Features, Strategy and Operations

Macy’s: Charade on 34th Street? (Part 2)

Note: This is the second of a two-part series. The article is strictly the opinion of the author and not necessarily the viewpoint of The Robin Report.

1. Product: The Heart and Soul of a Retailer

There is a fundamental question that must be answered: “What is Macy’s?” What does Macy’s stand for? Where does Macy’s reside in the hierarchy of style, fashion, taste level and, of course, price in the tableau of retail today and in the future?

Being all things to all customers who are above the discount channel and mostly below the luxury pinnacle may have cut it in the past, but it does not today.

  • Walmart is mostly everyday lowest prices on apparel, accessories, home and food.
  • Target stands for high/low and everyday low-priced fashionable and cooler assortments of similar categories as Walmart.
  • Kohl’s is mainstream apparel accessories and home brands on sale on a high/low basis.
  • TJX is everyday low-priced deals on an ever-changing cornucopia of products.
  • Amazon is a marketplace portal to virtually every category of merchandise and increasing large numbers of brands at mostly everyday low prices, all delivered in two days or less to its Prime members.

You get my drift. Macy’s leadership needs to articulate a top-down cohesive and congruent point of view to its merchants, marketers and suppliers, and of course, its customers.

2. Price: Now and Likely Forever, a Customer Imperative

Macy’s, including both the Federated and May Company stores that are its original units, have all been high/low price-driven for most of their past. In other words, Macy’s has excelled at episodic promotion across the store and the calendar at varying levels of intensity. Unrestrained, this is something of a trap. Customers’ expectations never retreat with regard to discounts. Using double and triple dipped offerings in the form of coupons and other pure price inducements has created a situation that’s impossible to sustain successfully. I’m not suggesting that Macy’s abandons high/low pricing as JC Penney and Sears Roebuck attempted in the past, all with catastrophic results. There is no question that offloading unwarranted promotion poses a substantial volume risk. But it also creates an equally substantial positive gross margin opportunity. (I know this firsthand because I was able to successfully, albeit slowly, lead Sears Canada away from an unsustainable and illegal level of price promotion to a more balanced strategy over a period of about two years.)

I do believe that Macy’s can fundamentally rebuild its promotional calendar with not only strict rules of engagement to guide the merchants and marketers but also the creation of a whole host of deflective promotions.

  • That means the store needs to redefine how often and to what degree it will support fewer but more meaningful storewide events like “One Day Sales, Family and Friends Days” and “Lowest Price of the Season Events” etc. These cannot continue to be marketed using same-old, same-old ad formats.
  • Divisional events such as “Wardrobe Sales, Home Sales” and “Back to School Sales” must be much more powerful and urgent.
  • Interspersed across the calendar, Macy’s has to begin presenting fashion, trend, and style in its marketing at regular prices regardless of what vendors will agree to pay for. Customers are not only not privy to vendor co-op agreements, they could care less about them.
  • Promotions must take on deflective value creation using progressive pricing (buy more/save more) and other benefits like sweepstake offerings, gifts-with-purchase, purchase-with-purchase and gift card promotions, etc. It requires re-engineering the pure price reduction tactics that herald much of what Macy’s uses today to drive its business.

3. Macy’s Online Billboard

It goes without saying that macys.com must become a more effective communication tool alerting customers as to what is available at Macy’s each week, both at regular price and to support each week’s promotional program. Macys.com must become the leading message board for the store, customized and targeted by market and individual customer.

4. Re-staging Backstage

A brief comment about Macy’s Backstage outlet strategy. If the company feels compelled to continue to support this TJX/Ross/Burlington wannabe format, it must stop installing this Trojan Horse inside the four walls of its main stores. Put these outlet stores physically next to competitors’ stores. The Backstage strategy will be the death of Macy’s if it is not substantially redirected.

5. Presentation: How a Retailer Looks, Acts and Feels

For years, Federated, May Company and now Macy’s deprived hundreds of its stores the capital expense necessary to remain attractive and compelling to customers. They did this in the name of managing their returns on invested capital at what they deemed to be requisite levels. That worked to a degree where customers in these increasingly shabby and outmoded stores had nowhere else to shop. Those days are over. The customer who was tethered to a “B” or “C” mall locally now has unbound choices via the internet. Macy’s has about 700 stores. At the end of the day, Macy’s should only have 300-400 stores — tops. If a store cannot be credibly positioned and properly presented in its local market, then it should close.

It also goes without saying that Macy’s stores and macys.com must look and feel like one and the same with regard to style, content, pricing, features and benefits. Like it or not, this is a price of entry today for every omnichannel retailer who expects to be successful.

6. Differentiated Customer Service

Key to presentation in a retail enterprise is customer service. Macy’s and its antecedent divisions have a long-standing history of highly inconsistent levels of customer service. Uneven service from laudable to pathetic remains part of the status quo today driven by inadequate customer-facing staffing. Macy’s has to stop behaving as if it is an island unto itself. The company must adopt a consistent point of view on customer service both in store and online to become a destination for customers.

Like it or not, successful retailers today continue to redefine customer expectations. Amazon provides great customer service. Costco provides great customer service. Walmart and Target are working hard to clean up their acts here. Kohl’s, TJX, Ross, Burlington and others have created and maintain customer service formats that meet customers’ expectations. Macy’s, in my opinion needs to set a bar for itself in customer service that is differentiated and sustainable.

7. Productivity: P&L Is Always the Bottom Line

Macy’s is a profitable company, but the strategies and tactics it employs today to deliver profitability are shortsighted in the short term and downright confusing in the longer term. If the company expects its e-commerce business to grow to 30, 40 or even 50 percent of its overall business in an era in which customers expect same-day, one-day and two-day deliveries, can the company really expect to continue to fulfill customer orders from increasingly unproductive brick-and-mortar stores as distribution centers? This may work for Walmart and Target who are trying to compete with Amazon as all-encompassing marketplaces, but will it work for Macys? Macys must create a rational and effective logistics capability to service its e-commerce business.

There has been a longstanding view that without vendor offsets Macy’s would struggle to be profitable. If true, (and I have every reason to believe that is true) then the company must reset its expense structure to take into account that this old school behavior is not viable long-term. This means greater reliance on private label businesses to buoy up gross margins while at the same time looking long and hard at embedded expenses. Two merchant organizations – store and online? I don’t think so. Two headquarters – Cincinnati and New York? Maybe not. Regardless, margins will continue to be under pressure based upon customer expectations of price and value. Operating expenses driven by e-commerce issues of logistics, shipping costs and returns will not abate.

8. People: It’s Always All About People

At the heart of it all, the dividing line that defines a successful retailer from an also-ran enterprise is its people. Specifically, people who serve in leadership roles and those on the front lines who are customer facing. There is no reason to believe that Macy’s suffers from a shortage of talented, ambitious and committed people. But is there enough talented, ambitious and experienced leadership onboard to create a roadmap for the company’s success in the future? The challenges are great.

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