Will right-sized stores drive bigger returns for Macy’s?
If going smaller has worked for other retailers, perhaps the same will be true for Macy’s. Management at the nation’s largest department store chain has concluded that it needs to shrink the size of its locations to grow business in the current competitive retail environment.
The Wall Street Journal reports that Macy’s is reducing space and merchandise in stores with lower sales to increase its productivity on a per square foot basis. The retailer is walling off parts of four “neighborhood stores,” where it is currently testing its smaller is better theory, to reduce inventory and staff costs.
Macy’s CEO Jeff Gennette told the Journal that the chain would not be building 200,000-square-foot stores if it were opening new locations today because modern consumers don’t want to walk through something that big.
Aside from size, the neighborhood stores are also different from other Macy’s with an emphasis on customer self-service in footwear and with featured space for customers to pick up online orders. Instead of individual checkouts in departments, the test stores have one checkout on each floor.
Macy’s has reduced the footprint of one such store, located in Stamford Town Center, by eight percent by walling off part of the first floor. While a smaller store didn’t appear to be an issue for customers interviewed by the Journal, having fewer staff on hand to help shoppers and keep the store clean were sticking points for some. Staff in Stamford has been reduced by 40 percent.
Macy’s recent decision to reduce space in stores with lower sales revenues mirrors similar steps taken by Kohl’s. Last year, former CEO Kevin Mansell announced that Kohl’s newly constructed stores were 70,000-square-feet, and not the previous standard of 100,000-square-feet.
Kohl’s also began a process, still ongoing, of looking for partners to lease excess space in some 300 stores it has right-sized in recent years. The chain has focused on finding partners such as grocery and convenience stores that drive traffic to lease adjacent space. In March, Mr. Mansell announced a deal for Aldi to open stores in five to 10 locations next to right-sized Kohl’s stores.
Macy’s has a history of leasing space in its stores to complementary retailers and brands. It seems logical that it would seek to do the same in its neighborhood stores if the smaller units provide the revenues and return on investment necessary to keep them open.
DISCUSSION QUESTIONS: Do you think Macy’s right-sized “neighborhood stores” will prove to be the right approach for locations that are not among the chain’s top performers? What do you see as the pros and cons?