Macy’s restructure plans bring news of possible off-price chain

Discussion
Jan 16, 2015

Macy’s sophisticated omnichannel strategies and ongoing rollout of innovative and useful shopping tools has won the chain points with tech-savvy consumers. But with recent news of the company’s restructuring, it appears Macy’s may be trying to attract a completely different audience. Macy’s announced that it is looking into creating a chain to compete with such outlets as T.J. Maxx and Nordstrom’s off-price alternative, Nordstrom Rack.

The off-price world seems to offer a huge opportunity for growth for higher-end clothing retailers. According to Fortune magazine, Nordstrom has tripled the number of Rack outlets in the last five years, and Saks Fifth Avenue has been closing outlets of its main brand while aggressively increasing the number of its Off Fifth stores.

At least in the case of Nordstrom Rack, off-price has offered the retailer an almost entirely new influx of customers. According to a recent Business Insider article, "There is only a 10%-20% overlap between Nordstrom Rack customers and the high-end department store." Thus moving into off-price could also mean brand new shoppers for Macy’s.

The announced Macy’s restructuring, which also consists of 14 impending store closures affecting 2,200 employees and the merging of the company’s in-store and online merchandising and marketing groups, has not been hugely popular with investors. The stock saw a three percent drop on the Thursday the restructuring was announced.

A Zacks article states that, "The company plans to divert the savings from these restructuring activities to further develop its omni-channel capacities, build superior security infrastructure and enhance direct-to-consumer fulfillment capacity in all full-line Macy’s and Bloomingdale’s stores …"

According to Fortune, Macy’s has addressed concerns over the store closures and layoffs, stating that it will try to move those affected by layoffs to other positions within the company, and that it expects its total workforce size to remain the same.

Restructuring aside, Macy’s has been experiencing continued growth. The company reported a 2.1 percent increase in same-store sales during November and December 2014, and expects its fourth quarter same-store sales to grow 2.5 percent to three percent.

Does it make sense for Macy’s to develop its own off-price concept? What are the keys to it achieving success?

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12 Comments on "Macy’s restructure plans bring news of possible off-price chain"


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Dick Seesel
Guest
7 years 4 months ago

Brand positioning will be critical to the success of this new venture, because the space is already getting crowded. If Macy’s uses the Bloomingdale’s brand to follow the lead of Off 5th and Rack stores, it has a chance to leverage a well-established brand. On the other hand, attaching the “Macy’s” label to an off-price store may just cannibalize a very promotional business with a huge existing footprint. And I’m not sure the third way—developing a new brand—would be a smart choice at all.

Tony Orlando
Guest
7 years 4 months ago
There is always the temptation today to attract the super deal shoppers, and there are tons of them out there. My wife likes Nordstrom’s Rack store, but she loves Macy’s, and it could go well. My caveat is that Macy’s already has a very successful promotional program in their current stores, and this will siphon off customers to their discount format. My other concern is the quality and selection that will be made available at these stores, because they generally look like a Big Lots store to me. If you know how to shop for clothes, Macy’s markdowns are hard to beat, and they are first-run quality, so why would someone settle for less, when they pretty much can get the deal they want on promotion plus the coupon offers? I believe that I am not the target shopper they are seeking, but it remains to be seen how this will turn out. Maybe Macy’s can save some money by starting a new website-only business, promoting the everyday new concept, with merchandise that you can… Read more »
Zel Bianco
Guest
7 years 4 months ago

Macy’s has, for many years, had a reputation as a nicer middle-class department store where people can find nice products in a fairly wide range of prices, while Nordstrom and Saks both were generally considered so high-end that they were losing out on a huge group of shoppers. It made sense for them to create off-price chains but I don’t see it working out as well for Macy’s. They might pick up a few more shoppers, but probably not enough to offset the price of a new chain.

As the article mentioned, Macy’s is at the forefront of omni-channel strategy. They also have an excellent loyalty program and sales strategy. I hope they continue to focus on the customer experience and move forward with what has been working, instead of dividing up resources for an unnecessary and risky new brand.

Vahe Katros
Guest
Vahe Katros
7 years 4 months ago

I think this is not about chasing the off-price shopper. Macy’s is on top of retail and where the customer is going. I think this is Macy’s saying, we need more smaller-footprint stores in many places to adapt to how people shop. We need to get out of the format we are in and be in more places with our brands with a smaller format. Macy’s is heralding a new chapter in department store retailing—let’s call it Chapter 11. Again. Department store retailing is dead. Long live department stores.

Kelly Tackett
Guest
7 years 4 months ago

No it doesn’t. I’m having difficulty even imagining what an off-price Macy’s would look like. The off-price strategy works for upscale retailers seeking to attract a more aspirational shopper. Aside from Macy’s flagships, which carry upscale brands, the assortment in many of the stores is decidedly middle-market, and as Dick Seesel points out very promotional. TJX has that middle-ground covered.

Lee Kent
Guest
7 years 4 months ago

As much as I respect Terry Lundgren and all the smart moves he has made for Macy’s, this one doesn’t cut it. Macy’s doesn’t even have a private label that is considered upscale enough to warrant an off-price store. I say this because that is exactly what Nordstrom has.

On the other hand, if they are thinking Bloomingdale’s…now that just might work!

And that’s mt 2 cents….

W. Frank Dell II, CMC
Guest
7 years 4 months ago

When high-end retailers enter the outlet world, they do very well. Consumers believe they are getting the same merchandise just a season behind. In reality, retailers buy merchandise specifically for these outlet stores. Someday this will catch up to the high-end retailer. Operating outlet stores is damaging the retailer’s image, which the next management team will have to fix.

J. Kent Smith
Guest
7 years 4 months ago

It’s a worth try based on the declining footsteps—they need to try something. And others have made it work, the caution being that the others tend toward premium mainline stores, so there’s more hi/lo latitude to play with. These kinds of outlets help (in theory) with markdown and enable the parent store to change over more smoothly. But it will require a real focus on what goes in it—if it’s a small Macys, nothing will be big enough to matter. I suppose it also comes down to this: anyone else have a better idea?

Ed Rosenbaum
Guest
7 years 4 months ago

This model does not seem to be something for Macy’s. They are doing a much better job of gaining and keeping customers with the current model. Why change something that might not work? This seems to be something that will distract the current customer base from some impulse buying, thinking they can wait two weeks and buy the same item for less at the off-price store.

Craig Sundstrom
Guest
7 years 4 months ago

I’m not sure I’d call Macy’s annual pruning and backroom shuffling a “restructuring.” Indeed, the most notable element is an historical one: the closing of the trailblazing (nee Hudson’s) Northland store. But back to the question at hand: would Macy’s off-price make sense?
It’s not quite true, as some here seem to claim, that the concept is restricted to upscale retailers; many mid-price retailers and manufacturers have embraced the concept. But what all of them have is a consistent image and format. Macy’s is currently a hodgepodge of store sizes, price-points, brands, etc. reflecting its mixed heritage from upscale (Associated) upper-middle (Federated and Allied) and lower-middle (May). It would be hard, I think, to create an image for the off-price concept that was distinct from each of the full-price stores, at least on a national basis.

Kate Blake
Guest
Kate Blake
7 years 4 months ago

Macy’s bought a bunch of stuff and now have to unload it. The aisles are clogged with merchandise, so much so that it’s impossible to shop. They have little staff. Best way to move it is to call it an off-price retailer.

Brian Kelly
Guest
7 years 3 months ago

Death in the middle. Middle tier that is. None of them came out of the holidays in good shape. JCP, Sears, Kohl’s, Macy’s aka Mall Anchors. Too much square footage, locally irrelevant national assortments, wretched service, overly promoted.

Lundgren is following income distribution. Bloomies is high end, now he needs a viable/relevant low end. Middle America needs jobs and/or a pay raise. Neither seem to be in sight.

The chains he acquired all had a high-end assortment that made the stores aspirational. Now they just have stuff, and she can get it cheaper at America’s largest fashion retailer TJX.

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