Next Generation: Millennials Seen Driving Retailing

Terry J. Lundgren lays out vision of future at global retailing conference.

Terry J. Lundgren

TUCSON, Ariz. — It’s soon going to be a Gen-Y world — and retailers better grab a piece of it fast.

This story first appeared in the April 19, 2012 issue of WWD.  Subscribe Today.

That was one of the key messages from the Global Retailing Conference at the Terry J. Lundgren Center for Retailing at the University of Arizona here last week, which attracted speakers from Macy’s Inc. to The Home Depot Inc., Wal-Mart Stores Inc. to Kraft Foods Inc. Topics addressed ranged from the next generation of shoppers, Millennials, to the growing importance of omni-channel retailing.

In his speech to kick off the conference, Terry J. Lundgren, Macy’s chairman, president and chief executive officer, reiterated Macy’s commitment to winning Gen-Y shoppers. “This will be the single-biggest purchasing group, bigger than the Baby Boomers.…We must be the place of choice for this consumer,” he said.

Amid all the talk of Pinterest-obsessed Millennials and moving beyond the boundaries of stores’ four walls was the recognition of the persistent importance of the tried-and-true principals of retailing: offering great products, entertaining experiences and appealing shopping environments. Lundgren, for instance, said the Macy’s Thanksgiving Day Parade, which dates back to 1924, remains significant today.

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After 9/11 and when the country dipped into the recession in 2008, Lundgren recalled, “I had tons of letters and e-mails and calls saying you should cancel the Macy’s Thanksgiving Day Parade. My response was, ‘Are you kidding?’ We should make it bigger. We should give America a reason to celebrate.” He said the parade, which he noted is the third-most watched event in America after the Super Bowl and the Academy Awards, is a “three-hour commercial as far as I’m concerned” but, more crucially, he argued it “connects the dots to the community.”

The retailer isn’t stuck in the past, however, and is investing heavily in technology to improve customer service and engage consumers.

“It is so much more than a Web site and a store,” said Peter Sachse, chief stores officer of Macy’s of how the company is reinventing its assets with omni-channel concepts. By early next year, he revealed, customers should be able to digitally pay their bills, scour customer reviews, build shopping lists of store items on Facebook and more as they are perusing merchandise at Macy’s locations.

That’s not all. Sachse said virtual mannequins would be tested in the sections Macy’s will devote to Millennial customers. “We will be able to change that display based on the day part,” he noted, adding, “Imagine if it is snowing, and we would like to show you on that virtual mannequin our best outerwear.”

In addition to the virtual mannequins, technology will facilitate what Macy’s has dubbed the “endless aisle.” By swiping through the “endless aisle” on a tablet, customers will get to look at the variety of merchandise available at Macy’s beyond the physical store they might be shopping at any given moment. “I can assure you the Tucson mall does not have the same kind of Michael Kors handbag assortment” that there is in Herald Square, said Sachse.

Macy’s is also this year beginning to roll out Beauty Spot interactive kiosks it created with Intel. Sachse detailed that they allow customers to explore bestselling beauty products, and amass lists of products they want to buy, which are sent to sales associates who collects those products for speedy purchases. “Think of it as a virtual concierge within the cosmetics department,” he said.

Macy’s has even bolder long-term technology plans. Sachse disclosed it has more than 100 million records stored via cloud computing that, down the road with customers who permit Macy’s to use their cell phone numbers, will make it possible for the retailer to “literally communicate with them at the point of purchase.”

“The cloud will know what you browsed,” he said, and can recommend products or showcase promotions based on what’s been searched or bought.

But Sachse believes the portion of the retail business customers don’t see — warehousing and inventory management — may be most affected by omni-channel improvements. In addition to sales associates being able to access products from macys.com within stores, Macy’s is turning 292 store locations into fulfillment centers by the end of July that can be tapped to satisfy customers when items aren’t in stores.

If Macy’s can meet those sorts of demands, he said, it will “increase sales, increase gross margin and increase return on capital investment and, in the end, we should need less inventory.”

Sachse is realistic, however, that not every technology will be embraced immediately. Macy’s is one of a handful of retailers partnering with Google Inc. on the Google Wallet payment system that transforms cell phones into credit card point of sale systems. Although Sachse believes the system has promise, he admitted, a “very small number of transactions” are being processed with Google Wallet currently.

Whether they are working now or not, Macy’s omni-channel pursuits are in response to the disruption the digital age has brought to brick-and-mortar retail. Kasey Lobaugh, omni-channel retail leader at Deloitte Consulting LLP, who spoke alongside Sachse at the conference, said the Internet may only account for 9 percent of retail sales, but it is driving 50 percent of the growth. By 2015, he forecasted, a majority of sales will be influenced by the digital technologies, whether they involve online research, comparison shopping on smartphones within stores or outright Web purchases.

“There is nothing that will stop a customer from coming into a Macy’s, getting all the expert advice that Macy’s has [and buying elsewhere,]” said Sachse, explaining, “While they are in the fitting room…within seconds they find it somewhere in the United States cheaper and with free shipping, and that’s what happening.”

Macy’s feels it must adopt cutting-edge technologies to keep customers engaged, especially Millennial shoppers for whom cell phones, tablets and social media are ingrained into the fabric of daily life. Those Millennials have become a key target for Macy’s, which has adjusted its organizational structure to pool together a group of employees dedicated to the Gen-Y audience. Macy’s has broken that audience into two slices: the mstylelab shopper who is between the ages of 13 and 22 and the Impulse shopper who is between the ages of 19 and 30.

As the focus shifts to the digital world, many believe the future of the mall may be threatened. However, Sandeep Mathrani, ceo of shopping mall owner General Growth Properties Inc., told conference attendees “the malls will survive. The reason the mall will survive long term is because it has the tenants that generally are not easy to shop on the Internet,” he said.

In fact, Mathrani predicted good malls would grow increasingly popular as retailers exit strip centers in search of customers and recounted advice he gave to the ceo of Best Buy Co. Inc. to reduce its retail footprint from some 45,000 square feet to 15,000 and enter malls.

“As time goes on, the malls will continue to get stronger because we will bring in all sorts of uses that are sort of fragmented,” said Mathrani, stressing, “A mall’s success is based on the diversification of its tenant base.”

Delving into that diversification, he said he’s a proponent of grocery stores at malls, and mentioned GGP opening a Total Wine store in its Park Place property in Tucson.

Mathrani touted the appeal of American malls not just for struggling retailers like Best Buy that might downsize their stores, but for growing international and domestic retailers as well. He explained that with Europe in distress and the emerging economies of India and China not yet realizing the consumer power of American shoppers, the U.S. offers the best option. He highlighted Giorgio Armani as an example of a company looking to add 50 or so stores in American malls.

“The growth where they were coming from has been cut off. We are seeing these retailers coming in and expanding,” said Mathrani. Domestic retailers, he added, are spreading unique concepts after a long hiatus. He pointed to Henri Bendel’s accessories stores and Limited Brands Inc.’s Pink stores.

Rick Darling, president of LF USA, the U.S. subsidiary of Hong Kong-based Li & Fung Ltd., took up the product mantle at the conference. During his speech, he disclosed that LF USA has signed a licensing deal with Marchesa designer Georgina Chapman. It is anticipated that LF USA will develop a contemporary offshoot of Marchesa. In a contemporary niche largely dominated by small and midsize companies, LF USA is positioning itself to become a rare powerhouse. In addition to the upcoming Marchesa subbrand, its contemporary portfolio includes Rachel Zoe and Vena Cava, which recently inked a long-term licensing and design agreement with LF USA, as reported in WWD on April 9.

Darling discussed Chapman after being questioned by a member of the audience about the longevity of celebrity apparel brands. He answered that LF USA is extremely cautious about getting involved with celebrity brands because they must perform well for at least two to three years to be worthwhile, and often the ups and downs of fame and celebrities’ volatile personal lives makes that difficult. “Actually, in the scheme of things, there are very few celebrities that we believe truly resonate with the consumer long term,” said Darling.

In illustrating the unpredictability of celebrities, Darling described a meeting with Jennifer Lopez and Marc Anthony, whose lines at Kohl’s are by a division of LF USA called Music Entertainment Sports Holdings, prior to the pair’s divorce. “They were the happiest couple. They sat holding hands,” he said.

Lopez and Anthony were supposed to jointly promote the lines and even were shot in a commercial together with their children, but, Darling recounted, “A week before the launch, they announced they were going to get a divorce. That’s the problem with celebrities.”

Designers, on the other hand, aren’t as risky, concluded Darling. “I don’t have a doubt in my mind that Georgina will be successful,” he said.