Do Specialty Shops Make Sense Inside Macy’s?

Discussion
Aug 20, 2013
Tom Ryan

Department stores have always been known for their mighty merchants. But Macy’s, the largest operator, has lately been getting help from some specialists inside the mall.

In early August, Lids, the retailer of caps and apparel for sports fans, reached an agreement to open licensed team merchandise departments in Macy’s stores and online under the name of Locker Room by Lids. The departments, located in about 150 markets covering major professional sports teams and colleges, will be operated by Lids. Lids will become the exclusive operator of Macy’s in-store team sportswear

The arrangement follows up on the agreement last fall to have Finish Line, the athletic footwear retailer, open Finish Line-branded athletic footwear shops in Macy’s stores and on macys.com. Over 450 locations will be directly operated by Finish Line as leased departments. For the remaining approximately 225 Macy’s stores that carry footwear, Finish Line began managing the athletic footwear assortment and inventory in Spring 2013, without the staffing or branding provided in the leased departments.

For Finish Line and Lids, both gain greater access to the female customer who doesn’t actively shop their stores inside the mall. In both cases, Macy’s gains greater buying clout inside the athletic space as well as selling knowhow for categories traditionally catering to young men.

Macy’s also has similar leased in-store shops with Sunglass Hut for sunglasses, Motherhood Maternity for maternity apparel, and Starbucks for coffee. Last holiday season, Toys "R" Us opened temporary shops inside 24 primary Macy’s stores. Other department stores similarly leasing space include J.C. Penney with Sephora and Joe Fresh as well as Nordstrom with Topshop.

Overall, what are the pros and cons for department stores of leasing space to inside-the-mall specialty stores? How do you see this affecting the department store’s operation and overall performance?

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18 Comments on "Do Specialty Shops Make Sense Inside Macy’s?"


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Tom Redd
Guest
7 years 2 months ago

No cons on this idea. This is a very common approach in many non-North American department stores. This angle of retail helps to extend the loyalty of the smaller shop into the store or brand carrier—that being Macy’s. The more you do the things shoppers like—such as shop in a shop—then the more they shop with you.

Operationally, it is not a challenge if their systems can handle the inventory/people/financials.

Paula Rosenblum
Guest
7 years 2 months ago
I confess to being surprised at this, but here are the pros and cons. For Macy’s: They don’t have to buy inventory or even provide employees for the space. So in effect, if they’re getting 4% of sales (which I think was the going rate last time I checked, but that was quite some time ago), and it’s basically free money. They also don’t have to learn a business they don’t know. For the lessee: They don’t have to do a store build-out. They don’t have to invest in POS…they typically use the lessor’s POS and sales are transmitted via EDI. It used to be very common for mass merchants to lease out their shoe departments because it is a very size and style dependent business. They didn’t have the chops for it. But with automated systems, that’s not so hard anymore. And Walmart killed off most of the mass merchants anyway. I am honestly surprised Macy’s bought in. It also was (and is, I think) pretty common to lease out jewelry departments because working… Read more »
David Biernbaum
Guest
7 years 2 months ago

Traditional retail stores located inside regional shopping malls, or even in downtown city areas, need to make changes and adjustments to their business models and offerings. Forgive the cliche but times have changed and consumers are making other choices.

Frank Riso
Guest
7 years 2 months ago

Sounds like if you cannot beat them, then join them. It is a win/win for both in that Macy’s keeps their customers in their stores longer and the smaller retailers gain added exposure to shoppers.

Cathy Hotka
Guest
7 years 2 months ago

This concept makes shopping simpler for the consumer, but JCPenney got scathing criticism when they rolled it out. Perhaps Macy’s will fare better.

Mark Heckman
Guest
7 years 2 months ago

In one sense, big box department stores are becoming mini-malls within the mall. They understand they must inject some new energy into their stores as their core shoppers increasingly opt for online and other competitive alternatives.

My take on whether these branded stores-within-stores make sense continues to depend on the details. First, is the brand strong enough to matter to the shoppers? In the case of Finish Line, I would tend to believe the answer is yes. There are examples of others that fall short of this threshold.

Secondly, is the atmosphere, inventory, and service levels within these mini-stores significantly reflective of the brand being showcased? Specifically, the Finish Line does an excellent job with visual merchandising and knowledgeable store associates, not to mention one of the notable places to go for the latest Nike “must have” shoe.

If the code can be cracked on replicating the basic aforementioned tenets of the brand, then success is likely. Otherwise, these mini stores could do more damage to the brand than good.

J. Peter Deeb
Guest
7 years 2 months ago

Online shopping is moving to multiple brands in one location, why not bricks and mortar operations? Consumers who lack time, appreciate convenience, and want name brands surely see the advantages. This is especially true of shoppers who like to actually handle the merchandise before they buy.

The only downside for the leasing retailer is less control over their image and their space. This is far outweighed by the ability to attract shoppers with multiple needs to one location.

Don Delzell
Guest
Don Delzell
7 years 2 months ago
In my experience, it is very difficult for department stores to operate highly specialized niche businesses within the context of their overall processes and technology. The Macy’s examples are excellent case studies: athletic footwear and team sports accessories and apparel. There are similarities in these businesses, as well as the others identified. Specialty retail operates in niches where some element of the customer need profile can’t be met by the economic dynamics of big box/department store operations. Delivering that benefit, be it expanded assortment, depth of product knowledge, localized assortment management (team sports) or targeted niche trend development is often better “rented” than “owned” as a core competency for department stores. The key question to ask is, “are the competitive capabilities (skills, processes, technologies) required to compete successfully those which we can leverage across the enterprise, or are they limited to specific categories or customer demographic segments?” Once answered, then the next level of analysis involves added value, market basket impact, traffic impact, and competitive differentiation. Those questions lead to the “pros.” The “cons” are… Read more »
Jonathan Marek
Guest
7 years 2 months ago

It’s a fantastic idea to test this, and here’s the real beauty: all of the pros and cons that other panelists have stated are completely measurable. Inventory impact, labor impact, sales impact, halo to other categories, cannibalization of goods that would have been in the space, customer satisfaction, etc., all completely knowable with the right predictive analytics approach. Further, the retailer can figure out which types of locations work better for specific sub-lease operations, which can also help to tailor the overall store to local preferences.

James Tenser
Guest
7 years 2 months ago
Of course there is plenty of precedent for locating leased departments within department stores. Think of the shoe departments in the old Kmart/Kresge or the record shops inside EJ Korvette. (Well I guess these examples reveal my true age….) In general, it makes good sense to allow category experts to operate leased boutiques, if: (1) The lessee can deliver a superior customer experience compared with the host’s own capabilities for the category; (2) The productivity per square foot is better than the host’s; and (3) The leased departments mostly add to total sales, rather than siphon spending away from other areas of the store. In an era of omni-channel retailing, virtual assortments and the endless aisle, Macy’s and other large department stores may be finding that their existing physical spaces are somewhat larger than they want. Some are adjusting their staging by moving walls and leaving more back room space. This leaves elbow room for invited boutique operators—like day spas, eyewear, and shoe sellers—to set up outposts. Most have a few traits in common. They… Read more »
Gene Detroyer
Guest
7 years 2 months ago

This is the only way department stores can better their business model. This is a good idea for Macy’s as it was for JCP. OOPS!

Jason Goldberg
Guest
7 years 2 months ago
I’m not a huge fan. Shop-In-Shop’s have their place, and as others have pointed out, assorting by brand is the standard practice for many European department stores. The problem is that assorting by brand is NOT the standard shopping convention for many product segments in the US. So when you walk into Macy’s and expect to find athletic shoes in the “Men’s Shoes Department” and instead have to to learn to look for the “Finish Line” department, it hurts affordability. Also, when a retailer gives large chunks of their in-store experience up to third party vendors, you lose the ability to have a clear communication hierarchy, consistent merchandising standards, consistent shopping experience, etc. When you have too many vendor shops, your store stops feeling like Macy’s and feels more like a brand bazaar, and when that happens, Macy’s loses the ability to differentiate based on the Macy’s brand promise. See Best Buy for a current example of this syndrome. As I said, shop-in-shops can be a great way to surprise and delight customers with an… Read more »
Lee Kent
Guest
7 years 2 months ago

This is not a new concept to department stores. In my early days with Rich’s of Federated Department Stores, jewelry and makeup were leased spaces. When we introduced a food market, it too was leased. Makes perfect sense for categories that require a bit more expertise.

The lessee can control who is working their product and they know that person is totally focused on their product. Not being shared across departments etc.

It also brings the retailer the added value of new lines that they may not have been able to sell as effectively. And that, my friends, breeds loyalty!

Craig Sundstrom
Guest
7 years 2 months ago

There’s nothing remarkable about the idea of a department store leasing (out) a department; it’s age old. What IS remarkable—sort of—is the idea that the department is identified as such. But I’m not sure “Lid’s” is a recognizable name for most shoppers; and the few who do notice probably won’t care one way or another.

Brian Kelly
Guest
7 years 2 months ago

Wave 1: Department stores began as “private label” purveyors. As mall anchors, they created the space for specialty stores to live off their traffic. Specialty stores beat department stores at their game.

Wave 2: Category killers created off mall, big boxes within which to sell all leading brands at reduced prices. Those categories were killed by Amazon et al.

Wave 3: In the digital era, stores have too much square footage and unprofitable non-core categories exacerbate the real estate productivity problem. Now ALL traditional brick and mortar retailers are struggling to optimize their selling space. So they have to do something to fill the space. Server farms, Samsung or Sunglass Hut. You pick!

Or as we like to say, “retail ain’t for sissies.”

Mark Price
Guest
Mark Price
7 years 2 months ago

The benefits of leasing space to specialty stores for department stores are clear. They are able to cash in on borrowed interest in the other brands, and eliminate some level of their need for staffing, inventory, merchandising and inventory management. From all the standpoints, the strategy would be a clear win.

However, from a branding standpoint, a store like Macy’s runs the risk of losing their differentiation—the unique position in the marketplace. When Macy’s basically carries the same products as other stores in the mall, there are fewer and fewer reasons for a consumer to go out of their way to that store. Eventually, Macy’s runs the risk of becoming like Service Merchandise in the old days—a warehouse full of other people’s brands and other people’s products.

Then the question is, why bother going?

Jerry Gelsomino
Guest
7 years 2 months ago

Macy’s has long been known for leasing space to other retailers and start-up merchants. It’s what the department store does well, merging their own departments with interesting and quality parallel companies. I think the customer appreciates them for that.

Katie Colburn
Guest
Katie Colburn
7 years 1 month ago

Great point by Frank Riso. A good idea to keep customers in the store longer.

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