Macy’s is developing a whole new bag of tricks for growth.
Sources tell WWD the department store group is cooking up a specialty store prototype to attract younger customers, including Millennials and the college crowd, in secondary markets around the country such as Savannah, Ga., and Chattanooga, Tenn. The stores could be in lifestyle centers and near university campuses and encompass about 8,000 square feet, they said.
Macy’s, which typically does best with large department stores situated in major markets, did have a failed experiment in the Eighties operating specialty stores for a handful of its private brands such as Charter Club. Aéropostale was also a short-lived Macy’s specialty format and was eventually spun off into a separate company that mushroomed into a national chain.
The bigger picture is that Macy’s is coming up with a whole new bag of tricks, developing concepts for outlet stores; China and the Middle East; for leasing unproductive or unused space, and possibly converting some of it into outlets, and also growing its recently acquired Bluemercury beauty chain by rolling out additional freestanding shops and shops inside Macy’s.
WWD has also learned that in a major piece of the ongoing Herald Square flagship renovation, the basement will be transformed to target Millennials. What’s left of the Cellar for kitchen products is headed up to the eighth floor. Maison Jules, Bar III, American Rag and other private brands, as well as Vera Bradley and a blow dry bar, are what sources said will be part of the presentation. Macy’s existing Mstylelab department is geared for customers aged between 13 and 22, and its Impulse department is geared for 19- to 30-year-olds.
The new basement could set the tone for the specialty prototype. “It’s the boldest move yet at Herald Square, because it’s targeting a specific demographic on the lower level,” said a source familiar with the plans. “Historically, Macy’s has been cautious about what they put in their basement which had that reputation as a place for bargains.”
“As you have heard us say many times before, we are looking at all sorts of ideas — and we are always testing and learning,” said Jim Sluzewski, Macy’s corporate spokesman. “Many ideas never cut beyond the cutting room floor. On off-price, for example, we have still not made many decisions. We will announce something at some point, but we’re not there yet.”
Macy’s has been fomenting a culture of innovation and is considered one of the industry leaders in omnichannel initiatives. It’s slowly becoming international in scope and cautiously considering new channels of distribution.
Earlier this year, Peter Sachse, Macy’s chief stores officer since 2012, became chief of innovation and business development, marking the first time a senior executive at the company was assigned full-time to pilot a Macy’s off-price concept and develop an approach to innovation, while studying international opportunities for both stores and digital. Overseas, Macy’s will open in 2018 a 205,000-square-foot, four-level unit at the Al Maryah Central super-regional shopping complex under development on Al Maryah Island in Abu Dhabi. A 230,000-square-foot Bloomingdale’s will also open in Al Maryah Central, marking that retailer’s second overseas store. The first opened in Dubai in 2010. The stores will be operated under license by Al Tayer Group, which already operates the licensed Bloomingdale’s store in Dubai.
Macy’s is exploring a possible venture in China. Top executives have visited the country several times and last year, the retailer conducted an online test there for Black Friday, which was successful. The test involved offering discounts on about 100 items and partnering with the Borderfree global e-commerce platform and Alipay’s ePass payments, logistics and marketing program in China. Bloomingdale’s, Ann Taylor, Saks Fifth Avenue and Aéropostale also participated in the China test.
In another break from the formula, Macy’s opened a 140,000-square-foot unit in Gurnee Mills in Gurnee, Ill., in spring 2013, representing the retailer’s first store in an outlet center.
The specialty concept that is said to be under development could be a portal for young people to learn about the retailer and ween them into shopping the full-line Macy’s department stores when they move to larger cities. Macy’s has struggled to attract Millennials to its department stores and needs to drive traffic across generations, though officials recently cited a turn in the Millennial business for the better.
“Their four-wall business is not growing. They are trying to find new businesses,” said one department store veteran. With 800 Macy locations domestically, there’s little room left in the U.S. to open additional department stores. The corporation, which also includes the 37-unit Bloomingdale’s chain, expects total sales to grow just 1 percent and comparable sales to gain 2 percent in 2015, including digital sales. Last year, sales rose 0.6 percent to $28.1 billion from $27.9 billion, and comparable sales rose 1.4 percent.
Macy’s is considering ideas on how to change or lease unproductive and unused selling space, such as converting some units into offprice stores and leasing floors to high-tech firms. “Macy’s has an initiative to turn some of its unused levels into high tech office. It’s not good, class ‘A’ office space,” said a real estate source. “No law firm would want these big expansive floor plates. High-tech guys would happily take it. Macy’s has lots of unused floors in urban areas and would love an excuse to downsize further.”
Converting some Macy’s department stores to outlets would be challenging. “It’s very complicated to convert to off-price stores,” the source said. “The physical plant doesn’t really work and then there is the question of the market size and space. In general, most outlets are one level, whereas Macy’s has two and three level stores. The cost of retrofitting could be high. But it is totally situation dependent — depends on where outlets already exist, what the physical configuration of the store is and what the connecting environment is like — and also whether the road access is good enough to allow the market to be big enough to support the outlet use.”
“We have for some time been working on ways to make more productive use of empty upper floors of several downtown store buildings – including Pittsburgh, Seattle and Minneapolis,” Sluzewski said. “In all these cities, we have been working to lease or sell that space for whatever purpose someone might want. I guess that could theoretically include a tech company. But we have not finalized any purpose or tenant/buyer. A few years ago, we did this same thing in Portland, Ore. where the upper floors of the downtown Macy’s is now a hotel. In Philadelphia, the upper floors of the downtown Macy’s are offices for other companies.”