BrainTrust Query: Note to Macy’s – You Are the Company You Keep
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail Prophet Consulting blog.
Retail is in a state of historic upheaval and nowhere is this more evident than in the department store channel. Virtually every major department store chain is experimenting with initiatives, strategies and tactics to find some light in what has become the very dark tunnel of the current retail market.
In late May, for example, Macy’s announced that it will be opening a new store outside Chicago. What makes this particular store newsworthy, however, is that it will be located in a discount/outlet mall — something that has been out of the question for Macy’s. While they are no strangers to sales and promotions, Macy’s has until now steadfastly resisted the lure of the discount mall.
But here’s what I found particularly interesting; Macy’s says that while the location is indeed in a discount mall, the store will not be a discount store. They intend to sell the full-line of regularly priced goods that you’d find in any other Macy’s location. In fact, according to Macy’s spokespeople, the company views this opening merely as an opportunity to close a gap in their store coverage. No big deal.
Someone once said, "Companies are not the owners of their brands, only the custodians." In the end, it’s the customer who determines what the brand stands for and represents. In other words, the customer owns your brand.
Customers really don’t care about your comparable store growth, profit percentages, store coverage or anything else that often drives strategic brand planning. They care about the essence of the brand itself. They care about the promise the brand makes to them and whether or not that promise is kept.
Whether Macy’s cares to admit it or not, the decision to proximate with discount retailers makes them (at least in the consumer’s mind) a discount brand. It shifts, ever so slightly the axis of the business and potentially sets it off into a new orbit.
So, if this is a one-off move, one really has to question the logic. Why put the brand at risk for the revenue potential of one store?
My guess is that what we’re really witnessing is the thin edge of the wedge on a new and decidedly different Macy’s brand strategy — one that could prove treacherous, to say the least.
Discussion Questions
Discussion Question: Does Macy’s risk damaging its image by opening up stores in outlet centers or has the status of outlet centers changed? What do you think of the strategy of opening a standard format department store in a discount center?
If I based my answer on the Macy’s store in the local (non-discount) mall near me I’d say it should be the discounters who ought to be worried. Our “local” Macy’s is a mess with a store full of brutally discounted merchandise. Frankly, it looks like a Marshalls with delusions of grandeur.
I’d say Macy’s has a good deal of work to do on its core offering and brand position before it starts wandering too far afield.
I agree with you on this one, Doug. On a one-off basis, it’s no big deal, but it is an indicator that Macy’s could be gingerly stepping onto a slippery slope.
What’s curious is that the store will be more or less a regular Macy’s store and not a close out or discount store. In my opinion, Macy’s store opening in the discount district reflects a change in brand strategy be it intentional or not.
This would not be the first time Macy’s located within a discount center. It currently operates a store in the Galleria at Pittsburgh Mills, which is part outlet center, part entertainment center, part discount fashion center.
I would think Macy’s would tailor their merchandise to reflect who they draw to the center.
Many years ago, United Technology ran a series of “ads” in the Wall Street Journal. One of them was entitled “You Tell On Yourself.” It included the line “You tell on yourself by the company you keep.” Is Macy’s forecasting a new direction?
While I understand the desire to capture traffic that already exists at this discount mail, I have to agree that by doing so Macy’s is taking a great risk. True, the risk is mitigated by the fact that not all Macy’s customers will be aware of this locations, but certainly those shopping at a discount Mall will expect to find a “discounted” Macy’s.
Opening a store in an outlet mall makes sense for Macy’s. They are by their own definition ‘very promotional’ and that’s not going to stop anytime soon, so it seems this is where they belong. I do wonder what impact this move will have on their ‘A’ mall relationships. I would suppose it would not be positive.
It helps to understand the marketplace in order to grasp why Macy’s chose this location. The closest Macy’s store is 15 miles to the south, and there is a lot of growth and population density around the far northern Chicago area. Meanwhile, the closest store to the north (opening next spring) is sixty miles away in suburban Milwaukee. There is clearly enough “commerce” in a trade area where nobody will be building a regional mall anytime soon.
The “outlet mall” in question (Gurnee Mills) is a Simon-run hybrid including big-box stores like Sears and Kohl’s. So there is really nothing incompatible about a Macy’s store in this location, assuming it’s a small-format store with the “My Macy’s” target merchandise strategy in place.
Outlet centers are the new panacea for U.S. retailers. That and stores overseas. Horray! They’re saved! But in reality, the outlet phenomenon is headed for the same wall that hit the malls: too much of the same thing creates dis-interest. And if you go too fast, well, we all know what can happen with that.
International stores, however, is another story. If done right (which is saying a lot!), many U.S. retailers could literally double in size, because after all, “International” means a lot more than a few stores in China.
It’s unfortunate that Macy’s believes it must move into a discount mall to continue to grow. A better strategy might be to focus on the current stores (brand image) and find ways to enhance what they already have. I visited the Macy’s in downtown Chicago two weeks ago and although it was nice inside and they had several floors of merchandise it lacked overall energy. Employees were talking with each other rather than offering to help customers and signage was very inconsistent which makes the floor confusing.
Why not look for ways to increase the sales per square foot in the impressive locations they already have? Unless Macy’s is looking to move out of high fashion and compete with Dollar store and Walmart, opening in a discount mall will be an interesting and quick experiment in my option. I doubt that was the intention of Macy’s Executive team. You never know, stranger things have happened.
When I first started working with outlet stores 20 years ago, the majority of them were located two or more hours outside of major cities. The brand stores were doing their best to fly under the radar.
Fast forward and outlet centers are now front and center, and for some brands it is an extremely profitable channel. I question if there is any more discount taking place here than at the local mall ten miles away.
As someone who has run a retail organization with stores in both outlets and traditional malls, I don’t think the consumer is really differentiating that much between the two. They might expect a little more substantial savings at the outlet center, but that’s not much different than what Macy’s is doing now.
I think it could actually be a good strategy IF Macy’s wants to continue to rely on promotional activity to drive sales and visits. I’m sure the company line is that isn’t the case, but the ads in the paper still tell me otherwise.
Saying Macy’s runs the risk of damaging its brand by having a store in an outlet center is akin to saying only upscale consumers shop those Macy’s stores located in high-end shopping districts and major downtowns nationwide. That’s just not the case.
Putting a Macy’s in the outlet center is actually a very clear reflection of how today’s consumers shop, i.e. they shop where they want, when they want. One day they may be hunting for value at the local Walmart, Old Navy or outlet center, and the next day they may be off to Nordstrom or Restoration Hardware for some upscale home and apparel accessories. And next week they’ll do some comparison shopping for a new laptop at Target, Best Buy and Sears. It’s virtually impossible to pigeonhole today’s freewheeling shoppers.
Macy’s could hurt the brand if they decide to change the products the outlet center store stocks, but that doesn’t appear to be the case here. Macy’s move is an experiment to gauge and potentially gain outlet shopper dollars, but it’s also a clear reflection of how real consumers shop today.
I believe this move on Macy’s part is detrimental to their image, especially if they intend to brand themselves as a first rate store. They may be promotionally oriented, but they are not a discounter. On the other hand, this may be a hint of the direction they continue to embrace, as they might as well be operating among the discounters. The service level within their stores has been approaching that of a self service store, anyway. I believe their image has already been tarnished in this regard and by positioning themselves among discounters, they are at least not disappointing anyone when it comes to the service side of the business.
If they DO NOT intend to embrace the discounter approach to business, they have a great deal of work to do to turn things around and this latest move won’t help.
Go where the traffic is. The brand will not be hurt by the location; if they merchandise it like a regular Macy’s, it will not take any time for the customers to figure out it is a regular Macy’s.
Although I would have found this problematic even a few years ago, I don’t now. Outlet malls have gone from shop-off-the-floor close-out centers located in retail Siberia to close-in brand flagships that house full selections of first-run merchandise. Perhaps the biggest change; however, is that shopper perception no longer lags reality. Outlet malls (and in this case, I believe the situation is more of a hybrid anyway) are just another shopping venue. Ain’t no taint!
Let’s see, the last report showed Macy’s had a 7% comp increase last month after years of anemic growth. Since this blew away most other retailers, They deserve some credit for their strategies. My guess is that this new opening is probably testing an alternate location to see what the response is.
As far as damage to the brand, the fact is that the core Marshalls customer has an average family income which is roughly twice of the equivalent Macy’s customer. Like someone already said, go where the traffic is. If this location does work, look for a rollout of Macy’s in the Mill stores.
Macy’s has already changed their OWN marketplace perception with the constant (and in my opinion treacherous) onslaught of coupons, promos, offers, specials, percent off, special events (***exclusions may apply, see fine print to be frustrated***). Seems to me that the discount center positioning feels perfectly logical, given the current competitive positioning of their main ‘standard format’ stores. The middle way (not Kohl’s/not Nordstrom) is proving to be a difficult path.
This topic was actually discussed on the http://fieldsfanschicago.org/blog/ website a few weeks ago, with the points that (1) part of the mall would be “conventional,” and (2) “Macy’s will try new concepts and it’s OK if some don’t work–at least it was tried.” (Strangely left unsaid was the thought that this is something Marshall Field would never have even considered.)
In all honesty, though, it’s hard to say what–if any–image Macy’s has anymore: in some places a conventional, even (somewhat) upscale department store, in others–as Ryan suggests–a dump…suffice it to say if someone is going to make the plunge, they’re as good a choice as any.
When the whole store is routinely on sales from 25% to 40% off, you’re already a discounter, whether you’re in a mall or an outlet center. And customer’s know this.
Macy’s is probably smart to test alternative locations. They recognize that the mall-based department store format is tired, and that customers are shopping in a wide variety of retail centers. Like any major national retailer, they need to be where the customers are.
Doubtful that Macy’s will have multiple examples of this opening around the country. And, if they did, they would likely have modest traffic and support.
However, Gurnee Mills is on the outer edges of the Chicago metropolitan area, near Waukeegan. It has a major interstate highway, with reasonable ingress/egress. With reduced rental costs, and attractive consumer traffic patterns, this location is not a huge stretch, as the location pulls from North suburban areas, as well as Southern Wisconsin.
Macy’s does not have an option for their tradition mall-based stores that is available in this outer edge. Location makes this site plausible, and a potential profit winner.
I don’t mean to be harsh…but I’m not sure what Macy’s image is anymore. I certainly still sense the original grandeur when in NYC or SF…or on Thanksgiving Day watching the parade. But has anyone else noticed that of the text they print that 90% is the exclusions and rules? I don’t think promotions should be dominated by fine print. I find it a tad ironic that their logo is an asterisk of (sorts).