Macy’s audience. I see more of a “I am going to Macy’s for Xmas and may as well save a trip to Best Buy for electronic gifts for my kids who don’t need new clothes.” I have a tough time thinking it would work all year. Good for a popup I think.
If executed correctly, this should be a win for both Macy’s and Best Buy.
On the Macy’s side, Terry Lundgren is not after a “total electronics customer experience” with this. Best Buy’s SWAS/Samsung mini-shop (featuring smartphones, tablets and smart watches) should fit nicely as an additional component in terms of helping drive Macy’s continuing strategy around “fully leveraging physical stores to optimize omnichannel” and “fast growing digital offerings” to attract new customers and grow sales, etc. Why not offer digital consumer electronics that help enable the Macy’s connected customer?
A no brainer for Best Buy, in terms of the potential to capitalize on Macy’s store traffic to both drive destination/directed type purchases, and incremental impulse purchases, etc. AND this can give Best Buy presence in places where they do not normally have stores—like regional malls.
With only 10 stores—out of the 800+ in Macy’s stable—this definitely falls into the “can’t hurt, might help, let’s experiment” category.
But I share the concern that others have expressed that having only 300 gsf lacks imagination. Something bigger would allow Macy’s to (re)enter the consumer electronics arena—something IIRC they no longer do—and differentiate themselves from the 58 or so other locations in the mall where you can get a phone.
I think it’s perfect timing for the “test,” and Best Buy probably has a really good handle on what the perfect gifting assortment should be. We already know that Macy’s is over-spaced and that its leased departments are have been doing better than its core categories of late. I say go for it. Whether it can be a longer term win, again I really think it depends on the assortment and the specific Macy’s location.
I think this will work well for Macy’s customers. Success needs a bit of definition. Taking low margin goods and splitting that amount two ways isn’t going to make anyone rich. Best Buy can argue that it is trading a royalty for rent and hopefully selling to a customer who wouldn’t have made it into a Best Buy store at all. Macy’s is trading some floor space that will achieve low GMROF, but getting some convenience and interest for customers. Who knows, maybe the guys can poke around the electronics section giving more time for their wives to shop.
This is by no means a new concept as the “store-within-a-store” has been done before. However, a partnership between two big brands like Macy’s and Best Buy during the holiday season takes it to another level.
I think this partnership shows the value that both companies see in expanding their brick-and-mortar offerings. For Best Buy, it provides brand exposure and an opportunity to get their product offerings in front of customers that may never intend to set foot in their store or visit their website. For Macy’s, the Best Buy name recognition provides a trust element to their consumers and an opportunity to up sell electronics during the busy holiday season.
I think this test has the chance to be successful and certainly could lead to future rollouts for Best Buy in Macy’s.
I don’t see this working. People buy electronics online. Best Buy has an old business model that hasn’t worked for years. I can see why they are trying something new but I don’t think it’s going to work. I don’t go to a department store for electronics. I go online like everyone else.
Years ago I suggested Best Buy scale back store sizes and negotiate deals with manufacturers to showcase their products and get a commission since their stores have basically been showrooms for years. People go in, test products, then order them from home, online. If Best Buy could position the products and offer an internet cafe which would allow further browsing then they could negotiate a commission for anything purchased through their computers.
Selling at Macy’s will only increase costs, because I’m guessing space is more expensive in a department store than it is in the strip area of the mall. This should be interesting.
By the way, this survey question assumes someone will benefit. I think that’s a bad assumption.
I realize this is a very small scale test. But I can’t imagine there is a Macy’s store anywhere in America that is farther than a few miles from a fully stocked big box Best Buy. So why would shoppers go to the small one with less selection inside Macy’s instead? I just don’t get this. The experimental small store FAO Schwartz departments didn’t cut it inside Macy’s and that seemed like a much more logical and natural fit for the two companies when Macy’s closed their own toy departments.
I predict that when Macy’s realizes that Best Buy employees are routinely having to send customers out of Macy’s and over to the mothership Best Buy nearby to look at or pick up electronics items not stocked at Macy’s the experiment will quietly end. Best Buy may benefit slightly more than Macy’s from the test run and PR hype.
Great idea to test. A carefully curated assortment will keep people (aka spouses) in the store longer.
I may be one of the few with direct experience in this. I ran a tiny small-ticket electronics dept at Macy’s West once upon a time. With the right staff (knowledgeable, personable) and a highly localized assortment, it can really work well.
The proof is in the pudding as to whether it will be successful. However, the logic of exposing the Best Buy brand to a greater number of prospective customers, especially if done with a tailored assortment, makes a lot of sense and enables both chains to gain some benefit from the partnership. Kudos to both for thinking creatively.