Macy’s looks to 3 Cs of curation, culture, convenience as ‘miracle’ continues

Profile picture for user slauchlan By Stuart Lauchlan May 20, 2018
Summary:
Has the Christmas Miracle on 34th Street continued into 2018? It just might have for Macy’s.

A woman holds a Macy's Inc shopping bag outside a store in New York
In the bag

Maybe it is a miracle after all? After quarter-on-quarter of decline and store closures, not many people would have been upbeat on the long term prospects for U.S. retailer Macy’s.

There was an upturn over the Holidays period at the end of last year, which was a boost, but was it sustainable?

Well, maybe it is. Macy’s last week found itself in the out-of-character role of giving retail stocks a bump after turning in a jump in both profits and revenues. With other retailers, such as Nordstrom and JC Penney, turning in flat or flagging numbers, Wall Street grabbed on the Macy’s numbers for cheer.

For CEO Jeffrey Gennette, the numbers were pitched as evidence that the firm is finally striking the right balance between offline and online retail, with heavy investment continuing in tech enablement and optimisation, such as rolling out mobile checkout to all locations and delivering virtual reality shopping capabilities to some store:

We are offering more options for pickup and delivery, including the expansion of Buy Online Pickup in Store and the implementation of Buy Online Ship to Store or what we call BOSS. We are focused on the rollout of extra service counters which makes picking up orders in our stores quick and easy. By August, these will be in almost every single store.

We have also introduced new technology, both on our mobile app and in our stores, that will help us eliminate friction from store visits and improve the shopping experience. One of these initiatives is mobile check out. We know that the checkout process can be a pain point for our customer. With mobile check out, we are speeding things up. Customers can scan a product with the Macy's app, pay with a store credit card and then go to a dedicated counter to remove security tags. We call it Scan, Pay, Go. We've been testing and fine-tuning mobile checkout and we plan to roll it out to every Macy's store by the end of the year.

As for the VR push, this centers on the store’s furniture business in the first instance:

We like this business because it's high-margin but it's also very high touch business. Unlike many of our competitors who have been looking at VR and AR, in furniture we have found a practical application. We've piloted VR in three of our furniture stores and found it significantly increased transaction size and also reduced returns. Using VR allows us to offer a full range of furniture in roughly half the space. So we are now scaling this to 60 more doors this year.

We've also launched an Augmented Reality feature on our mobile app that allows customers to see furniture in their actual living spaces. We've rolled it out to a portion of our app users as we test and learn. And to date, it's been very well receive

Other initiatives are, on the face of it, somewhat simpler, such the opening up of the Macy’s loyalty program to all its customers, not just its branded credit card holders as had been the case. Gennette says:

In October that we launched the first stage of the Star Rewards program and our customers are responding enthusiastically. At the platinum level, our most valuable customer is spending more with us. And while it is still early, we are starting to see improvement at the gold and silver levels as well.

Last week, we rolled out the second phase of our loyalty program, which includes a tender neutral option, allowing customers to participate in the loyalty program without having a Macy's credit card. This is what we call our bronze tier. There are no spending qualifications and this program is open to all customers no matter how they pay. We are also adding more unique experience-based benefits for our platinum customers. For instance we are offering, or we did offer private early store hours for iconic Flower Show in our New York and Chicago and San Francisco locations. These new benefits will increase brand engagement and customer retention.

The 3 Cs

There’s a mantra that’s taking hold now across Macy’s which Gennette defines as “curation, culture and convenience” with curation of inventory a priority:

That's certainly what we're looking to do with our brick-and-mortar portfolio,. It’s to make sure that we got the best possible assortment, localized at the store level and you're seeing us make much more aggressive edits and really amplify in the fashion of the trends and the brands that remain. We tested that all the way through 2017. You've seen this do that in 2018.

In terms of the convenience question, us being able to make sure that wherever our customer wants to shop, if she's browsing online, but she wants to feel the fabric in store, if she wants to get into a store but get out, she can transact without having to deal with any friction. That's why we have mobile checkouts, making sure that we've got all delivery models, including same-day delivery for that last mile imperative. We've got that very well -focused.

This leads into the Growth 50 strategy which we’ll be hearing a lot about in 2018. Gennette explains:

These are 50 stores where we are implementing the best of what we tested in 2017. This work will complete in time for the fall season and we intend to come out of the year with a model that we can scale. We are making a point of visiting each of the Growth 50 stores and I'm very excited about what I'm seeing. From merchandising strengths and strategies, more staffing in key areas, facility upgrades as well as local marketing plans. What's really striking is the renewed energy of our colleagues that they are putting into serving our customers

Growth 50 is something that when we sat down and looked at how are we going to improve our trend in brick-and-mortar, it was all on the thesis that Macy's is going to do best when we've got robust digital growth, we've got healthy brick-and-mortar and we've got a mobile platform that connects customers to all channels.

So we had the mobile piece well on way. We have the digital growth obviously, percolating and we are driving that very successfully. Brick-and-mortar needed a lot of work. So we took 50 doors that are representative of a lot of other doors and we are focusing on the 5 Ps, which for us are product, presentation, process, promotion and people. So what we're doing in each of those 50 doors is really looking at hyper-curated assortments, making sure that the facilities are in great shape, that we are putting capital in those buildings - but modest capital so that it can be scaled with what we learned - really making sure that the marketing localized. We're bringing communities into the store.

It's going to be the cross breed of art and science and great merchants to understand what's ahead. But then also look at past history. And to look at the particular community of that store and make sure that we are sorting appropriately...then use data to hyper-personalize that at a customer level. So we are in the beginning stages of that...you're going to see us use data to then personalize messaging to a customer in the future so that that also is curated like the store brick-and-mortar experience would be.

My take

Chief Financial Officer Karen Hoguet summed up the current mood at Macy’s when she said:

Spirits are up.

As well they might be. Two good quarters after years of decline is a welcome development. The firm has benefited from its real estate sell-off as well as from the Trump tax cuts., but double digit growth from digital channels is indicative that the tech investment is paying off as well.

It’s not over yet - and I still don’t believe in miracles - but certainly there’s room for a small cheer and a scaling up of confidence that Macy’s does have a future.