Choice the Driver of Macy's Transformation Strategy

In a keynote presentation yesterday at the Shoptalk conference in Las Vegas, Jeff Gennette, CEO of Macy's, detailed the department store chain's transformation strategy as it looks to rebound from a couple of rough years. At the center of Macy's transformation: giving consumers choice.

Gennette opened his presentation by rattling off some impressive stats regarding the stature of Macy's in the retail landscape. For example, half of all Americans shop at Macy’s at least one time a year. Furthermore, 60 percent of the U.S. population lives within 10 miles of a Macy’s store. However, with the disruption seen in the retail industry over the last few years, Macy's wasn't in a position where it could rest on its laurels.

“Macy’s heritage isn’t going to be enough to guarantee success,” noted Gennette. 2015 and 2016 were a very tough time for Macy’s. We were losing customers and market share. We needed to reboot.”

Forensic Mapping of the Customer Journey

At the heart of Macy's transformation is four tenets that its customers are looking for: inspiration, fashion, value, great experiences. With these four points in mind, Macy's launched what it's calling the North Star strategy, a plan to navigate the company back to growth.

Inspiration

“The customer is the main character in our turnaround,” Gennette said, who described the brand's customers as optimists. “We have the potential to build stronger relationships [with them] and be more than transactional. She expects the human touch with the power of convenience and technology. We’re not in the commodity business; we’re in the experiences business.”

Macy's has taken several steps to help inspire its customers, including a redesign of its mobile site — Gennette called the channel the gateway to its brand, and said it's treated as a flagship store — better social engagement through its #MacysBeauty hashtag (beauty represents one of Macy's best categories), and a revamped loyalty program.

“They’re looking for inspiration,” said Gennette. “Inspire and celebrate the Macy’s customer moving forward.”

Fashion

Macy's has rolled a fresh, additive merchandising strategy across all of its sales channels. It includes a mix of private brands (which accounted for 29 percent of the company's sales in 2017, and Gennette forecasts can reach 40 percent in the near future), capsule collections with in-demand designers; and exclusive agreements with national brands that are only found at Macy's.

“We will be doubling our online assortment in 2018,” noted Gennette, “using data as our guide — what is she searching for, what are our competitors offering.”

Value

Simplifying its approach to pricing and promotions is a top priority for Macy's. Gennette joked that figuring out the prices of items in a Macy's store, after factoring in all of the promotions and discounts, is an Olympic sport.

Macy's is focusing on mobile, and specifically its app, to help customers more easily apply and receive discounts, keep track of their loyalty rewards, and pay for purchases via their phones. In addition, Macy's will be launching a tender-neutral payment option this coming May.

The other piece of the value equation for Macy's is the expansion of Backstage, its off-price concept. Gennette noted that the Backstage stores generated, on average, a lift of seven full points vs. the full-line stores. The plan is to increase the number of Backstage stores to 100 in 2018, including the first outposts on the West Coast.

Great Experiences

Speed of checkout is a pain point for many brick-and-mortar retailers, Macy's included. To address this challenge, Macy's is rolling out a mobile checkout solution. Consumers use the Macy's app to scan the barcodes of the items they want to purchase, pay for the items with a credit card stored in the app, and then go to a dedicated section of the store to have their items bagged and allow them to get on their way. This service will be rolled out to all Macy's stores this year.

In addition to making it easier to purchase items, Macy's wants to make it more convenient for customers to pick up their orders. The retailer is expanding fulfillment options for customers, including buy online, pick up in-store, as well as ship from store.

Macy's is introducing virtual reality technology in select stores to help with the furniture buying experience. Consumers can use VR headsets in-store to gain the experience of a fully furnished room. Gennette noted that customers that have used the VR headsets are converting at a higher rate and are spending more than those who haven't. The VR technology is being scaled to 60 Macy's stores this summer.

Lastly, Macy's is investing significant time and resources into getting its brick-and-mortar stores back to profitability. In what it's calling its Growth 50 initiative, Macy's has targeted 50 stores across the country to receive additional budget for such things as pilot technologies, new store fixtures, and increased wages for workers. Those 50 stores will serve as the testing ground for future projects.

“What we learn from these 50 stores is what we roll out in 2019,” Gennette said.

“We're heading into 2018 with momentum to drive growth,” said Gennette, who noted that Macy's posted positive comps in fourth quarter, reversing a nine-quarter negative trend. “We will have a 60 percent increase in capital for stores in 2018 year-over-year. We're investing in stores, technology and people.”