Macy's Inc. ceo and president Jeff Gennette

Jeff Gennette is wasting no time in shaking things up at the struggling Macy’s Inc.

The retailer’s chief executive officer, who took over at the end of March, is re-engineering the company’s marketing program, looking to clear its stores of the “sea of merchandise sameness” and seeking to boost the level of exclusive products in the assortment.

But even as the ceo on Tuesday outlined his strategy to turn around the retailer, Wall Street remained skeptical about the prospects for the department store sector and sent Macy’s shares down 8.2 percent to $21.90 — the stock’s worst close since 2010. After the selloff, Macy’s had a market capitalization of $6.67 billion.

“In a lot of cases Macy’s has a lot of duplicative key items. We need to get them out,” Gennette told WWD on Tuesday. “We will fortify the remaining ones and open up receipts for additional fashion.”

According to Gennette, fashion has been underplayed. “You will see us ramp that up, and we are looking at what stores to add new brands and classifications to.”

Gennette acknowledged it’s a “surgical approach that comes back to what customers want and expect from us.”

Macy’s has a goal to ramp up exclusives to represent 40 percent of the assortment by 2020, from the current 29 percent. The company’s exclusives come in three buckets — private brands, products provided by market brands that are exclusive and capsule collections.

At 20 locations, Macy’s is testing a multitude of concepts and ideas including different “merchandise architectures.” In one store, Macy’s is experimenting with “extreme editing” of stockkeeping units.

Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.Mandatory Credit: Photo by AP/REX/Shutterstock (8771916f)Shoppers browse through the vast selection of merchandise at the grand opening of the first Macy's Backstage in Georgia at Macy's Gwinnett Place Mall on in Duluth, GaMacy's Backstage Gwinnett Place Mall Grand Opening, Duluth, USA - 29 Apr 2017

Economists say consumers have the power to spend more, but are bypassing traditional stores.  AP/REX/Shutterstock

Macy’s is also experimenting with elevating certain brands with more prominent assortments, centralized cash wraps, return centers, more open-sell environments in beauty and women’s shoes, and lease options. The company will also be testing self-checkout.

“We are creating things our best customers are asking for us to do,” Gennette said during the interview.

The testing is not limited to Macy’s. The Bloomingdale’s division is piloting a program putting 200 of its best associates online to allow them to develop customer relationships digitally.

Earlier in the day, Gennette and his top lieutenants outlined these and other strategies during a two-and-a-half hour investor conference at the Herald Square flagship. Merchandise, marketing and real estate changes were all outlined along with progress on the Backstage off-price format, mobile and the buy-online-pickup-in-store service known as BOPUS.

Gennette’s message to the investors: innovation and experimentation are happening faster, Macy’s will amplify its voice as “a fashion authority,” that there are customers who love the store and could spend more if changes are made, and that’s there no shortage of challenges for the $26 billion department store chain.

“Retail has changed for everyone,” he said. “The definition of value is different for everyone. The bar on experience is raised for everyone. To win, we need to move quickly, think more creatively.”

Macy’s “remains one of the most profitable companies in our sector and generates significant cash flow,” Gennette said. “Our challenge is we don’t always communicate with customers. The marketing machine is not efficient…We have strong merchandising skills” but the company has become “over-assorted.”

“Our challenge is our in-store experience is inconsistent and not all that appealing.” While Macy’s will focus on continuing its “strong” growth in mobile and digital, “we are committed to stabilizing the bricks-and-mortar business,” Gennette said.

Macy’s is accelerating “the way we operate and must move at the speed of our customer if we want to succeed…Our culture is changing. We are looking outward for inspirations as well as inward.”

There’s no getting around Amazon. “There’s a place for Amazon and a place for Macy’s to succeed,” Gennette said. “As they develop competency with apparel, we will stay ahead with fashion, removing the friction of how [customers] use the Internet and mobile and with great brands and great values. We are not as focused on Amazon as on our own opportunities.”

Rich Lennox, Macy’s chief marketing officer, said “Every year, one in two Americans [chooses] to shop Macy’s. That is an amazing statistic. We have a strong customer base. The reality is it’s begun to age and we’ve lost ground with the Millennial. Product authority has diminished and our value proposition has become unclear despite deep and very frequent promotions.”

Richard Lennox 

America’s affection for the Macy’s brand, said Lennox, “is not fully translating into customer preference. This gap is apparent both for Millennials and the core customer group.”

He said Macy’s is re-engineering its “high-intensity promotional model,” and will introduce in the fall a revamped loyalty program to increase engagement that will be rolled out in phases. There will also be a more concentrated multimedia approach for spring, summer, fall and holiday fashion with marketing that coalesces around a window of time and lives in all media channels.

Lennox said the plan is not to pull back on the level of promotions. Rather, it’s to create “a different species of promotions that are clear and distinct and aimed at different segments. We haven’t made each sale distinct.” Pricing will be simplified. According to Gennette, there will be “faster and deeper permanent markdowns” and no point of sale markdowns layered on top of promotions.

Macy’s takes a pyramid approach to marketing with three layers, the biggest being the promotional effort that stresses value. The second biggest involves marketing Macy’s as a fashion authority, and the third and smallest layer revolves around romancing the Macy’s brand and its iconic events such as the Fourth of July fireworks and the Thanksgiving Day parade. That’s the “love layer.”

“Seventy-five percent of the marketing investment will stay in and around the promotional layer. It’s a high frequency model,” Lennox said. “We will start telling stories about our great product — that will account for 20 percent.” And the ‘love’ layer, will increase from 2.5 percent of the marketing budget to 5 percent.”

The marketing spend is also being adjusted to increase return on investment, in part by running more 15-second TV spots which get a higher return on a lower investment compared to 30-second spots.

Macy’s will introduce “The Edit” as part of its effort to fortify the idea of the store as a fashion authority, Lennox said. The effort also entails highlighting “cutting-edge style” from around the world, exclusives, an “it” list of the hottest items of the season, and partnerships with “the most desired brands.” For fall, “fashion that lets you take on the world” will be a key message.

Gennette said there will be “real growth” happening in big brands such as Tommy Hilfiger, Rachel Roy, as well as DKNY which gets introduced as an exclusive in the fall season. On the other hand, Gennette said there’s an opportunity “to clear the brush of those brands that are secondary or tertiary.” He did not provide specifics.

To be faster and more efficient, Macy’s recently reduced the number of suppliers to its private brands by 40 percent and now has 40 core suppliers.

Macy’s is seeing some lift in business at stores where Backstage off-price departments have been installed, getting additional visits by existing customers. So far there’s no evidence that Backstage is attracting new customers, although the format currently isn’t being marketed. Backstage will be present in 45 Macy’s doors by the end of the year.

Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.Mandatory Credit: Photo by Mark Lennihan/AP/REX/Shutterstock (6222347a)A Macy's sign is illuminated on a store marquis, in New YorkMacys, New York, USA - 17 Sep 2016

A Macy’s sign is illuminated on a store marquee in New York.  Lennihan/AP/REX/Shutterstock

With Backstage, although early reads are positive, “we are not ready to declare victory,” Gennette said. “We will continue to measure results. Our hope is we have a scalable model…Backstage is powered by having a separate merchant organization that is divining the way to go with this.” Macy’s will really ramp up Backstage starting in 2018.

In other initiatives for 2017, mobile is being bolstered. It’s where transactions are growing fastest and the priority is on improving the speed, browsing and transaction experience and developing personalization. Macy’s mobile app is top rated in retail.

The company is also looking to reward shoppers who take advantage of the buy-online-pickup-in-store service. BOPUS represents Macy’s most profitable transaction, since it saves delivery costs and gets the customer back in the store for more shopping.

According to chief financial officer Karen Hoguet, among the key objectives is “first to stabilize our performance in 2017 to position us to achieve desired results in 2018 and 2019.” Macy’s projects for 2017 that comp-store sales will range from minus 2 to minus 3 percent and that adjusted earnings per share will range from $3.37 to $3.62. She said that since 2015, the company has reduced annual expense by over $1.5 billion.

Douglas Sesler, executive vice president of real estate, said, “Fourteen months ago, when I was called about the position, I did my homework on the portfolio and my reaction was ‘wow.’ There is a treasure trove of real estate inside this retailer, 130 million square feet of real estate, the vast majority of this is owned or ground leased and even when it’s leased, we have long leases, extension options and flat and inexpensive rents.”

The retailer has a partnership with Brookfield that is examining 50 Macy properties for “value creation opportunities,” which Sesler referred to as VCOs. They could involve the development of boxes outside the perimeter of an existing Macy’s stores, hypothetically “bolting on” a couple of restaurants or other businesses or development of excess land (typically it would be a parking area) where Macy’s owns a box that could be used to build another retailer, a residential building or a hotel.

Flagships are being examined to maximize productivity. At the 933,786-square-foot San Francisco flagship, men’s wear is being integrated after selling the former freestanding men’s store nearby for $250 million, or $1,000 a square foot. In addition, 10,000 square feet of  small shops fronting Union Square is being created at the flagship. “It will be a series of jewel boxes, with 18-to-20-foot ceilings, complimentary to the store, from an economic standpoint, we are starting to market these spaces, with rents of $600 to $700” a foot.

The 2.2 million-square-foot Herald Square flagship in Manhattan is “the most valuable piece of real estate we have,” Sesler said. “It’s getting more valuable every single day,” as Manhattan’s west side gets redeveloped,  including the rise of the Hudson Yards mixed-use project. “We are exploring the potential to densify this asset.” One idea, he mentioned, would be to possibly use the rooftop for a restaurant or place to have drinks.

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