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Will Bloomingdale’s grab hold of the luxury products market?
Timing, as the saying goes, is everything, and Jeff Gennette, CEO of Macy’s, Inc., thinks that there has never been a better time for Bloomingdale’s to shine.
In an interview with CNBC, Mr. Gennette said that Bloomingdale’s is well-positioned to grow sales and market share at a time when competitors in the luxury department store space are declaring bankruptcy (Lord & Taylor and Neiman Marcus) or struggling (Nordstrom) in the face of the novel coronavirus pandemic.
Macy’s CEO told CNBC that he believes that there is $10 billion in market share waiting to be taken and the recent strength they’re seeing in Bloomingdale’s sales is a precursor of what’s yet to come.
Speaking yesterday on his company’s second-quarter earnings call, Mr. Gennette said Bloomingdale’s “is benefiting from the current move away from spending on experiences toward spending on products, especially within luxury. From textile to shoes, to handbags, to mattresses, to diamonds, luxury proved to be strong across almost every category of the Bloomingdale’s business, significantly growing its penetration of the business year-over-year. Given our strength in this area, we are leaning harder into luxury in order to capitalize on the shift in spending.”
Mr. Gennette and company are also interested to see how well Bloomingdale’s fares with its first smaller, non-mall store, which is expected to open in the fourth quarter of 2021. Macy’s CEO expressed confidence in Bloomingdale’s chances while giving a vote of confidence for stores in A-list malls, which he expects will continue to “thrive.”
Luxury may be Bloomingdale’s niche, but Mr. Gennette also sees opportunities for the retail brand to play up the value angle with its Bloomingdale’s The Outlet stores. Macy’s CEO said that profitability in its off-price units (Macy’s Backstage and Bloomingdale’s The Outlet) is continuing to improve.
Macy’s, Inc. reported that second-quarter revenues were $3.6 billion across its business units, up from $3 billion in the previous quarter, as it began reopening stores shuttered earlier in the year due to the coronavirus outbreak. The department store operator posted an adjusted loss per share of 81 cents in the most recent quarter.
- Macy’s, Inc. Reports Second Quarter 2020 Results – Macy’s, Inc.
- Macy’s, Inc. (M) CEO Jeff Gennette on Q2 2020 Results (Earnings Call Transcript) – Seeking Alpha
- Macy’s CEO sees huge opportunity in luxury retail as other chains go bankrupt – CNBC
- Macy’s Posts $431 Million Loss as Stores Continue Recovery – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: Do you agree that struggling competitors and the shift in consumer spending away from experiences have worked in Bloomingdale’s favor? Do you think the chain will be able to capitalize on the $10 billion market opportunity highlighted by Jeff Gennette?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Jeff Weidauer
President, SSR Retail LLC
It’s true that the luxury field is thinning out, and that is helpful for the others that survive. But just because others in the category have failed doesn’t mean that Bloomingdale’s will necessarily be successful. Frankly, the Bloomingdale’s brand has lost a lot of luster over the years and it needs a lot of work to make it a leader in luxury. So I do agree with Jeff Gennette that the opportunities for Bloomingdale’s have improved, but whether or not that leads to success is an entirely different matter. With all the challenges Macy’s is facing, I remain skeptical that Bloomingdale’s can be transformed into a luxury success story.
I agree that there will be some market share up for grabs. I also agree that some of Bloomingdale’s store locations will pick up a slice of this. However I find Macy’s management rather deluded. They seem to be divorced from reality in that they don’t understand that their stores and general proposition – including some of Bloomingdale’s – are sub-par. They are increasingly not providing what shoppers want. On that basis, picking up share in any major sense is just theory, not reality.
Um, not to be a jerk, but what luxury market? I think that market is shrinking as wealth continues to shift and everyone else remains concerned about their futures.
I don’t think Bloomingdale’s, or any other department store, really, will win back that market. It’ll be brand loyalists who go direct to the brands.
No Paula, you are not a jerk. You are just recognizing reality. Bloomies might grow to 100 percent market share of luxury department stores and still not be successful.
The slightly higher lift than expected in luxury still doesn’t cover for the overall downtrend at Bloomies. Macy’s net sales dropped 35.8 percent to $3.56 billion from $5.55 billion a year earlier.
Overall, expect luxury spend to be down as consumers are driven towards intentional essential purchasing behavior.
One broad theme we will see in the coming year in many product categories is that the bankruptcies and major contractions in store counts among struggling retailers will put meaningful market share up for grabs allowing stronger players to capture incremental growth.
Luxury is a rather mature category, which is likely to recover slowly. Nordstrom’s struggles and Neiman’s bankruptcy don’t fundamentally stem from weak value propositions. In most product categories and in most geographies where they compete head-to-head, both deliver a more remarkable customer experience. Moreover, there is plenty of strong local, vendor DTC and multi-brand online competition.
Outside of the flagship store, for Bloomingdale’s to grab share of wallet in a contracted market, they will have to innovate to win, grow and retain new customers. Macy’s more broadly has suffered from thinking a slightly better version of mediocre is a winning strategy and they risk making the same mistake with Bloomingdale’s.
One opportunity that Neiman’s missed–and Nordstrom has experimented with–is getting closer to customers with a format that is designed to “embrace the blur” of shopping today. In addition to getting better at all things digital and finding ways to make their full-line and outlet stores more memorable, they should experiment with specialty store formats that also serve as BOPIS and BORIS hubs. I’d pick three metro areas and GO, GO, GO!
Mr. Gennette is ignoring a key learning from COVID-19 — Q2 is not the future.
The fact that your ship is sinking more slowly than the others around you is not exactly cause for celebration. Luxury retailers have little relevance in a market where shoppers can go directly to the brand. $10 billion in market opportunity is mostly wishful thinking in any case.
Luxury is intertwined with Bloomingdale’s brand. That is incredible brand equity. During this pandemic, as consumers, we have had something taken away from us: a wonderful and exciting retail environment. It’s kind of like getting your birthday cake with no icing. So now, as we approach more openness in the marketplace, I think Bloomingdale’ is positioned wonderfully.
First the malls have to fully reopen. Then tourist traffic has to return to big city locations like San Francisco that have what were previously high volume/high traffic Bloomingdale’s stores. I don’t think Bloomingdale’s is positioned well at all. How many of their stores are big city locations like San Francisco which will not see the foot traffic of the past for quite some time, if ever again?
Why would a consumer buy from Bloomingdale’s online vs. just buying directly from the luxury brand itself?
Bloomingdale’s is an established brand, known for quality, and that includes luxury. Defining luxury for the retailer is important. The brands and merchandise meets certain expectations. It appears that Bloomingdale’s is going to expand on the luxury category. Gennette knows the industry. Even if everyone can see what’s happening with competitors, his observations and access to information is at a much higher level than most. With that intel, while he can’t predict the future, he can spot trends we may not be seeing from our vantage point. The industry, and specifically his company, is struggling. It will take the sharpest minds in the industry to navigate through these uncharted waters.
Sounds like what J.C. Penney management used to say over the years as Sears was closing hundreds of stores. “We are going to pick up market share from Sears.” One management was so sure of this that he even added an appliance business so they could “pick up that business from Sears.” Then as Sears was closing J.C. Penney sales were still flat or down. “Oh, we just have to let Sears get through the liquidation sale then we will pick up business.” Now J.C. Penney is 7 days away from a total liquidation of its entire chain if they cannot come to terms with their creditors.
Macy’s has been making drastic cuts to its staffing and its stores are suffering. They feel dead and lifeless. I am not sure if Macy’s CEO ever visits any stores outside the flagship locations. Perhaps he should. Unannounced, dressed like a customer, and with a mask on maybe nobody will recognize him. Maybe he will get a better understanding of the chain’s problems and an understanding of the reality of the situation.
I am loving your comment and am laughing out loud.
I do not intend to be mean, just critiquing as I see the situation. In my opinion, Bloomingdale’s has incredible brand equity and stature. However, having said that, I am a little suspect of future opportunity. The Bloomingdale’s of Marvin Traub, rest his soul, is long gone and the luster of that institution has long ago faded. Today we have a dressed up Macy’s with some offerings not available at the mass market sister — this is all offered in a matter of fact, take it or leave it fashion. Nordstrom’s service and salespeople are superb and helpful and interested. Neiman Marcus is not going away — they are just scaling down and removing debt.
I have not been to 59th street for some time, but the other outlets of Bloomie’s that I have been in are lackluster and boring.
Bloomingdale’s may be able to add brands that they have not had simply because of the decrease in distribution possibilities — and they should! Along with that, however, they need to do a much better job of being luxurious. A veneer of luxury and attitude is NOT luxury and as Ms. Rosenblum stated, people have learned to go DIRECT to the desired brand — no need for an intermediate with the internet!
I wish them well.
Nordstrom …”struggling”… who knew? Yes L&T’s loss is likely to be Bloomingdale’s gain, but the former has reportedly been brought so downmarket in recent years that it’s unclear how much; and of course the scraps will be shared with other stores.
The reality is Bloomingdale’s revenues are smaller than they were thirty years ago, with a store count that’s more than twice as high (I’ll let everyone do the math); it’s an iconic NYC store that has repeatedly stumbled outside its home market, and I’m unclear on why that will change going forward. I’ve long argued it be spun-off, but this is probably the wrong time for that, so it will have to soldier on, the oft-forgotten captive in the Macy’s universe.
Craig, I think you’ve hit it on the head — what exactly is going to change for Bloomingdale’s? The market changed, but Bloomingdale’s challenges remain. It’s a fine line between vision and delusion … for Bloomingdale’s, I suspect it’s more the latter.
Perfectly said! “It’s a fine line between vision and delusion … for Bloomingdale’s, I suspect it’s more the latter.”
Nor is anything likely to change as long as it’s a footnote to the overall Macy’s picture; which is why I’ve long encouraged a spin-off, in hopes that the magic of the Traub years can be regained (and to be fair, the San Francisco store, for example, made a real effort to showcase the brand). Unfortunately, now isn’t the right time. However much the current arrangement may stifle creativity, it affords financial security that independence would not.
Many Bloomingdale’s locations I have visited throughout the years continue to appear tired and dated. Service is hard to find. I have strolled through the entire men’s section of their Palm Beach Gardens store on numerous occasions with not a single associate present on the selling floor.
Outside of NYC more like a mix between Macy’s and Nordstrom than a true luxury player, similar to the Jane Elfers iteration of Lord & Taylor. We all see how Lord & Taylor has played out, my suspicion is that Bloomingdale’s will not be far behind. They have better merchandising than Lord & Taylor did by the end, but if there is to be one survivor in the upscale/luxury retail space, I doubt it is going to be Bloomingdale’s.