CINCINNATI — “That’s just dead wrong,” said Terry J. Lundgren, Macy’s chairman and chief executive officer, about reports that Macy’s isn’t attracting Millennial customers to the degree it hoped.
“Our fastest-growing fashion business has been the Millennial business,” Lundgren said, adding that Macy’s, after developing private brands such as Bar III and Maison Jules, is grabbing customers from specialty stores, and doing well with Impulse beauty, athletic apparel, young dresses and kids.
Lundgren defended his Millennial program at a media briefing Friday, right after the retailer’s annual shareholders’ meeting at its headquarters here. “You would be hard-pressed to find another retailer as aggressive as Macy’s with that young customer,” the ceo said.
It seems that after a tough first quarter, posting a 13.4 percent slide in net profits and a comparable sales decline of 0.1 percent, Macy’s is faced with many locations where business is flat, and four-wall retailers generally continue to be dogged by the question of whether it’s possible to see healthy growth in a nation that’s overstored, seeing traffic decline in malls and experiencing steady growth in online sales.
Lundgren strongly defended the Macy’s brand and its ability to adapt, saying, “We have already moved from what was a traditional department store several years ago struggling to remain relevant in a changing world, to a company that is widely regarded at the top of the list of the most progressive omnichannel retailers.
“Our stores remain great gathering places where customers shop, relax and explore. But they are also powerful fulfillment centers that help us serve customer demand wherever and however it is generated….Looking at our company from a different angle, Macy’s is the seventh largest online retailer in America, just after Netflix — which we plan to surpass shortly,” Lundgren said, only half jokingly.
He also characterized the $28 billion Macy’s as a risk taker, and noted that in 2014, the company recorded its fifth consecutive year of comp-store growth and a 14 percent rate of earnings before interest, taxes, depreciation and amortization. “Attaining the [EBITDA] objective is important because this level of financial performance provides us the flexibility to try new ideas and gives us the resources to grow our company more aggressively,” he said.
During the press briefing, Lundgren disclosed several growth initiatives, including:
• Opening additional Macy’s outlets, called Macy’s Backstage, in spring 2016, in addition to the first four revealed for fall 2015 in the metro New York City area, though Lundgren stressed the priority is to get the format working right first.
Asked why Macy’s changed its mind about opening outlets after watching competitors for years build up outlet chains, Lundgren said, “The fact is everywhere I turned around, Macy’s stores were being surrounded by Nordstrom Rack, Saks Fifth Avenue Off-5th, or TJ Maxx. They were coming after our market share.” Lundgren also said consumer research indicated a demand for Macy’s outlets, and that the opening of a Bloomingdale’s outlet on the Upper West Side of Manhattan this fall on 72nd Street, marks a “new location strategy” for the format “because we typically open in outlet shopping malls….We currently have 13 Bloomingdale’s outlets, which gives us plenty of room for growth.”
• Greatly expanding the Bluemercury chain. “Every major city in the U.S. is a candidate for Bluemercury,” Lundgren said. Macy’s bought the beauty retailer earlier this year. “It’s just a matter of time when we get there. It’s barely in California and frankly not in the western United States in any significant way,” Lundgren said. “It’s an entrepreneurial business that makes decisions fast.”
• Additional licensing arrangements, “some within categories that we sell, some outside categories we sell,” Lundgren said, without specifying any categories. Macy’s does not sell food, sporting goods, technology and toys, and has at most dabbled in these merchandise areas. Macy’s licensed shops include Finish Line, Sunglass Hut, Lids, Louis Vuitton and Gucci.
• Expanding same-day delivery to additional cities where third-party delivery partners can be found. Macy’s currently offers same-day delivery in northern New Jersey, Chicago, Houston, Los Angeles, San Francisco, San Jose, Seattle and Washington, D.C.
• Increasing the use of beacon technology. It’s currently utilized in all Macy’s stores but only with Shopkick. Macy’s is examining if there are different applications for consumers to receive more granular and tailored notifications on their mobile devices as they shop inside Macy’s.
• The wedding business. “Macy’s gift registry is already a favorite for engaged couples,” Lundgren said. “We know we are good at selling dinnerware and towels and housewares, along with diamond rings and wedding bands. We are now beginning to think about what else we can do to help couples, their families and friends in every phase of the engagement and wedding process,” by examining such areas as tuxedos or what the bride and groom might need for the honeymoon night. “What about gifts for the wedding party? The sky is the limit,” Lundgren said.
“We continue to look for growth on a large scale — we don’t just look at one area of growth,” Lundgren said at the media briefing, citing digital, outlets, international and pumping up the chain’s top 150 stores to intensify service, customer outreach and top-selling brands and categories. Macy’s officials said the 150 stores could ultimately have a higher average unit retail price, but the strategy does not represent an overall “upscaling” of the business.
Lundgren also cited the Macy’s Idea Lab, where employees develop technology solutions to better service customers. The lab was formed last summer at macys.com in San Francisco.
Asked whether operating department stores is getting tougher, making it absolutely necessary that the corporation explore other formats, Lundgren replied, “It’s just become different. The way the consumer is shopping is so different from just three years ago. They start shopping on their phones first and then want to come to the store to touch and try on the product. They either buy it there or on a laptop at home or a mobile device….Mobile sales are going up dramatically but it’s still a small base.”
There’s concern that consumers aren’t spending more inside the stores. “Generally speaking, the consumer is in a position to spend if motivated to do so,” Lundgren said, explaining that gas prices, while creeping up, are still relatively low, and consumers have more savings, although they are dipping into their savings. He said consumers are spending on technology, automobiles and health care, taking away from spending at department stores, for the moment.
“We have to give them more time” before they get motivated to buy more apparel, he said. Still, some categories such as activewear, are getting good consumer response, Lundgren said.
“Our challenge going forward is to accelerate top-line growth while maintaining our very high current level of bottom-line profitability,” Lundgren told shareholders. “To build for the longer term, we will be investing to drive faster sales growth while maintaining a high rate of profitability.”