RSR Research: Macy’s Returns to Selling Electronics, Customer-Centric Store Style
By Steve Rowen, Partner
Through a special arrangement, what follows is an excerpt
of a current article from Retail Paradox, RSR Research’s weekly analysis
on emerging issues facing retailers, presented here for discussion.
Macy’s announced
plans to outfit at least 250 more stores with e-Spots: in-store kiosks dedicated
to selling branded consumer electronic items without requiring a (knowledgeable
or otherwise) store associate to assist in the purchase. This follows what
was clearly a successful two-year test in 180 stores and will bring to 400
the total number of e-Spots in Macy’s stores. It also marks the retailer’s
return to consumer electronics.
Here’s how it works. The kiosks are manufactured (and sales are tracked) by San Francisco-based Zoomsystems. Once at the kiosk, customers use a touch screen to shop for products in an interface similar to eChannel shopping. Once selected, they swipe their credit card, and a robotic arm (ala penny arcade) selects and dispenses the product.
There are a couple of factors that make this story compelling. First, there is the sizeable profit Macy’s envisions. Zoom estimates that the average “vending machine” pulls in $360 a month, while mall retailers average $330 per square foot on average. By way of comparison, Zoomshops claim to provide between $3,000 and $10,000 per square foot in mall-based locations.
But just as important, the decision shows that Macy’s understands its customers – and its core competencies. Why wouldn’t a consumer want to purchase a new iPod for the gym that color coordinates to the workout clothes, travel bag, and coat she just purchased? And why wouldn’t she want to buy it in a simple and entertaining fashion? But would a Macy’s employee be the best person to answer questions she has regarding the differences between the 2GB Shuffle at $69 and the 4GB Nano at $149?
By offering a (slightly whimsical) self-service kiosk to its customers, Macy’s clearly understands the answer to this last question as “no,” and that to dedicate consumer electronics training to its staff would be an inefficient use of resources. The move is a clever way to enhance product mix, while greatly reducing the risk of “shifting gears.” Perhaps the retailer will gain more market share of consumer electronics from impulse buys, but it won’t ask its employees to play where they can’t. And that’s what true Customer-Centric Store thinking is all about.
Discussion Questions: What do you think of Macy’s getting back into consumer electronics? Are self-service kiosks an answer to the challenges of providing adequate customer service to a category such as consumer electronics? What other categories could e-Spots work for?
For once, this hasn’t become just another opportunity to pile on Macy’s (surely if it were a football player, it wouldn’t have any ribs left by now).
That having been said, we come to this gem:
“But just as important, the decision shows that Macy’s understands its customers–and its core competencies…. But would a Macy’s employee be the best person to answer questions…Macy’s clearly understands the answer to this last question as ‘no,’ and that to dedicate consumer electronics training to its staff would be an inefficient use of resources.”
So, apparently, training staff is no longer a “core competency.” While I won’t dispute the statement, I’m left with the question of what exactly it is that Macy’s DOES do well?
Department stores have not performed well in the area of consumer electronics over the past decade or so, and that’s why department stores got out of the business in the first place. When they carried consumer electronics, they had a tendency to demand higher margins than other channels of trade, and they had a limited assortment of choices. In addition, consumers like to purchase consumer electronics online, in strip malls, and in big box stores.
One of the key appeals of these third-party owned and serviced kiosks to the retailer hosting them is that they are basically a “pure profit play.” The vendor owns the machine and usually provides installation assistance. They usually own the inventory and often provide the kiosk service. So the retailer is essentially working on a revenue sharing program. What’s not to like? Very low risk–and if sales targets are met, good profits and astronomical ROI for the retailer. The keys to success are to a)partner with a reputable vendor that will not disappoint your customers, b)pick a service or product that is relevant to your client base, and c)generate enough store traffic to make the deal work for both of you. We will see a lot more of this.
I love what Macy’s is doing here and have heard first-hand how thrilled they are with the productivity of the Zoomsystems units.
Macy’s knows that consumers are so well-acquainted with particular consumer electronics technologies that they are perfectly willing to purchase them in a vending machine. They also know that consumer electronics is now a “fashion” category and they are in the fashion business. The forced discipline of that “box” keeps Macy’s from venturing into low-margin, cumbersome products that may bring diminishing returns.
Macy’s recently-announced alliance with FAO Schwarz solves a similar problem: Driving sales in the kids’ area and participating in the toy category without building it from the ground up. Sephora’s boutiques within J.C. Penney are the most productive real estate in an otherwise lagging house so store-within-a-store is yet another proven model. How smart that they are mixing and matching strategies and partnerships this way!
When I first heard this idea, I thought it was stupid. Not being a techie, I couldn’t see the value.
Then I saw one of these kiosks in my Macy’s and there were 2 teens at the machine. I don’t know if they eventually purchased or not but they were intrigued enough to stop and look.
From a bottom line point of view, it’s a good idea. Not having a salesperson to explain the products is no different than having someone who doesn’t know anything about the product. It’s really like online shopping without paying for shipping and getting your order right away. A definite plus!
In light of one of the other discussion threads today–Best Buy wanting to double sales in the next five years–this is going to be a challenge. Self-service kiosks are OK for select lines of CE products, mostly portables and other lower priced items. I could certainly see a kiosk of iPods and accessories near the pocketbook and exercise clothing areas and a display of clock radios in the bedding department. I don’t see them as being successful with higher end TVs, audio and appliances.
Let’s see…I can go to Macy’s, stand in front of a machine, put in my credit card and buy an iPod. Or, I can go to Best Buy and talk to a real person who will explain the differences in the models. Or, I can go online to the Apple store, and yes, get a thorough explanation of the models and have the product shipped to my home. This is not a rant against vending machines. Last week I bought a set of headphones in an airport vending machine. It was quick easy and convenient since my headphones had broken.
While Macy’s may be thrilled by the success they’ve had with vending machines this is certainly not customer-centric retailing. The success they are having is because they are essentially just renting real estate much like department stores did when they had all of those designer vendor shops. Won’t it be a wonderful shopping experience when you can go to a department store and there are rows and rows of vending machines selling every type of consumer electronics and maybe even housewares, shoes, and who knows what else?
I think this is a very safe way for Macy’s to return to the electronics category.
The purchase behavior of consumers in the electronics category had evolved–which is why Macy’s exited it. Self service kiosks are the model that fits into contemporary purchasing behavior so I think they are a great opportunity for the retailer. I would think other categories, like video gaming or movies, would be appropriate for eSpots.
I agree, this is fine for low-end items. High-end, high priced items customers want someone to talk to, to understand the features and benefits. As the life cycle of products in this sector are much shorter, staying current and fresh are going to be a challenge.
eSpots’ profit will be totally dependent on the quality of their locations within each Macy’s. Every department store has low-traffic dead zones and high-traffic gold slots. If the eSpot is placed on the main floor on a power aisle on the way to an escalator, that real estate is worth many times the same footage on the third floor in a corner blocked visually by columns and the furniture department displays. It’s not a question of eSpot profitability. It’s a question of eSpots’ profitability versus anything else put into that same location within the store. Would handbags or jewelry or Clinique do better?