Macy’s Positions for Speed, Ramps Up Off-Price Model
Change is the order of the day at the largest department store chain in the U.S.
As it outlined in June, Macy’s has developed a slate of new initiatives that touch every aspect of the business. Dubbed the North Star Strategy, the plan is Macy’s roadmap to accelerated growth. At Goldman Sachs’ 24th annual Global Retail Conference Wednesday, Macy’s CEO Jeff Gennette provided some insights into many aspects of the plan and explained why he’s optimistic about the retailer’s second half.
Chief among the new initiatives is Macy’s new merchandising strategy, which streamlines the product development cycle across ready to wear, center core, beauty, men’s and kid’s and home. Annually the restructuring is expected to save the company $30 million a year, though that wasn’t the motivating factor.
“Before we had a merchandise assortment organization, a merchandise planning organization and a private brands organization and decisions were too slow,” Gennette said. “Having that single leader at a GMM level, which now we call it at GBM, as well as a single leader in Jeff Kantor, is going to help us go significantly faster.”
Kantor, who had been Macy’s chief stores and human resources officer, has been with the company for 35 years. He will report to Hal Lawton, who will begin tomorrow as Macy’s new president.
Gennette is looking to Lawton to marry technology and retail given his background as a retailer and before working at eBay. “He’s going to help accelerate developments [across] the entire customer journey digitally, on mobile and in stores,” he said.
In apparel, Macy’s is moving toward its goal of offering an assortment that’s 40 percent private label and exclusive brands, up from 29 percent currently. For the last 18 months, the company has been amassing consumer feedback and using it as a yardstick by which to evaluate its current offerings. The result is some lines that had to be trimmed and others that were expanded. Similarly, the company looked at is exclusive brands like Tommy Hilfiger and assessed those needs. Finally, the team worked with non-exclusive brands on capsule collections like the Anna Sui line.
Ganette said Macy’s is getting “a lot of traction on” the latter product bucket. “We’re figuring out the formula of what the customer is responding to,” he said, adding capsules also create excitement. “It gives us the opportunity to have a marketing event to bring customers together [and] to talk about it in the social space.”
With private label collections, Macy’s controls the entire supply chain, which has allowed it to develop new strategies that will influence the rest of the business. For instance, the development cycle is now 8 weeks for the bulk of the fashion assortment for its INC brand. The balance of the goods are on a 26-week timeline. This speed to market is what Gennette credits with driving growth. “You’ve got other brands that we’re now taking into that same formula,” he said. “Those embedded teams is frankly what influenced our decision on the restructuring of the entire merchandising organization.”
From a store standpoint, Gannette explained that Macy’s has closed 70 of the planned 100 stores, and so far its been able to retain about 12 percent of sales from these shuttered locations.
While the company is trimming the fleet, it’s also finding ways to make its stores more profitable. One key tactic is adding more off-price concepts into those locations. The Backstage departments will be in 50 Macy’s full-line stores by year’s end. To date, the company reports that the stores that house Backstage have seen a 6 point increase.
“Two thirds of our shoppers are consumers on a monthly basis at one of our off-price competitors,” Gennette said. “The big play here was what is in that experience that we could replicate while minimizing cannibalization in the Macy’s brand.”
Gennette is happy with the outlook for this sector of the business, especially in women’s apparel, women’s shoes and home. He also noted the strong performance thus far is primarily a result of current shoppers who are also shopping Backstage since the company hasn’t even focused marketing dollars on that concept yet.
Though Backstage hasn’t been a marketing focus yet, the Macy’s team has also reimagined the way in which it presents itself. When the new marketing campaigns start to roll out later this month, Macy’s shoppers will see Macy’s depicted in a new light: one as fashion authority.