One of the recurring themes around digital transformation in the retail sector that has been promiment over the past twelve months has been the issue of how to strike the appropriate balance between offline and online activities.
At its most extreme, this has resulted in ‘traditional’ retailers offloading part of their bricks-and-mortar infrastructure after coming to the realisation that it’s now worth more to them as real estate to be sold than as active retail stores.
Nowhere has that been more publicly on view than with Macy’s, where flagship stores such as the Men’s Store in San Francisco have been closed down and put on the market.
The problem is that Macy’s has become the posterchild for the retail sector armageddon, with store closures all too likely to be too little, too late. Nonetheless, CEO Jeffrey Gennette says it’s a priority to continue with its ‘fire sale’ if the firm is to have any chance of hitting earnings guidance:
Doing that will require us to stabilize our brick-and-mortar business, as well as keep our digital and our mobile business humming.
And in that one sentence, he articulates the ‘striking the balance’ challenge that is perplexing so many, including retailers in far healthier form than Macy’s. Gennette argues that the mobile and digital aspects of the business are growing nicely, citing the mobile app as a particular asset:
We expect to get continued interest and growth through the mobile platform. Internally, we constantly challenge ourselves to deliver on an experience that integrates mobile, digital, and stores, and allows our customers to shop the way that they live.
So far, so ‘retail politically correct’, but it doesn’t address the ‘balance’ question. Gennette remains adamant that there are aspects of the traditional department store that do remain relevant today as much as ever:
These are unusual and challenging times for retail, especially for mall-based department stores. We certainly know that these changes that we’re seeing are secular and not cyclical. On the consumer side, we see continuing shifts in shopping trends, driven by the rapid adoption of technology, and for some of our customer segments, a greater emphasis on value and on experience. As for the retail industry overall, we’ve known for some time that the United States is over-retailed compared to other markets, so it’s not surprising to see the contraction in retail square footage. And it will take some time to tell how the consolidation and the closure of stores, and in some cases, entire brands will impact us.
On one hand, we have opportunity to acquire new customers. On the other hand, this contraction puts more pressure on some of our mall-based stores, where we already have seen a slowdown in traffic. At Macy’s, we have a responsibility to bring additional traffic into these stores, and we’re also going to be working on this in close partnership with our mall developers. But we don’t have our head in the sand as to the significant challenges that we face in getting the business growing again. And we’re looking outward as well as inward for the solutions, and I’m confident that we will carve out a successful path forward.
He also pitches the idea that having an offline footprint gives Macy’s a head start over the Amazons of the world:
I think that where we intersect as an omni-channel retailer versus where a pure play would be is really the nexus of store, and the kind of the social experience of being in a store. What we’re playing with right now is, what does a model store have to be for the future? So, we’re playing with that. We hope that we will have, by the end of 2018, a scalable model that really addresses the experience needs of our stores that we can scale to more in the future.
The other piece that we are going to be really amplifying is the role of the store in the community. There’s opportunity for us to be a bigger part of the community. The community basically is reaching out to us and we to them. They want us to be there. This opportunity of volunteerism and all of our engagement and our events and our opportunity to bring the community into our stores for richer experiences is how we believe that we can win.
That’s a very Starbucks-mantra, ‘coffee as community enabler’. It’s also a rather idealistic way of saying that there needs to be rethink of the role of the traditional offline retail store. The reality for Macy’s is that the bulk of its business is still done in-store. Now, that can be spun as being down to the importance of the store assets. Or it can be seen as an indictment of lack of early investment in digital. Gennette is quick to emphasise the strategic importance of tech and digital:
We use digital right now. A lot of customers are using digital to browse, and then the opportunity to take some of that demand and move it into the store through BOPS (Buy Online Pickup in Store). [That] is another way that we are going to be taking the advantages that we have of the digital customer and moving them into the store by making it advantageous for them to do so.
There need to be compelling reasons presented to the Macy’s demographic to get her – and it is a woman, according to Gennette – into the stores. This is done through exclusivity and customer experience improvement, he says:
This is kind of a nexus of technology and the human touch and the experiences that we create in our best stores and those that we create in stores that are of lower tier.
Overall, it’s all about a compelling need to ‘re-imagine’ Macy’s he concludes
Where does our brand and our consumers give us permission to play? How can we transact outside of our store and digital boundaries today? What are the new kind of markets and experiences and models that we need to create? We’re looking outward as much as inward on that.
There’s little point in dwelling on the ongoing mess that is Macy’s performance. Another quarter, another earnings miss – the pattern is set now. What is rather telling is that the company is unable to break out the dividing line between its offline and online activities. CFO Karen M. Hoguet says:
It is almost impossible to truly break out digital from store, given all of the cross-channel activity. If somebody is using a mobile phone in store, having just worked with a sales associate, is that store or digital? Or the returns, etc etc.
That worries me more than anything else as it reeks of ‘we must do digital, this is digital, we must do these’. You have to be able to project an ROI on digital investment or it’s a leap in the dark of the type that, frankly, has been left too late in the day to have any long-term material impact.
Image credit - Macy's