Photo: RetailWire
Macy’s counts on new rewards program
Macy’s hopes a new, simplified customer loyalty program will help generate higher sales in its stores and on macys.com.
Yesterday, the department store announced it would launch a new, reinvented Star Rewards program on Oct. 2. The program is designed to improve the customer experience by offering greater rewards in the way of discounts and personalized service based on purchases.
Customers will automatically be placed into one of three tiers — Platinum, Gold or Silver —based on their annual purchases from Macy’s. As Macy’s customers move up to higher levels, they receive more benefits, gaining perks like free shipping and additional discounts on purchases. Macy’s has announced that it will continue to enhance the program next year with “more experiential benefits” in the form of “experiences and rewards elements” unique to the retailer.
“Loyalty is a foundational element of our North Star Strategy, and stronger relationships increase the lifetime value of our customers,” said Jeff Gennette, Macy’s, Inc. chief executive officer, in a statement. “We are providing what matters most to her — an enhanced experience both in store and online, edited and elevated products, compelling value and an excellent loyalty offering.”
The new program is designed to reward the chain’s top customers and Macy’s is counting on the value of those rewards to generate more purchases. The top 10 percent of Macy’s customers represent roughly half the chain’s revenues.
Speaking on the company’s second quarter earnings call last month, Mr. Gennette said the new program tested very well in focus groups. The new program, he added, will complement Macy’s simplified approach to promotions, helping to drive sales during the critical Christmas selling season and beyond. Mr. Gennette said the chain was focused on providing a “compelling” experience in stores and online with the “right values and the right content” for its customers.
“It is positive that a confusing program with a never-ending array of deals and offers has been simplified,” Neil Saunders, managing director at GlobalData Retail and a RetailWire BrainTrust panelist, said in an interview with CNBC.
“As part of a bigger program of changes, it has a chance to help Macy’s gain some ground,” Mr. Saunders said.
Discussion Questions
DISCUSSION QUESTIONS: Will the reinvention of Macy’s Star Rewards program along with other changes being made by the chain in promotions and merchandise help turn its business around? What do you see as the remaining challenges Macy’s must address to put itself back on a positive growth track?
Poll
BrainTrust
Phil Chang
Podcast Host, Retail Influencer, Fractional CMO
Janet Dorenkott
President, Jadeco
A new loyalty program is not going to help a store which lacks loyal customers. Macy’s, once a shining star of retail, has lost its luster with key demographic groups. The stores are chaotic. The chain lacks a coherent brand message. And Millennials have stopped using malls as their preferred meeting locations. Macy’s needs much more than a new loyalty program to turn around sagging sales.
They should start by not believing focus groups. It is not research in any projectable way that can be measured.
I want Macy’s to succeed but loyalty programs are a tricky endeavor. The trick is in answering the Groucho paradox — “I would not want to be part of any club that would have me as a member.”
In other words, the program must seem more aspirational than it is. Customers need to climb the rungs easily. If not, it rewards loyal customers but does nothing to attract new shoppers. And that in a nutshell is Macy’s biggest problem.
Agree completely. I want Macy’s to do well and it is encouraging to see them take a risk and try something new, especially focusing on cool experiences. However — shopping there should be a great experience in itself. I hope this loyalty program roll-out is paired with in-store events, e-commerce brand pop-ups, a shakeup of floor plans or displays … anything to make all Stars align in Macy’s constellation. (Wow, that was cheesy, and definitely not how stars work, but I’m standing by it.)
Macy’s is working hard to re-gain customers, I’ll grant them that. If their loyalty program fits with their demographic, it might work. Historically, loyalty programs promise a following and a community and fall short on all those expectations.
If they’re looking at the membership data, there might also be the possibility of being able to find a data-backed solution out of their current mess. The issue will be the distraction of getting enough people to sign up for the program vs. actually fixing the issue with their stores.
I wish it were that easy.
Macy’s and other retailers’ issue is relevance. Macy’s needs to carry a mix of products that is more relevant to today’s fashion shopper. It is not just about getting discounts, it is about creating an in-store and online shopping experience that connects with shoppers.
What does Macy’s carry that a shopper cannot find anywhere else at a better price and more conveniently? The answer is not much. At the end of the day, that is the inherent problem.
Nordstrom is trying to innovate with more stylists and personal shoppers. They invested in technology to allow customers to customize and personalize shoes. Nordstrom, Amazon and a few other chains are using AR technology to help search and find products.
Adding rewards is not an innovation that will make shoppers stop and say WOW.
I agree with that; and a loyalty program doesn’t necessarily have make shoppers say wow as long as they’re spending more or coming more frequently. At the core, a loyalty program is about data. Gathering, understanding and using customer data to change shopper behavior. If Macy’s is able to use the data that they have effectively it can make a world of difference. It’s not a substitute for using AR, product customization or any other innovation, it’s a foundation on which those innovations can and should be built.
A streamlined, optimized and integrated loyalty program is a critical step for Macy’s as they continue their turnaround strategy, which is centered around the customer experience. While awards programs can certainly provide significant dividends as Macy’s continues to shift their holistic and tactical strategies to be more experienced focused, there are greater challenges ahead for Macy’s.
Firstly, the vast assortments and inventory overhead are areas that can be mitigated by curated and personalized assortments. Behind all these strategies is the Big Data and analytics, which in the “new” and improved Macy’s will be a combination of consumer data across channels, as well as the rich data from their new loyalty program.
In addition, there is a wonderful opportunity for Macy’s to capitalize on the paradigm shift to a showroom-like in-store experience. Focusing on the customer is always going to be critical for Macy’s, and it appears as though the management team is making the necessary strategic moves to make this happen.
Rewards programs are table stakes today. Updating/improving their existing loyalty program is a good move that may deliver some incremental impact, but I doubt that it will produce the significant improvement Macy’s needs to have a meaningful turnaround. Macy’s needs to re-focus its efforts in-store and on executing the basics. For example, ensuring that they are staffing to traffic and reducing conversion friction to capture more of the sales opportunities their stores see every day would likely have a more immediate and larger impact.
Recipe for a poor loyalty program: start with discounts and push the good stuff (e.g., experiential components and other relationship-enhancing activities) off until next year …
Well, it’s about time. I’m probably one of their 10 percent and I can tell you that their outdated coupons that you have to wait for in the mail are annoying. Then when they come in the mail, you have to sift through pages in a magazine to figure out where they hid the coupons this time. Then you get points when you use your credit card and more points if you pay $20 to have the honor of getting a percentage of sales back after the new year, for things you purchased between October and January, etc. It’s annoying and hard to keep track of, so I’m glad they are fixing it. It will help with their loyal customers.
But they need to do more. Retail stores are withering on the vine. Macy’s was one of the leaders who created a good online shopping experience before their competitors. I’m afraid they let the others play catch up now, so they do need to think about ways to reinvent themselves.
Although many of us shop mainly online, we do go to stores when shopping for a last minute party dress or gift. Moms also bring school kids into the stores because online is difficult when you’re shopping for an entire season with kids who are growing. Macy’s and other retail stores need to consider these new shopping patterns, focus on what they are selling and adjust their models accordingly.
Macy’s is difficult to shop! In fact, overwhelming to shop. I think time would be better spent merchandising Macy’s floors to show off Macy’s product point of view. Unfortunately computers, not humans, make the buying decisions for the most part. How can a computer program come up with a great buy and merch plan based on previous sales? Retail is both an ART and a science. Art requires humans. There are good merchants in this country, they are the new retail startups capitalizing on the art of human thinking, leveraged by technology. Not technology leveraging machine learning.
Loyalty is a dying concept among customers. When weighing where to shop, convenience, price point and what can’t be offered elsewhere will almost always trump rewards offered.
To attract new customers and grow revenue within its existing base, Macy’s needs true innovation, not a rehashed rewards scheme.
This is the A&P phenomenon all over again. The problem isn’t finding new ways to reward the best customers — they are already loyal. It’s finding ways to attract and reward new customers. Increasing discounts on your highest volume purchasers just decreases margins over time unless you can broaden the customer pool. When I think of the Macy’s nearest to me it reminds me more and more of Marshall’s — hectic, erratic merchandising, continuous discounting — more than Nordstrom’s. I think if somebody would focus on getting the stores in better shape, addressing new and critical demographics and had any idea of how to redefine the brand for the 21st century, all these kind of programs might be less important.
It seems that when all else fails, the only thing left is loyalty programs. It’s a race to the bottom. Keep lowering your prices and margins — force your vendors to sell for less and … and … create short-term interest at best. All this while what retailers need to be doing is innovating and blowing up the status quo. Stop counting on the same old paradigms. Given today’s retail and shopping landscape, it’s hard to believe that decision-makers still pay attention to insights from focus groups. Design, plan, measure, iterate and optimize. It’s a simple formula — start using it or you’ll be marginalized, quickly followed by out of business.
It is logical to direct the best rewards to the best customers, especially as a measure to prevent defections.
However the fact that this is necessary underlines that Macy’s offer still isn’t optimized. If defections are happening, there’s a reason — and a sub-optimal loyalty scheme is not that reason!
Without changes to the wider offer, it will work for a short time but will eventually fall flat. As part of a bigger program of changes, it has a chance to help Macy’s gain some ground.
I am unsure what a new “reinvented” rewards program is going to do for Macy’s. My first thought when I read this was, “What for? Everything always seems to be on sale anyway.” I know when I go to Macy’s shopping with my wife (a rarity) she always has a pocket filled with coupons. None seem to be the right one for what she wants to buy. In those cases, the clerk will pull one from the register for her. So what will a “reinvented” program do that is not already being done?
Wow — this is an example of offering more peripheral benefits and ignoring basic issues. I have stopped ordering from Macy’s because of constant problems using the website! More and different benefits does not solve that problem.
Since Nordstrom Rewards was relaunched in 2016, it’s been one of the bright spots in Nordstrom’s performance. This move should yield similar benefits for Macy’s. A simplified structure and more experiential benefits are among the key elements that we see consumers asking for in research we conduct for our loyalty marketing clients.
The bigger challenge facing both Nordstrom and Macy’s is that both still need to go much further in reinventing the role of the store in their business. The brick-and-mortar department store experience continues to fade in relevance to today’s consumer.
It is quite concerning that Macy’s sees loyalty programs as the way to recover health. Research into loyalty programs suggests it’s highly unlikely to get any major increase in sales from loyal customers. This is especially true given that it is a lower margin business. Research even suggests that your highest spending customers today are most likely to shift tomorrow.
Macy’s needs to be entirely focused on creating stores and products that attract large numbers of consumers. They need to be focused on bringing in more new and low-level shoppers. (Read up on the Double Jeopardy law in Byron Sharp’s work.)
I read yesterday that 50 percent of Macy’s revenue comes from 10 percent of shoppers. That reflects a problem — not an opportunity. The only opportunity that creates future health for Macy’s is new shoppers.
This is a great way to create compelling reasons to shop this store versus a competitor. Loyalty is all about personalization, not mass, untargeted discounts. Great program, Macy’s!
The new loyalty program does not address one of the most critical issues that I believe is curtailing Macy’s growth — customer experience in-store. Discounts, special merchandise and on-line benefits are good builds to enhance best customer relationship, but the foundation of success in retail is in-person customer experience. Having enough staff and having the right staff to deliver a 5-star customer experience must be addressed as the highest priority.
No amount of loyalty program development, no matter how solid, will replace a poor experience.
I actually listened to the investor call on this, and Mr. Gennette gave a very polished, professional presentation; if that was my only exposure to Macy’s, I would have been overwhelmingly impressed. And yet … I can’t help but ask myself things like, why wasn’t this done sooner? Or if it WAS done sooner and this is really incremental change, is it really big news? Or even the more basic one — is a “Rewards Program” really fundamental to the success of a business? (With regard to the last question, the answer will most certainly be that pleasing the 80/20 — or 90/10 or whatever — small group of customers who account for most of your business, and increasing, or at least retaining their patronage IS crucial, regardless.)
And then there’s the biggest question of all: aren’t most of Macy’s problems (at least in-store) like disorganized stores and minimalist service a result of cost cutting, that is not being reversed, and seems necessary for the department store model to (continue to simply) exist? Hence a death spiral of cuts>lower sales>more cuts…?
I wish them well.
I love getting Macy’s discount coupons just so I can read all of the exceptions on the back. If they want to start simplifying the program, start by making it easier to use the discount on everything in the store or don’t discount.
Costco succeeds because of low overall markup, and by exceeding customer expectations. Yes a different model, but one that is easy to understand.
I hope this will add significant discounts. Shopping at Macy’s is not an enjoyable experience, at least let’s hope it will be cheap.