Will right-sized stores drive bigger returns for Macy’s?

Discussion
Photo: RetailWire
Nov 13, 2018
George Anderson

If going smaller has worked for other retailers, perhaps the same will be true for Macy’s. Management at the nation’s largest department store chain has concluded that it needs to shrink the size of its locations to grow business in the current competitive retail environment.

The Wall Street Journal reports that Macy’s is reducing space and merchandise in stores with lower sales to increase its productivity on a per square foot basis. The retailer is walling off parts of four “neighborhood stores,” where it is currently testing its smaller is better theory, to reduce inventory and staff costs. 

Macy’s CEO Jeff Gennette told the Journal that the chain would not be building 200,000-square-foot stores if it were opening new locations today because modern consumers don’t want to walk through something that big. 

Aside from size, the neighborhood stores are also different from other Macy’s with an emphasis on customer self-service in footwear and with featured space for customers to pick up online orders. Instead of individual checkouts in departments, the test stores have one checkout on each floor.

Macy’s has reduced the footprint of one such store, located in Stamford Town Center, by eight percent by walling off part of the first floor. While a smaller store didn’t appear to be an issue for customers interviewed by the Journal, having fewer staff on hand to help shoppers and keep the store clean were sticking points for some. Staff in Stamford has been reduced by 40 percent. 

Macy’s recent decision to reduce space in stores with lower sales revenues mirrors similar steps taken by Kohl’s. Last year, former CEO Kevin Mansell announced that Kohl’s newly constructed stores were 70,000-square-feet, and not the previous standard of 100,000-square-feet.

Kohl’s also began a process, still ongoing, of looking for partners to lease excess space in some 300 stores it has right-sized in recent years. The chain has focused on finding partners such as grocery and convenience stores that drive traffic to lease adjacent space. In March, Mr. Mansell announced a deal for Aldi to open stores in five to 10 locations next to right-sized Kohl’s stores.

Macy’s has a history of leasing space in its stores to complementary retailers and brands. It seems logical that it would seek to do the same in its neighborhood stores if the smaller units provide the revenues and return on investment necessary to keep them open.

DISCUSSION QUESTIONS: Do you think Macy’s right-sized “neighborhood stores” will prove to be the right approach for locations that are not among the chain’s top performers? What do you see as the pros and cons?

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"Good, tough questions. Nice to see Macy's and Kohl's ask them."
"Small is the new big. Shoppers love the convenience and savings at big stores like Macy’s, but they crave the indie retail experience."
"Customer relevance matters far more than size of the store ... what happens inside is far more important than the size of the box."

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22 Comments on "Will right-sized stores drive bigger returns for Macy’s?"


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Charles Dimov
BrainTrust

It’s a creative way of right-sizing the store to the demands of the region. Fortunately, Macy’s learned from Kohl’s findings. Kohl’s discovered that when they eliminated (closed) stores altogether, the associated online sales for that geography also dropped. Lesson: You need to think holistically about your retail choices. Online and physical retail affect each other both positively and negatively. Macy’s is on the right path by rightsizing rather than closing.

Mark Ryski
BrainTrust

Reducing the size of Macy’s stores and reducing staff will certainly help with productivity, but it won’t solve the systemic issues that Macy’s and the department store category in general have. I agree, shoppers are not interested in wandering around 100,000+ square foot department stores. While I think this is a reasonable move by Macy’s to improve operational performance, it’s still a drop in the bucket.

Carol Spieckerman
BrainTrust

Small formats make all kinds of sense but Macy’s approach sounds convoluted and potentially perilous. Fewer, centralized checkouts, skeleton crews and walled off areas aren’t very customer-centric. Macy’s is also perpetuating a lack of consistency across its brick-and-mortar fleet and widening the yawning gap between its flagships and the newly-reconfigured “other” stores. Macy’s isn’t doing itself a favor through this latest round of wrong-sizing.

Chris Petersen, PhD.
BrainTrust

Customer relevance matters far more than size of the store. In today’s world, the trend is toward smaller formats in order to improve “shopability.” But what happens inside is far more important than the size of the box. Customers are looking for convenience, relevant assortments and a seamless experience. Smaller-sized stores will only improve Macy’s performance if they are designed for customers in that market, deliver on experience, AND integrate with the Macy’s brand online.

There is always an interesting historical legacy in these discussions. Retail has historically measured performance on store metrics: sales per square foot, store inventory turns, and year-over-year comps. Today, sales are part of the whole ecosystem of omnichannel. Stores can improve online sales and vice versa. So the question of measuring improved performance must transcend the store itself.

Lee Kent
BrainTrust

Yes, Chris, I’m with you on this one. Consumers do like smaller formats and convenience, which this concept seems to provide. So, the next question is, are they giving this customer what she wants to buy? It is time to rethink the space and I do think Macy’s is moving in the right direction. For my 2 cents.

Neil Saunders
BrainTrust

There is no doubt that Macy’s is right to shrink the size of some of its stores. Many are designed for the retail environment of yesteryear and are massively overstocked in terms of assortments, especially in fashion. However, bad performance is also a function of what Macy’s does in its stores, not just the size of them. Shrinking down will only work if Macy’s improves curation, merchandising and overall store environments. Failure on these fronts is one of the reasons many larger stores have failed to deliver. That’s the heart of the problem and it needs to be corrected.

Joanna Rutter
BrainTrust
1 month 5 days ago

So interesting! I’ve been thinking a lot lately about the legacy of our suburban mall patron saint, Victor Gruen, and the effects of overstoring on urban and suburban communities in the U.S. It’s high time to reel in the wild retail square footage per capita (26 square feet per person, more than double any other country!) and ask brands to rethink the “why” behind their stores’ footprints and locations. Good, tough questions. Nice to see Macy’s and Kohl’s ask them.

Dave Bruno
BrainTrust

Reducing store size to create more intimate shopping experiences worked for Kohl’s but, given the other details reported here, I’m not sure this approach will work as well for Macy’s. While they proclaim they are responding to customer desires for updated experiences, the payroll math doesn’t seem to add up to better experiences. I am not sure how an 8 percent reduction in square footage warrants a 40 percent reduction in staff, even with the checkout and self-service changes they implemented. However, having said that, if the smaller footprints require Macy’s to re-evaluate their assortment strategies to better align assortments to local markets, then perhaps there could be a silver lining for Macy’s in the long run.

Brandon Rael
BrainTrust

We are living in a less-is-more retail world now. It’s very challenging to curate assortments/experiences and build a connection with your local community via the traditional large sized department store. Macy’s certainly has learned from Kohl’s approach, yet they have also made some significant moves to evolve into a more experiential model, with their acquisition of STORY.

Reducing the Macy’s storefront sizes is a step in the right direction, and kudos go out to CEO Jeff Gennette for recognizing that the 200,000 square foot department store simply doesn’t resonate with today’s customer. In doing so, Macy’s is making the necessary adjustments to evolving into the business of experiences.

“Macy’s is in the experience business. We’re always looking for new formats that allow our customers to discover and connect with our products and services in-store in a way that drives engagement with our brand,” said Hal Lawton, president of Macy’s.

Ed Rosenbaum
BrainTrust

I think the concept is a good starting point. I am hoping this is a work in progress. You can’t reduce store size by 8 percent and store staffing by 40 percent as the article stated and satisfy your customers.

Cynthia Holcomb
BrainTrust

Defining a store as a “neighborhood store” creates the expectation of friendly, caring customer service. A store where storekeepers take the time to engage with a shopper; a store inventoried with neighborhood-specific products. Macy’s does not mention what types of products these right-sized stores will be stocked with, all we know for sure is shoes will be self-service. I think it is unfortunate to hide the lack of customer service under the guise of a neighborhood store. It will be interesting to see if the Amazon Go model works for shoes, clothes, home goods, etc. at Macy’s. Paradoxically, the current bane of shopping a full-size Macy’s store!

Lee Peterson
BrainTrust

It’s a start, but the real answer is flipping the model itself: as Ron Johnson suggested and as Walmart is now planning, the idea of a Town Center with restaurants, work space, showroom stores and excellent staffing should also be on the docket. Think revolution vs. evolution (and slow death). Good to see that something is being tried other than useless tech and new merchandise, but simply put: stores — all of them — need to become something else, not just stacked merchandise, no matter how big they are.

Ananda Chakravarty
BrainTrust

An interesting play here is the change in how customers will flow through the store — store layout. Macy’s will now have a single point of engagement for checkout per floor rather than customers searching for an associate or walking in circles to find checkout. The smaller footprint allows for fewer associates and an easier experience for less frequent customers unfamiliar with the store layout. This is all upside for Macy’s and fits nicely with their lower performing locations by also lowering staffing costs and making these stores more profitable.

Georganne Bender
BrainTrust

Small is the new black; Small is the new big. Shoppers love the convenience and savings at big stores like Macy’s, but they crave the indie retail experience.

Macy’s has done some out-of-character things lately, including changing areas that cheapen the shopping experience, like trying on $200 shoes you pull from a self-service pile, and the single cashwrap per floor that is both inconvenient and a pain in the shorts when the store is busy. Macy’s isn’t a discount store, these things shouldn’t happen there.

Walling off areas of the store may be a start but it’s not enough. Narrower assortments that are regionally curated and backed up with strong customer service are just as important. The Market @ Macy’s, STORY, and other pop-up partnerships will help as well. Going small should be a positive move for consumers, not an inconvenience.

Rich Kizer
BrainTrust

When I think of the department store experience, I think in terms of Macy’s on State Street in Chicago and in New York City. These types of stores still resonate the department store experience, and remind me that many visits to those stores happen when people want to walk, explore, and absorb a cultural experience, especially at this holiday time. That being said, I think shoppers today are getting used to smaller formats that maximize their shopping time. I believe this move by Macy’s focused on their not so “top performers” stores is brilliant. Like it or not, we still measure store profitability on sales per square foot, maintained margins, controlling expenses and payroll. Slimmed down formats here are perfect decisions. But what is still unchanged and critical, is maintaining quality associate interactions with customers, and easy and speedy checkout experiences.

Jeff Sward
Guest

As the market and mall dynamics keep evolving, it only makes sense for physical locations to evolve accordingly. Less sales = less inventory or more markdowns. It’s pretty simple math. Will landlords step in with new rent formulas and/or new tenants…???

Dick Seesel
BrainTrust

It’s one thing to shed excess square footage in a 200,000 square foot store — along with the excess inventory needed to fill the space. It’s another thing entirely to “downsize” the shopping experience itself by converting the shoe department to self-service and reducing other staffing levels (and merchandising standards). If Macy’s is serious about making badly needed capital improvements in its “right-sized” stores, it ought to be careful about tarnishing the brand in other ways.

Dick Seesel
BrainTrust

One other point: J.C. Penney tried a while ago to develop a small-format off-mall answer to Kohl’s. But it’s not so easy without a low-cost culture and the ability to assort to a small footprint. Does Macy’s have these skills in its DNA? I’m not so sure.

Ricardo Belmar
BrainTrust

Smaller-is-better is definitely gaining mindshare as the new mantra in retail. While reducing the store footprint and merchandise may make sense in underperforming stores, I’m not sure how coupling that with a 40% reduction in staff leads to a better customer experience.

Anecdotally, the first thought that comes to mind of anyone I know whom I ask what their Macy’s experience is like is that the store was understaffed when they were last there. It’s a common perception I see for just about any Macy’s store other than Herald Square, and it’s something this plan isn’t going to address.

From a strategic point of view, as long as this is part of a larger change strategy to the format of those stores and not just a short-term vision, then it may produce positive results. I would rather see Macy’s use the space to introduce concepts like Story or b8ta in those spaces and see what that produces, but of course this would have a cost impact they may not want.

Craig Sundstrom
Guest

“Staff in Stamford has been reduced by 40 percent.” Let’s cut to the chase: whether this is merely a side-effect of size reduction or really the main point, this is going to be what people really care about (or mostly about — wearers of odd-sizes are apt to find the store no longer has what they need in stock).

Store sizes have been shrinking for decades — the 300 – 500,000 sq. ft. stores of the 50’s became 200,000 by the 70/80’s and 140 – 150,000 by the 90/00’s. And while earlier reductions were due to both the elimination of lines carried (goodbye LP’s!) and more efficient inventory control, I wonder if that process may have reached its limit. There’s just so much you can cut from a department store before it ceases to be a department store.

So, in short, this may well be a necessary idea, but I don’t see it as a “good” one.

Ken Morris
BrainTrust

This seems like a smart move for Macy’s. They are testing a lot of new strategies, and the move to right-sized spaces makes total financial sense. Beyond re-sizing existing locations, it will also enable Macy’s to open stores in smaller markets or neighborhoods with higher real estate prices.

Adjusting product assortment to the best selling items should make it easy to fit in a smaller footprint, and we will likely see more retailers adopting similar approaches.

Kenneth Leung
BrainTrust

Reducing the store size by 8% and reducing labor by 40% — sounds like a savings move to see how much less service customers will tolerate while maintaining margins.

wpDiscuz
Braintrust
"Good, tough questions. Nice to see Macy's and Kohl's ask them."
"Small is the new big. Shoppers love the convenience and savings at big stores like Macy’s, but they crave the indie retail experience."
"Customer relevance matters far more than size of the store ... what happens inside is far more important than the size of the box."

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