Photo: Macy’s
Macy’s goes small outside the mall
Macy’s, a longstanding fixture of the shopping mall, is expanding a standalone store strategy in a way that could change how customers think of the retail chain.
In Q4 of 2021, Macy’s witnessed a surprising degree of success from its Market by Macy’s stores, its new smaller-format unit. The retailer piloted the concept in five suburban “power centers” in Texas and Atlanta over the past two years, according to The Wall Street Journal.
Now the retailer has announced plans to open 10 new off-mall locations in the coming year, including new Market by Macy’s stores, standalone off-price concept Macy’s Backstage locations, Bloomie’s and Bloomingdale’s outlet stores.
Macy’s discovered that the small-format concepts — which are around one-fifth the size of a traditional mall store — are easier to staff and stock. Meanwhile, the chain has closed about half of the 125 underperforming mall locations it announced were marked for closure in February, 2020. Some off-mall locations will be opening in areas where mall stores were closed.
Last summer, Macy’s was touting the success of its digitally-focused turnaround strategy after a successful second quarter earnings report, according to CNBC. The report came after vaccines against COVID-19 became widely available but before the Delta variant of the novel coronavirus led to the reinstatement of some social distancing requirements and slowed foot traffic. This led to speculation that Macy’s was in part riding a pandemic lull-driven tailwind from pent-up demand.
Last fall, however, Macy’s reported a successful third quarter, again beating analyst estimates, according to a separate CNBC article. The chain said that it added 4.4 million new shoppers that quarter.
Macy’s is not the only mall-based retailer that has recently gotten serious about its off-mall presence.
On a conference call in April, Foot Locker discussed plans to continue accelerating its shift to off-mall locations, Seeking Alpha reported. The chain plans to expand its off-mall Power Store and community store footprint to 300 stores in the next three years.
Despite retailers bailing on malls, one expert, Natalie Kotlyar, managing partner at BDO USA, recently told Yahoo! Finance that malls are not dying, pointing to increased foot traffic as the pandemic appears to wane.
- Macy’s is Betting Even Bigger on Smaller Stores – The Wall Street Journal
- Macy’s shares soar as earnings trounce estimates, retailer says it’s gaining new customers online – CNBC
- Macy’s shares surge on upbeat earnings, decision to hire AlixPartners to review business – CNBC
- New Foot Locker Concept is powered by local culture – RetailWire
- Foot Locker: Bag A 5.3% Yield – Seeking Alpha
- ‘The mall is not dead’ amid rise in online shopping, retail expert says – Yahoo! Finance
Discussion Questions
DISCUSSION QUESTIONS: Do you see moving away from the mall and into smaller, standalone stores as a path to reinvention for Macy’s? What will the company have to do differently to succeed in off-mall retail?
Poll
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I’m not sure how much Macy’s is a destination store. The mall is the destination and traffic is up. These are great experiments but other than in Manhattan, I don’t see the draw.
The primary reason Macy’s is failing in malls is largely because they make zero effort with their stores. Even in very strong malls that are seeing growth, Macy’s is underperforming because it is not delivering what people want in an environment that is conducive to selling. This is a longstanding problem that should be fixed. The smaller store concept has potential. But it is not the solution to all ills and if Macy’s ends up treating those stores like it does its larger shops it will be back to square one. And from what I have seen, the smaller stores are OK, but they’re more of a better version of mediocre than a reinvention and revolution.
One of the biggest potential misses here is the obvious “by Macy’s” branding. If they are attempting to attract new consumers (which I presume they are), those said consumers may still walk right by the store once they see Macy’s in the name. If they are trying to grow with current consumers, this new store concept may work if they can deliver on the boutique-like experience.
This is bigger than the reinvention of Macy’s – it’s about rethinking the purpose of the anchor department store. It’s a great strategy on getting closer to the customer and meeting them in their communities.
The challenge will come down to localized and curated merchandising assortments that are reflective of what the local customer is looking for. Insights and data will help drive these decisions and old school retailing methodologies such as boots on the ground, shopping the market and building physical relationships with the local customer.
Macy’s used to be the best merchant in the moderate department store layer of the business. Then the One Day Sale gradually ate its soul over the years. Then e-commerce began to peel off traffic and sales from malls everywhere. Then the mall began to lose it’s luster. Then the whole boring middle began to evaporate. Sure, smaller off-mall stores offer a big opportunity. But this is way more complicated than addressing store size and location. Unless Macy’s can rekindle their once great merchandising skills, smaller and off-mall locations will not add up to the “reinvention” that the headlines want to sell.
These smaller-format stores fit right into the direction of retail and brick-and-mortar. Stores can staff more effectively if departments are reduced to 4-5 from 15-20. Easier to access by all demographics, especially the younger consumer who does not have transportation to leave an urban area to visit a mall. Finally, it’s more personal. Assortments are more tailored and curated. We all want options but are overwhelmed in large-format department stores. Market by Macy’s offers a more personalized, connected experience. This could be Macy’s saving grace.
It is much more affordable to build out, staff, and maintain a smaller footprint in urban locations. This gives Macy’s an opportunity to locate closer to their best customers, creates a distribution point, and allows them to reach a wider audience. One more thing: The trend of power brands pulling out of major retailers may also be at play here. Better to concentrate every square foot on brands that will stay put and are generating ROI.
If they cut 10 to 15 departments out of the new format, what is left, and who is the new format not serving? Is this a women’s casual + formal store (Chico’s with fancy dresses and some cosmetics), housewares and holidays (Williams-Sonoma with luggage), or a little bit of core house-brand fashion for women and men (Target center store, but higher-priced)? Seems like they’ll need several smaller stores sited next to each other (for distribution and staffing logistics efficiencies) to adequately cover their core shoppers.
I have to give Macy’s credit for coming up with new ideas. It does bode well, in my mind, that they’re serious about finding a new path to success. That said I’m not certain that this move is going to make a difference. If Macy’s is going to simply take their mall based assortments and promotional strategies and move them to Main Street, this will fail. There’s a bigger problem about relevancy that needs to be addressed – from product mix to store design to digital transformation. This move might help one of those issues but, long term, without the bigger changes the department store needs to make, it’s just another store front that shoppers will pass by on the way to more popular outlets.
Macy’s is THE iconic department store. That is what the customer sees. The smaller stores are in direct contrast to that image.
If the smaller stores are the way to go, brand them differently. For that iconic Macy’s, there is no future in the past. The difficulty of making it viable is a hurdle that will not be overcome, if at all.
Does it seem that every three months or so we will be writing about how Macy’s is going to save itself?
The partial move into smaller, off-mall stores will show continued success for Macy’s, as long as they execute with compelling assortments and better than expected shopping experiences. Post-COVID-19, consumers are willing to hop in their cars and visit stores in different geographical areas and this mindset will not change anytime soon.
I thought one of the key points in the reporting is that it takes fewer workers to operate Market by Macy’s locations. Perhaps Macy’s will do a better job keeping their stores clean and well-stocked in a box that needs fewer bodies to make that happen. It’s clear that Macy’s struggles to do that outside of its major flagship locations.
Macy’s has a long path ahead. Smaller makes sense given that their old purpose (being a “department store”) is no longer meaningful to customers as we don’t need all those departments in one place. With a shrinking meaning for customers, shrinking stores can help them be more meaningful.
But off the mall? I’m skeptical about moving away from the mall. Macy’s has always benefited from the foot traffic. If this were to succeed, they’d need to define a modern reason to exist which will draw people to their stores. So far, Macy’s hasn’t shown they can do this.
Finally, reinvention. I like this idea. Retailers need to follow the consumer and they are not going to the mall as often and not looking for 50,000 square foot stores to spend the day. Mini department stores could be a way forward. More inventive merchandising, easier to stock and staff — that’s definitely worth testing and rolling.
This isn’t as much about Macy’s as it is about how consumers are buying. Macy’s is not the first (and won’t be the last) large store to experiment and move into smaller footprints. This is not only a reinvention for Macy’s. It’s the reinvention of traditional retail.
As mall culture morphs into social shopping via digital, there is less and less ROI in a mall presence. This is a smart move that a lot of retailers are making. Further, traditional department store floor plans with large square footage aren’t really conducive to how people shop today either. I’m glad they’re pursuing smaller formats, especially given how hard it’s been to find help in their traditional layouts where their staffing numbers don’t support the size of the space.
I’m not sure I see Macy’s as a destination location, no matter how large or small a store is or where it is located. A good deal depends on the format these smaller units take. For example, Nordstrom is a destination store as is Nordstrom Rack. Both have a differentiated value position and a different addressable market. Moving away from malls is probably a good idea at this point, but the issue is what do these new stores offer shoppers the larger units don’t? I’m not saying that Macy’s is doomed, just that they need a more compelling consumer-centric value proposition that is clear and differentiated.
While mall and allover traffic for them may be down, Macy’s is: like a rose is a rose. Meaning that whatever drives business to them has and always will be about being big, not small. Amazon, Target, and Home Depot are the same; they function as places, in their requisite ways, where the most customers can find the most to buy.
Meanwhile, the idea of a smaller Macy’s is interesting. But it is a “fail” if in any way the stores are perceived as being about pared-down selections. It’s the ability of customers to choose (hopefully wisely) from the most choices in one location that brings them the most satisfaction. However, If they were to find out a selection chosen by them was also available in another that was better suited to their tastes, you will very likely have lost the customer after that.
Thus, the only way for this concept to succeed is for Macy’s to convey that the merchandise in every location is unique to and correct for that smaller space: AKA not replicable elsewhere (or at least easily); and this is even harder to accomplish, well-known that choices have been very thoughtfully curated for that lone store, that one-of-a-kind customer, that particular neighborhood, and in that singular city. This will then satisfactorily explain (and, perhaps, via conversation with the expected carefully chosen clerk) why said space carries, as an example, only specific colors of certain tops from a manufacturer who makes them in a myriad. As a result, customers could be assured their purchases have reason to take place here—and not there.
Further, those selections indeed must have meaning beyond the mundane. This is, unfortunately, what “regular,” large-sized Macy’s stores have become over time: places where most everything is available and mostly uninteresting, except to those buying merely as mass consumers.
So, Macy’s, make these unique spots—or make way for them not to work.
I thought the instapoll was curious in that it omitted (what was to me, anyway) the logical choice: mostly mall, some off-mall (but the latter not restricted to “large markets”…just good ones).
Off sizing — by department stores, discounters, groceries, even convenience stores) seems to be a perpetual topic here on RW, and, as my answers show, I’m not a fan of it: most companies develop a store size that’s consistent with “who they are” and I think it’s usually ill-advised to mess with that formula. If you want shoes, you go to a shoe store, books, a books store … Macy’s is a department store — i.e. an everything store — so it can be a default store choice for a whole range of items. The last thing it needs (well, one of the last, anyway) is people not knowing what kind of goods their local Macy’s carries (because it’s too small to stock many of them).
Small format stores (SFS) allow businesses to reach closer to their customers, add more touchpoints to their buying journeys, optimise inventory, give a more personalised shopping experience, and streamline the returns process. These stores also give department stores (particularly) a major but lost location advantage. Macy’s appears to be reinventing itself quite successfully, with increased digital capabilities and SFS aka experience centers which makes me confident about a good future for the brand.