Macy's - another year, another restructuring, but there are omni-channel retail successes

Stuart Lauchlan Profile picture for user slauchlan February 28, 2019
Macy's is making ground on its omni-channel model, insists CEO Jeff Gennette, but the problems go on for the troubled retailer.

Every time there’s a supposed Miracle on 34th Street for Macys, the US retail giant seems determined to prove the adage of one step forward, two steps back. This week it’s announced its latest radical restructuring plan, this time looking to slash $100 million from its annual operating costs.

Having already had an extended real estate fire sale, the axe this time falls on management with 100 VP or above roles set to go. This will, according to CEO Jeff Gennette, allow the firm to “ reduce complexity, improve agility and move faster to respond to customer changing expectations”. OK dokey - but we have heard similar pledges before over recent years and yet…

There are positives, insists Gennette, with the pursuit of the elusive balance between the various constituents of an effective omni-channel retail strategy paying off:

At Macy's, the recipe for success is a healthy brick-and-mortar business, robust e-commerce and a great mobile experience. We have a balanced investment strategy that supports all three of these components. The customer journey informs our strategy and our strategic initiatives put extra weight against the areas that we have the biggest impact on our customer and we know that when we move the needle on sales growth.

The digital element is itself broken down into four strategic objectives - choice, convenience, personalization and customer experience. On choice, Gennette points to a doubling of inventory on, while convenience is embodied by adoption of Buy Online, Pick-up In Store (BOPIS) and Buy Online Ship to Store (BOSS). Store pick-up now accounts for approximately 7% of online sales and nearly doubled during the most recent holiday season, says Gennette:

One of the big things that we learned about digital business is how much the customer really wants to pick up in the store. They want the security of going to a store to pick it up. They love the convenience of it… that also helps traffic into every one of our buildings and our entire portfolio of neighborhood all the way through flagships. And when they're in those stores, they also buy other things. We add about a 25% appended sales ratio in those transactions.

On personalization and customer experience, there have been improvements, Gennette insists. Macy’s delivered more than $1 billion in sales through its app in 2018, and Gennette expect to deliver “outsized growth in mobile sales” in 2019:

We're getting better and better at personalization. It's increased and it's really driven by improved product recommendations and the technology and analytics that are behind that…digital is really about experience. We're putting the improvements in our digital environments. If you look at our app, we’ve got a good app and it's got a 4.8 star rating. We're going to continue to get better at that. Our conversion speeds are improving. If you look at the site speed, you look at the content you put on it, that's only going to help our digital business overall and being a destination for our customers.

Customer friction

There’s also been work done on apply new tech to what Gennette dubs ‘customer friction points”, citing Virtual Reality (VR) as a case in point. Macy’s was the first retailer to roll out VR tech throughout its stores, opening its 100th VR furniture gallery last month.

Where customers once went onto the furniture floors - what Gennette described as “40,000 square feet of goods and couches and rugs and pretty overwhelming” - there was the obvious question of, ‘Will this fit in my house and what will it look like?”. By using VR tech allied to individual floor plans, that question can be answered.

In turn that pays off for Macy’s says Gennette;

For the customers that are using VR in furniture, their basket size is up over 40% and the return rate is down 25%.

My take

That’s all impressive stuff, but there continue to be unforced errors that deliver setbacks. Take the 2018 ‘earn and redeem’ pre-Christmas events, which in previous years have been open to all customers. This time around someone thought it would a good idea to limit access to the event to members of the firm’s Star Rewards loyalty program.

The result was regrettable, admits Gennette. It was also entirely predictable:

The response from our loyalty members was quite strong, but we would have fared better if we had kept the promotion open to all customers. Holiday is the time where we have a steady flow of new and occasional customers into the brand and into 2018. We missed an opportunity to engage them more fully with our great values.

So he won’t be doing that again!

What he will be doing in 2019 is sticking to the plan for omni-channel transformation and hoping that economic headwinds don’t cause too many problems. That means, as it does for so many retailers, getting the balance right between channels and continuing to invest rather than just cut costs:

For us as an omni-channel brand, it really is that equilibrium that goes on between robust, digital, healthy brick-and-mortar, and this great mobile experience that ties together all browsing, all shopping behavior, the opportunity to get a stylist if you need it. Equal investments in those three main platforms is really important as an omni-channel brand.

The theory is correct; now, let's see if it stays in place as it's put into practice.

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