Macy’s CFO thinks off-price concept will attract new customers
A major concern when any retailer launches an off-price concept is to avoid creating a new competitor that pulls sales away from its core business. Since Macy’s revealed that the company is working on launching an off-price concept, many have wondered how the chain will navigate that particular conundrum.
On the company’s fourth quarter earnings call, CFO Karen Hoguet expressed confidence in Macy’s ability to attract new shoppers with the as yet unnamed off-price model based on the experience that Bloomingdale’s had with its outlet business, which has brought new customers to the core brand.
While Bloomie’s is operating outlets, Ms. Hoguet said Macy’s new concept will be more like a traditional off-price store. She mentioned Macy’s marketing prowess, private brands and relationships with vendors as key strengths that will help it succeed against tough competition.
While acknowledging the challenge of entering a market that includes Marshalls, Nordstrom Rack, T.J. Maxx and others, Ms. Hoguet expressed confidence in the team led by Peter Sachse, Macy’s chief stores officer, that is responsible for the development of the off-price store.
"Our team thinks they have the opportunity to compete quite effectively against these players," said Ms. Hoguet (via SeekingAlpha). "Obviously, I’m not going to tell you until we started rolling that. But the team feels very optimistic that we will do well, but again this is one of those ends we will let the customer vote and see what she says."
Discussion Questions
How would a Macy’s off-price store look if you were responsible for its creation? What factors will be most critical to the ultimate success or failure of a Macy’s off-price format?
For starters, I would be cautious about applying the Macy’s brand to the new division. Based on the success of Rack stores in particular, it might make more sense to leverage the Bloomie’s brand instead of undercutting what is already a highly promotional strategy for Macy’s core business. But that doesn’t appear to be the game plan.
To some degree this sounds like a financial strategy—lower expenses, higher inventory and asset turnover—to drive total-company ROI. From that standpoint it’s a smart move, but only if it produces incremental sales instead of cannibalizing the Macy’s core brand.
If I were in charge of creating an off-price store look for Macy’s it would be aisles and aisles of packed clothing racks topped with various levels of percent off signage. I wouldn’t bother staffing anything but the cashwraps which would be numerous. The fitting rooms would be self-serve as the level of discount wouldn’t pay for the added staff, and heck, the customers wouldn’t want to pay for the service anyway.
The messaging for the store would be great fashion at the lowest price, and coupons galore! The word on the street would be that a shopper would be crazy to pay even the marked-down rack price without a coupon.
Sound familiar? It should. This is what their highly-promotional stores look like right now. They are already solidly positioned in the race to the bottom and it’s not working. Why pushing harder on the accelerator makes sense in a mystery to me.
Given the challenges brick-and-mortar retailers are facing with creating and maintaining the relevance of their physical stores with their digitally-empowered shoppers, Macy’s has an opportunity to think outside the traditional box and leverage its shopper marketing savvy to create and experiment with a new responsive store format. This could create a new shopping experience that not only meets and exceeds the expectations of the digitally-empowered shopper but allows Macy’s to enter this format and be relevant and different from its competitors.
This doesn’t translate to simply implementing technology but choosing the correct technology and integrating it with best-of-breed concepts (analog or digital), customer service practices and empowered employees. Macy’s has its core brand as an amazing foundation upon which to build a new format, not simply their version of what’s already been done.
Macy’s knows their shoppers—so each Macy’s off-price store will be tuned to the region it sits in. Signage will be in the right language and the colors and basic styles will map to the tastes of the regional or local shoppers.
The other element that the Macy’s team will add is the Macy’s promotional look. The store will feel like the hype Macy’s tunes to adds and mailers. This design line will create a constant shopper mode of “special.” In their minds, this or that item is on special and they must buy it.
The Macy’s team is good at this element of retail and they will create an off-price store that is really FUN to shop. The other secret that they will have is super special day. Certain days they will stock parts of the store with shockingly low-priced, high quality merchandise. These will be rare days and later align with select promotions. There will be lines on Macy’s Super Special Days.
Go Terry, Karen and team! The off-price needs a little fire. Light it up!
If there is one strength I would never question about Macy’s, it’s pricing. Anyone that shops there regularly can see that they have a formula that seems to fit a bell curve, from full retail across the discount curve to extreme discounts. It looks like their sweet spot is in the 20 percent to 40 percent region, so knowing how to price and stock an off-price chain is something that they are extremely knowledgeable in and something competitors need to brace themselves for.
I’m a bit leery on this. I feel like Macy’s offers attractive pricing because there are always good coupon sales and markdowns. An off-price store has the cognitive psychological effect of telling a shopper that the prices aren’t so good after all. In fact, they might have in mind NOT discounting things so much in the future and putting the inventory in the off-price store instead. That would change the core shopping experience for me.
Smaller footprint than a typical Macy’s. And as has been mentioned, probably a good idea not to have Macy’s in the name.
In terms of its success, selection and price are what matters to consumers. Service would be a differentiator, but harder to accomplish in an off-price format.
Gosh, it seems like just last month we were having this same discussion; oh, yeah….
I think Marge pretty well covered it (and for the record both Macy’s and JCP HAVE operated off-price formats in “clearance centers”—former full-line stores which were taking a brief detour on their way to memory lane—which may further confuse would-be shoppers). Readers might recall when the Macysization of Federated began in the early ’00s, there was speculation that the portfolio would ultimately be reduced to three price-lines (Bloomingdales, Macy’s and Sterns) so this may be a belated realization of that concept…or just a panicky response to “do something!”
I wish them well.
This might be a good way of reducing the inventory of long term leases in empty malls. Change the name, change the sign, and load it up with off brand merchandise and away you go. Next on the list of things to do is to incorporate and staff as a wholly owned subsidiary that can be kept if it works or spun off if it tailspins from the tremendous overhead burden in play. But that’s just me thinking out loud.
This could be problematic
I agree with Ms. Laney and Mr. Rubinson.