Macy’s is still trying to figure out Millennials
Macy’s plans to move into off-price may have as much to do with a slowdown in its higher-end product sales as it does with observing the success of off-price formats like Nordstrom Rack. At least one gets that impression from a controversial comment made by the company’s CFO Karen Hoguet at a recent industry conference in which she placed blame on a few different actors for the lull in luxury sales.
"We did some consumer research, and the customers said, she likes going to the off-price retailers because she doesn’t have to put lipstick on," Ms. Hoguet said, according to a transcript of the conference quoted in MarketWatch. "I think part of that is the customers are buying other things, whether the electronics, cable services, Netflix, whatever."
It’s not clear whether Ms. Hoguet truly intended to blame Netflix, Millennials or customers not wanting to dress up to go shopping for Macy’s fourth quarter shortfall of analyst expectations ($9.36 billion to the analyst-predicted $9.40 billion). But technology does appear to be redefining what constitutes worthwhile luxury goods among younger generations, making one wonder if, even with all its omnichannel savvy, high-tech luxury products are a blind spot for Macy’s.
According to a Quartz article, an executive at the Baseworld watch and jewelry trade show referred to the emergence of the Apple Watch as a "kick in the ass" to the high-end watch industry. TAG Heuer and Google partnering to release a smartwatch to compete with the Apple Watch is perhaps the clearest evidence that high-end brands are moving toward tech to court affluent Millennials.
The most affluent may be turning away not just from traditional luxury items, but from big price tags in general. A CNBC article reports that high-end luxury brands may in fact be pricing themselves out of their own markets.
The article stated that, according to the Boston Consulting Group, median luxury handbag prices increased 14 percent per year in the decade between 2002 and 2012, notably outpacing inflation.
Some retailers discussed in the article, such as Mullberry, have jacked up their prices aiming for exclusivity and later had to drop them because their products weren’t selling at the higher prices. Boston Consulting Group also predicted a slowdown in growth of personal luxury goods over the next three years.
A shift in discretionary spending on the part of the affluent away from personal luxury goods and towards more experiential luxuries, such as travel, is one major reason for the impending downturn in luxury good sales cited by Boston Consulting Group’s study.
- Macy’s CFO blames Millennials, Netflix and lipstick haters on shifting retail landscape – Marketwatch
- Excuses, excuses. Luxury prices at a tipping point – CNBC
- Some luxury watchmakers are actually cheering on the Apple Watch – Quartz
- TAG Heuer gearing up to challenge Apple Watch – The Hamilton Spectator
Discussion Questions
Is Macy’s CFO right or wrong in her assessment of what is happening in luxury retail? What can retailers like Macy’s do to appeal to the changing desires of the luxury retail shopper?
The “Millennial problem” is not limited to luxury goods, nor to Macy’s (which sells mostly upper moderate product anyway). It’s been reported that Generation Y and younger consumers’ discretionary purchases have been more focused on “gadgetry” than apparel. It’s not just the smartphone—it’s the data plan, the apps, the subscription to Netflix, the cost of broadband and so forth. (Not to mention many customers’ growing interest in “experiential spending.”) So Ms. Hoguet makes a valid point without looking closely enough in the mirror.
Part of Macy’s problem drawing Millennials to its merchandise mix is that it just doesn’t try very hard, compared to its “fast fashion” competitors. Adding overlapping private brands geared to the older customer (JM Collection, Style & Co., Charter Club and so forth) exacerbates the problem. And the promotional monotony of Macy’s undermines whatever “luxury” position it is trying to grow.
Somehow this logic seems very backwards to me (lipstick-wearing, Netflix watching or otherwise).
I’ve always understood companies like Nordstrom Rack and Off Fifth to be for the aspirational Nordstrom and Saks shopper. This creates a problem for Macy’s because it is already a mid-priced department store, so who are its aspirational shoppers?
So my perception is less that the shoppers are trading down than that they are aspiring to trade up.
The other question I would ask myself if I were a product person is, “Isn’t there something not right when the next generation of tech product is cooler than the current runway fashions?”
Let’s start with what goes for dress code at Macy’s and a host of other retailers. I can’t believe the drop-out-of-bed-and-show-up-for-work ethos that is tolerated. Macy’s is already one of the most promotional retailers out there, to say it is all price related and comfort at not dressing up doesn’t pan out.
Michael Kors boutiques are busy—not only at Macy’s SWSes but their own locations. I would suggest that luxury brands that understand what they are, what they are selling and dress accordingly are doing fine.
CFOs not withstanding, it takes a lot to get it right in retailing, and simple whining like this does nothing to solve the real problems of many brands. Creating off-price versions of a brand for the “lipstick averse” is only laughable in it’s simplicity.
Millennials (and those slightly older) would rather do than wear.
It’s interesting to me how many obvious “ahas” are missed in retail just because someone isn’t paying attention to (and responding to) cultural cues. We’ve seen for years now that Millennials are more into life experiences than badge brands, particularly once they become parents, and 50 percent of them are now. But they’ll spend irrationally if something moves them to do so.
Regardless, we are in the world of high/low—I’ll scrimp here to splurge there. So what will move these people to spend? And how/where will they do it? Driven by what?
Good grief, it’s so much more than if they have to put on lipstick. If the experience was something that they really looked forward to, they’d put on lipstick without a blink.
When did Macy’s ever appeal to luxury retail buyers? There are a few locations with store-within-a-store luxury boutiques but not many. I doubt this is enough of their business to cause a pinch. In our market Macy’s carries primarily off-brand and house-brand items. You can buy Bear Paws but never Uggs. They always have plenty of Perry Ellis, Kasper, Alfani, Nine West & Trump merchandise, I can’t imagine anyone under 60 buying much of that.
Off-price and fast-fashion create a sense of discovery with a mix of unique items. There is a need/desire to purchase *now* because if you want something it might not be there next time. The idea is that the shopper is in control.
Macy’s presents items in an authoritative way, “This is what WE say YOU must have” and, hey, why pay full price because it will still be there, marked down 20% in a few weeks, if you even still remember you liked it?
May I also say I started boycotting department stores in favor of small local retailers? Mainly because their darn loyalty programs make shopping a frustrating experience. “If you put this on hold and come back in 2 days and use your Macy’s card you will get 25% off and triple points!” So… if I need it now I’m getting ripped off? Grrrr….
Macy’s has a problem, despite all the press about its “tech” achievements, the biz isn’t performing.
In Q4, Macy’s comps were 1.8%. Which was low. And it was blended rev. Macy’s Corporate problem is that it has two brands: Bloomies and Macy’s. And Bloomies is the “high-end” brand. Which relegates Macy’s to mid tier. In those markets where the new Macy’s was the high-end retailer in that market, e.g. Chicago/MF&C. Macy’s has a hard time being an place of aspiration (is luxury aspirational?) when the selling model is dumbed down. This challenge confounds all the mid-tier players. Death in the middle.
Or as we like to say, “retail ain’t for sissies.”
Luxury retail shopping and Millennial luxury retail shopping are two separate topics. The later group is not quite scaleable at this particular stage. It is a more likely aspirational for 25-40 year-olds to be seeking $1,000+ purses and $1,500+ pieces of David Yurman Jewelry or higher-end pieces.
Karen Hoguet was more than likely addressing the broader Gen Y group of nearly 80 million adults who most retailers are attempting to engage. She was making a general statement about a vital group of current and future customers.
The focus has to be one of accepting that Gen Y, like every other Generation has a bifurcated population base. When the target portion of the audience is determined for the merchandise line, messaging and media than can be addressed.
Retailers will find a wealth of difference between Millennials and married Millennials—no pun intended. Merchandise lines, as well as the size of their pocketbook, will influence purchase in different ways.
To reiterate what has been said by others, since when was Macy’s a luxury retailer? But let’s not forget the real question. What is happening in luxury retail?
While Millennials do love their gadgets and seem to always be assessing the value of each purchase, this does not mean there aren’t any fashionistas in the lot. Fashionistas who save their pennies in order to buy that one high fashion piece.
Try going to a baby shower for a Millennial. They know exactly which of everything is the best down to the “right” cream for removing those stretch marks afterwards. I do not lie. I have been awed by this. They really can be very materialistic and it’s not all techie.
For my 2 cents….
Placing blame is easy. Spending time understanding consumers and monitoring how well systems work is tough, tedious work. After taking three hours and three phone calls to customer service on one day for one order and after having two other orders cancelled after I had been given a delivery date, Macy’s execution and ability to provide items is where I would place the blame. There are other places to shop that work better.
My initial thought was “right sermon, wrong church.” They aren’t a “luxury retailer” so what does any of this have to do with them? Then I considered the Bloomie’s part of the equation—i.e. the speech was really more about Macy’s Inc. than “Macy’s”—but the sales aren’t detailed separately, so it’s hard to know.
Suffice it to say, until we hear similar comments from Nordstrom, Saks and/or Nieman’s—the holy trinity of upscale—this comes across as “blame the customer for your failings.”
I think perhaps introducing products that shorten the gap in price between luxury and non-luxury may make it easier for people to make the jump to the next tier.
The Millennial generation does not shop in the malls. Macy’s is stuck with a lot of mall leases where foot traffic is nowhere near what it once was and getting worse. Luxury shoppers prefer the personal touch of boutiques and many boutiques are doing well. The Millennial group is shopping on line for product information, price and inventory location. BOPIS is their trend. Malls take a lot of time to navigate with sparse help. This group detests these very conditions. Macy’s should have figured this out and set aside a well staffed pick up area close to the entrance from the parking lot side for the 21st century consumer.
The Macy’s CFO is wrong, disconnected, and clearly unaware of how their retailing target market identifies with purchases. Product differentiation, through in-store availability and merchandising allows Macy’s to segment their target markets. Trying to place this blame on a target market segment like Millennials, only proves what many people suspect…that there is a disconnect between perception and reality when it comes to Macy’s management and their customer.
Macy’s will inevitably fail should they not correct this gap….
This made me laugh so hard! I will tell you why I don’t shop Macy’s anymore. It’s because they have too much stuff and too little service.
I go to work fully made up and am able to shop after work still looking wonderful. But I refuse to wade through junk and then have to look for someone to take my money. And shopping their online service means that the stuff they show isn’t in the stores! I have to buy it on faith!
I can be my own personal shopper, but I’ll be damned if I have to search for help when I want to spend my hard-earned money!
Outside of their Herald Square/Union Square/State Street flagships, I don’t think of luxury and Macy’s in the same context. That said, they have a number of remaining, albeit smaller “downtown” stores in vibrant cities with growing populations like Boston, and you would never how vibrant Boston is by the dowdy merchandise, and lackluster vibe that is their store in downtown crossing. In this lies one of Macy’s issues with drawing the 20 something generation. Primark, who targets this demographic will open its first US store in Boston THIS September and it is directly opposite Macy’s. We wonder what Macy’s will do to counter this, my money is on NOTHING.
In our 2015 Fashion Retail Study, we found that Fashion Brands are highly competitive and it is difficult to differentiate. Nordstrom does it by providing a fabulous customer experience, empowering customers and the employees who serve them. Macy’s needs to think about the customer experience from a multiplicity of perspectives with a very specific objective of delighting their customers, and there are lots of opportunities to do that beyond providing discount pricing.