Macy's Herald Square Believe

Is Macy’s in trouble?

Macy’s, similar to many other department stores, had a tough fourth quarter last year. The chain blamed the unusually warm weather across much of the U.S. for its problems. But, as reports point out, Macy’s performance problems aren’t just about a single quarter.

According to Fortune, Macy’s same-store sales have been on the decline for four years. While business was positive for most of that time, overall revenues fell in 2015, the first decline going back to the Great Recession.

The one constant at Macy’s has been the leadership of Terry Lundgren. The retailer’s CEO took a hit in the wallet when he failed to receive a bonus for 2015 or a raise for 2016 because the company failed to meet financial goals.

In addition to its warm weather woes, Macy’s continues to lose business to discounters such as T.J. Maxx as Millennials seem quite willing to wear fashions from previous years that come at a fraction of the cost of the goods sold in department stores. Macy’s opened its own off-price concept last September beginning with three Macy’s Backstage locations in the New York metro area.

Forbes contributor Walter Loeb believes that Mr. Lundgren and Macy’s have made a mistake with Backstage. He writes that the new business will prove to “be a pimple on the sales chart and a minor contributor to earnings.” Instead of pursuing sales of unsold clothing and bringing in new budget-price apparel, Mr. Loeb thinks Macy’s would be better served by converting basements in some locations into tech departments that appeal to younger, affluent consumers. He also suggests improved foodservice options such as “a high-class delicatessen” to both attract shoppers to Macy’s and keeping them in stores.

It should be noted that Macy’s has converted the basement of its Herald Square flagship store into One Below, a destination for younger consumers, specifically those in the 13 to 22-year-old age group. The department, which uses house music as an atmospheric sound track, offers wearable tech and accessories; a machine the custom embroiders Levi’s jean; a 3-D printer that makes jewelry and smartphone cases; and a “selfie wall,” which projects pictures of New York landmarks for photo backdrops.

BrainTrust

"The problem isn’t Macy’s or the Macy’s management. The problem is Macy’s is a department store."

Gene Detroyer

Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.


"As they figure out what works best, they will need to accelerate the transformation to the "new" Macy’s. The problem is that it takes time. You can’t change a brand’s image or perception overnight..."

Ken Morris

Managing Partner Cambridge Retail Advisors


"Macy’s must improve the in-store customer experience, in all areas, to meet expectations of shoppers. Period."

Karen S. Herman

CEO and Disruptive Retail Specialist, Gustie Creative LLC


Discussion Questions

DISCUSSION QUESTIONS:
What do you see as the chief challenges facing Macy’s? What changes do you think are needed for the retailer to regain its growth momentum?

Poll

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Chris Petersen, PhD
Chris Petersen, PhD
7 years ago

It’s not just competition from discounters such as T.J. Maxx. Amazon has entered the fashion business with a vengeance and will be a prime competitor for everyone, especially with their ability for “fast fashion” at low price.

Number one rule of retail: Differentiate or die.

The best way to differentiate value in today’s market is through customer experience no one else is delivering. The One Below is a great example of how Macy’s might be able to differentiate on relevant experience.

Macy’s cannot afford to cling to their legacy of the past. They must learn to fail more rapidly to learn what works. The best part is that it is all measurable — and today’s consumers make their votes very quickly.

Paula Rosenblum
Paula Rosenblum
7 years ago

Macy’s is definitely in trouble. And that trouble seems to lie in areas we previously thought it was safe in.

I met a woman last night who has been trying to buy some luggage from her niece’s gift registry. The order has been placed and canceled by Macy’s for unknown reasons multiple times. No explanation, just “your order has been canceled.” And then the product comes right back up as available for sale on the gift registry.

This is one thing we all thought Macy’s had down pat — omnichannel initiatives.

I worry that the chain is headed in the wrong direction, both in focusing on cash conservation and real estate and, as Walter mentioned, in opening a “lower-priced” version of itself.

Sooner or later, department stores in general must reinvent themselves for the new era of shopper. They cannot continue to array product by brand, rather than lifestyle, but their vendor contracts won’t really allow them to do otherwise. This has been a festering problem for a very long time, and I have no easy suggestions or solutions for it.

Robert DiPietro
Robert DiPietro
7 years ago

First thing — warm weather as an excuse for the quarter means those sales never coming back and now discounting the heck out of inventory to make room for next season.

Adding technology departments in not the answer. A low-margin highly-competitive market with no service sales to offset is doomed to fail. Adding spice for younger shopper with One Below may help but it is usually hard for remodels like that to pay back. Time will tell.

I think the best advice for the CEO is drop the off-price concept store and focus on tightening merchandise strategy and appealing to the core customer. You can’t be all things to all people.

Tom Redd
Tom Redd
7 years ago

Neither Amazon nor Trader Joe’s will ever rank with Macy’s. Macy’s has a tradition-oriented shopper, a full chain of major luxury stores (Bloomies — one all the way over in Dubai) and an online operation that Amazon can never imitate. Terry did not hit the bonus numbers and Walter gets a call to comment on Terry’s plan. Do note that Walter missed the whole basement re-work that is done in NYC and rolling. Walter is a great guy but retail is way past his days. I think he is in his 80s — respect Walter but do not pace your reads of the industry on Walter.

Macy’s biggest problem is the fast changing shoppers, from Generation Z to Millennials to the “what do you mean moms are grandmas?” transition we are in the midst of with Boomers.

Just watch the Macy’s team. And talk facts before guessing with Terry.

Gordon Arnold
Gordon Arnold
7 years ago

Under the present leadership Macy’s has found itself in the land of indifference. Consumers are largely unaware nor do they care what’s going on in the stores. What is worse is the experimental marketing plans for the present. Innovative merchandising efforts for empty rooms is the direction that many big box retailers have taken in recent quarters with the same type of success. Pointing to what is going on in a store, or two, that is largely out of reach to the majority of consumers should be seen as a waste of advertising dollars and a lack of consumer awareness that is desperately needed to get customers in the stores or on the e-commerce sites.

The sole reason for the CEO of this company to remain in the position is that the market is void of executive candidates and membership that is doing anything that creates growth in real terms in this endless economic depression. The weather was not and is not the problem here. Unless you are talking about whether or not the leadership really knows how to drive sales. The results of many a retailer like Macy’s say they don’t.

Dick Seesel
Dick Seesel
7 years ago

Macy’s problems are emblematic of some of the issues that BrainTrust panelists have been discussing recently:

  1. Like J.C. Penney, Macy’s has a merchandising problem at the root of its sales issues. Its women’s apparel, in particular, looks over-assorted and too deep in overlapping private brands without a clear point of view. Merchandise content is at the heart of most retailers’ sales problems, I believe, regardless of short-term hiccups caused by weather.
  2. Macy’s was a leader in “omnichannel” and is still tying its growth strategy in part to this wagon. Like other department stores, Macy’s is learning that it is tough to maintain service levels appropriate to its brand at the same time that it is asking store associates to execute BOPIS and ship-from-store orders.
  3. Macy’s is looking at new formats like Backstage to drive sales instead of finding solutions inside its own anchor stores. It’s a case of “if you can’t beat ’em, join ’em” and chasing off-price competitors instead of focusing on whatever the Macy’s brand is supposed to stand for.

It’s a complex set of issues to address, but it all starts with merchandise content.

Gene Detroyer
Gene Detroyer
7 years ago

The problem isn’t Macy’s or the Macy’s management. The problem is Macy’s is a department store. The management can fine tune the department store concept all they want. They can put Band-Aids on it. But in the end it is a department store and the concept is not the base of a turnaround.

Why do so many companies refuse to see that that the customers and opportunities have changed? Historically, very few companies have adapted and retailers seem to have the least ability.

The future of the company is in a major disruption of what they are today. I don’t know what that is, I just know what it isn’t — a department store.

Brian Kelly
Brian Kelly
7 years ago

What do we know.
External:

  1. Spending power of the “middle class” aka Mall Anchor target is restrained.
  2. Online shopping has democratized shopping and cratered outlet loyalty.
  3. Shoppers expect authenticity, transparency and a personalized experience.

Internal:

  1. A national chain of big box department stores with socialized assortments is not relevant.
  2. Complicated, aggressive and frequent off-price promotions have undermined its value proposition.
  3. Ongoing cost take out, which reduced sales floor staffing, resulted in a chaotic and confused shopping experience.

The die is cast. Macy’s will need to shutter unproductive locations while it reduces the size of the balance of the store portfolio. It will need to rationalize and simplify the channels of engagement to eliminate the friction. Corporately, it needs to ensure that Bloomies is much more competitive against Nordstrom, or it too shall be shrunk.

The entire retail sector, (Sears, Belk, Dillard, Kohl’s, BonTon, JCP, L&T), faces a similar set of challenges. There are very few stores of this type that are relevant today. B, C and D malls face these challenges. The landscape will look radically different in five years.

Think back to this site’s discussion around holiday advertising. Macy’s advertising received high marks. Why? The messaging was irrelevant to the consumer but we continue to view the consumer in some snow-globe frozen in time. The Trump/Sanders constituencies should prove to all retailers that the status quo is no longer desired. The shopper has spoken. Move on.

As we continue to say, “retail ain’t for sissies!”

Mark Heckman
Mark Heckman
7 years ago

Macy’s is not alone in experiencing downward comp sales trends. Large footprint stores in general are finding the marketplace increasingly unreceptive to a retail format that has, in my opinion, officially entered the beginning of the declining years in its maturity cycle.

Online competitors, the move to smaller, more intimate stores and chasing a very non-monolithic group of Millennials all contribute to Macy’s woes.

To mitigate this decline, cleaner more shopper-centric presentations of product in their stores could make some impact. Many of Macy’s stores are just too cluttered with apparel and merchandise for the shopper to make quick decisions in their limited shopping time.

In addition, instead of attempting to create sub specialty brands, a focus on existing strong brands and becoming the place to go for trendy apparel brands like Hilfiger, Polo, Nautica,and others may give Macy’s a point of difference vis-a-vis competitors.

Cathy Hotka
Cathy Hotka
7 years ago

Department stores were perfect for the consumer of the 1940s but are unsuited to the modern desire to obtain merchandise immediately. In addition, Macy’s insists on rewarding customers who subscribe to physical daily newspapers … why?

Macy’s and other department stores need to do several things, including creating an app that will help customers find an item in any given store. They should step up focus groups with customers to ask them how they prefer to shop these days. Without quick action, things aren’t looking good.

Stacey Silliman
Stacey Silliman
7 years ago

I agree with Paula Rosenblum’s observation. The canceling of orders is a persistent issue with all Federated stores — Macy’s and in particular Bloomingdale’s. They cancel items without notifying customers but it’s still available on the site. They also hype their in-store pickup process but that’s only applicable to a few stores and they oftentimes cancel those orders as well, stating that it’s no longer available for in-store pickup! So, you can ship it to someone’s home but you can’t ship it to a store for the customer to see it before they walk out with it?

Also, the promotions need to stay intact. Oftentimes Federated customers use promo codes but they will cancel those orders, forcing the customer to pay full price for items they thought they were getting on sale thus alienating customers. It feels like Macy’s is turning into Sears. Poor service, poor execution and as a result for them, poor sales.

Mel Kleiman
Mel Kleiman
7 years ago

Two major challenges:

  1. Major shift in demographics and buying habits that have impacted all age groups.
  2. Retailing is being affected by a total change in what is cool and how customers want and where they want to spend their money.
J. Peter Deeb
J. Peter Deeb
7 years ago

Macy’s has many challenges but the two largest are demographics and service. The traditional Macy’s shopper is moving on to other more contemporary retailers, online shopping or they are retiring with less need for Macy’s offerings. The service issue is a downward spiral. Less sales means less help which leads to a service decline which means less sales etc. Large square footages with large inventories and too few people helping customers can’t last forever!

I am no retail expert but unless Macy’s revamps its strategy and can find ways to better serve today’s consumer they too could follow all the department store names that are history.

Lee Peterson
Lee Peterson
7 years ago

Macy’s is facing the same challenge that a lot of old school retailers are confronted with today: perception. Sears, J.C. Penney, Staples, RadioShack an on and on … to a young person, a digital native, those brands represent another era. It doesn’t help that they really haven’t changed over the years. As a matter of fact, the “immobile” aspect has sealed the deal.

Target was masterful at changing the perception of their brand starting about 12 years ago. They began with an amazing ad campaign that had little to do with product and everything to do with brand. The buzz was, “did you see that Target ad?” Then, slowly but surely, they also changed the physical environment, including graphics, materials, lighting and food service partners. Along with that, they upgraded their customer service AND their product. So Target hit the four main “Ps” — positioning, place, product and people and they were thorough about it. Now you think of Target as a modern brand, ready for the next generation of shoppers.

Macy’s ad campaigns have been more focused on product than brand and they really haven’t changed the other main “Ps” other than kind of in their flagship store. So therein lies the road ahead for them: re-thinking all of the “Ps” to focus on changing brand perception and then actually executing in places like Columbus, Ohio. That is, should they decide to even try.

The other option is to just become a real estate company and lease their spaces out to brands that matter to digital natives on a local level. Which, you know, is not a bad option. Either way, it’s change or IMO face the slow death spiral confronting many brands today.

Ken Morris
Ken Morris
7 years ago

Macy’s has experienced an amazing retail history for 157 years and while times are a bit challenging today, they have shown the resiliency to endure. The biggest challenge for Macy’s is to adapt to the dramatically changing customer, especially the younger generations that are constantly wired and shop in different ways. They need to transform their stores and their communication vehicles to attract the younger generations. Their Backstage concept is one way to reach those customers and compete with off-price retailers such as T.J. Maxx and harkens back to the Filene’s Basement concept. Today’s customers also look for destinations that will provide them with entertainment and an easy-to-shop environment. Some of Macy’s metro locations, such as the Downtown Crossing store in Boston, fit that image while some of their suburban mall locations are a bit more lacking.

Their online business is a large part of their overall sales and offers additional opportunities to reach the desired Millennial customer. Macy’s might be better served by tailoring their stores to the online customer (over $6 billion last year making up over 20 percent of total sales) by offering stores as galleries to showcase items while directing purchases online. Adding technology to the concept via “smart” mirrors and wearables will only add to the appeal.

It appears that Macy’s is starting to experiment with new approaches to appeal to younger consumers. As they figure out what works best, they will need to accelerate the transformation to the “new” Macy’s. The problem is that it takes time. You can’t change a brand’s image or perception overnight, therefore, Macy’s needs to act fast to stop the bleeding and attract new customers now.

rebecca smith
rebecca smith
7 years ago

The chief challenge is here is that there’s no reason to go to Macy’s. It’s a trend that started over 20 years ago. Call it a shift in shopper behavior, a lack of relevance and differentiation — I’d say all of the above.

I left Lazarus/Federated over 20 years ago after surviving the merger, acquisition, hostile takeover era. I don’t believe I’ve been in a department store more than 20 times since. Why? For this busy executive and mom, why do I need Macy’s? Pricing? Merchandise mix? Experience? Service?

Consumers choose retailers who respect their shoppers and provide them with a meaningful value proposition.

Karen S. Herman
Karen S. Herman
7 years ago

For starters, bring concepts from One Below upstairs.

Elevate the Macys in-store experience with creative and unique department specific music, department specific destination experiences, department specific interactive engagements with the shoppers smartphone, and why not 3D printing opportunities for the older shoppers?

Department specific differentiation, memorable experiences, learning opportunities and product customization are becoming a relevant part of today’s shoppers in-store journey and are certainly not limited to Millennials only.

Most important, give each Macy’s store a genuine local feeling. Share the local story. In an authentic way, not through the corporate standards.

Macy’s must improve the in-store customer experience, in all areas, to meet expectations of shoppers. Period.

John Cooper
John Cooper
7 years ago

I would ask Pam Danziger of Unity Marketing for her opinion. The loss of HENRY’s (High Income, Not Rich consumers) is probably a major contributing factor, aside from loss of the price-sensitive Millennials.

Craig Sundstrom
Craig Sundstrom
7 years ago

“(O)ther department stores”? Save for a few, (much) smaller competitors like Dillards and Bon-Ton — whose problems are too long and extreme to even talk about in a family blog — there really aren’t any. Sears? Enough said. JCP? Yes, but the lost years during/right before the Johnson era were one of the reasons Macy’s seemed strong as long as it did. It’s not hard to show “growth” when your main rival is driving their customers away.

But the lack of rivals/competition in the department store field is the symptom of the problem more than the cause. It just doesn’t seem to be a format that appeals to people much anymore. Whether that’s because of “real” reasons — too big/hard to shop in, unable to respond quickly to market changes, etc., or artificial ones — people just want to do things differently than their parents. It seems to be an intractable problem.

Justin Time
Justin Time
7 years ago

Macy’s needs to shrink its store base and soon. Their monopoly power in the department store segment is useless. They have forgotten what merchandising is all about. On their high horse after the May Co buyout, they disposed of the Marshall Field and Company name. Maybe it’s time to retire the Macy’s name. Is “M” still available?

Patricia Vekich Waldron
Patricia Vekich Waldron
7 years ago

Macy’s is just not fun to shop. Their assortment is not interesting, their floors are a mess and there are never associates available to help. And they have a complicated pricing strategy where most people never consider buying anything at full price.

Li McClelland
Li McClelland
7 years ago

The company, the potential customers, the external competition and the economy are all vastly different from when Lundgren and team took over. This is the type of business situation (ongoing downward slope) that obviously requires new sets of eyes and new instincts. It’s long past that time, in fact.

I honestly don’t think Macy’s can ever recover or regain their growth momentum, but a new CEO and management team would be a good start to help determine if there is any hope for Macy’s.

Kai Clarke
Kai Clarke
7 years ago

Basements are not the answer. Many stores (especially in the West) don’t really have a “true” basement. Adding delis or restaurants won’t solve Macy’s issues either. This is a fundamental model change that all department stores need to undergo to survive. Their existing model is the beginning of the end, and continuing declines in gross revenues over the last 4 years clearly point to this. More price competitive items, faster inventory turns, and smaller footprints are what will be required for the Macy’s of the future to survive. Anything less than this will only slow their demise, but still mean eventual demise for Macy’s.

Ellia Kassoff
Ellia Kassoff
7 years ago

You should remember our recent article published here last month “Are yesterday’s department stores ready to make a comeback?”

We’ve done tons of market research and have come to the conclusion that when Federated converted all their regional department stores to Macy’s, they created a very homogenized shopping experience around the country. These local communities loved their Foley’s, Bamberger’s, Jordan Marsh and Robinson’s/May, etc. They were a proud symbol of their communities. Now you take those out and replace them with Macy’s, do your central buying and marketing out of NY and you lose the “experiences” people loved and will pay for. There are many cases in-which people won’t even walk into a Macy’s after they stores were converted, Marshall Field’s for example.

We know Millennials will pay for great sales experiences where they know they are taken care of. They’re not as price sensitive as you would think and have no problem paying more for craft beer and up-and-coming designers. Macy’s has created a really boring shopping experience, with overworked and limited staff. Add that to their, “One Day Sale” every day of the week and more cheap private label product and you have a formula for failure.

This is why they sued us to stop the the old stores from coming back. They don’t want the competition. Have you ever been on a trip with some time to spare in Chicago or one of the other communities and say to yourself, “Hey, I have some time to spare, I think I’ll go to Macy’s!” It used to be people looked forward to traveling to region of the country then go to the local department store to see how the community lived and shopped. You can now just go to your local Macy’s and all the merchandise is relatively the same throughout the chain. Very sad.

Lisa Morales Cook
Lisa Morales Cook
7 years ago

Like Ellia Kassoff and others, I agree that homogeneity is not a good strategy for any national retailer operating in today’s on-demand environment. Further, this strategy degrades as footprint increases, much like a fractal. Smaller stores might be able to hold it together, but Macy’s must be purposeful in ensuring shoppers understand and attend to all a large store can offer. Macy’s must master all the tools available to them today, combining tech innovations, real estate, merchandising and planning to execute sharply and uniquely. And for the love of God, please do so with sincerity and passion. It saddens me to admit that a trip to Whole Foods is more inspiring than a trip to Macy’s.