Mirakl on 34th Street as Macy's launches its own third party online marketplace to fuel digital growth

Profile picture for user slauchlan By Stuart Lauchlan November 23, 2021 Audio mode
Summary:
Macy's is joining the trend for major retailers to build out third party online marketplaces to flesh out their digital revenue opportunities. But is this another step towards splitting up the physical and digital sides of the business?

macy's

Macy’s has announced the launch of a new curated digital marketplace in partnership with platform company Mirakl, the latest gambit in its push to expand its omni-channel retail capabilities.

The new marketplace, which will launch in the second half of 2022, will allow third party merchants to sell their products via macys.com and bloomingdales.com, including brands that the retailer doesn’t currently offer.

Macy’s already has a significant digital footprint - for Q3 2021, digital accounted for a third of net sales, with a growth rate of 19% year-on-year (or 49% if the baseline is taken from the pre-COVID ‘old normal’ of 2019). But there’s a lot more that can be done, according CEO Jeff Gennette :

We have a very successful digital business now and the marketplace announcement was the next natural step in our evolution as a digitally led omni-channel retailer. We put down the marker…that we were going to hit $10 billion by '23. We are very committed to that. The marketplace would be on top of that. What we found in just everything we've done to develop our digital business was really the customer behavior and the categories that they were requesting, and the brands that they were requesting, and what was the best way for us to capitalize on that.

Being the number two website in our category in the nation, we have a lot of competition and some other really strong players and all of them have marketplaces. So, our ability to be able to study how they do it, what the competitive landscape is, how this is going to align against the Polaris strategy, what are the risks? What is the financial opportunity, ensuring that we had a scalable model that minimized our investment in incremental costs on this for both Bloomingdale's and Macy's are what led us to our partnership with Mirakl, which we think is best-in-class.

Mirakl is a French cloud-based e-commerce software company headquartered in Paris, France, which provides online marketplace software to retailers, manufacturers and wholesalers. Clients include Carrefour, BestBuy and Kroger among others.

Work is underway on the new Macy’s offering, said Gennette:

We're standing up our discrete marketplace team within our digital pyramid…We believe that the customer benefit of this is curated assortment. To get that is a must. It needs to be curated by a fashion and style retailer. It needs to be a seamless experience for the customer. And then of course, the business benefits are, we know that we can grow our digital business faster. We can generate more profitability, we can get more depth and breadth of assortment and really address new brands and emerging trends for a customer who looks to us to be able to do that.

Digital directions

The potential for further digital expansion is something that Macy’s investors are set firmly behind. In October Jana Partners LLC sent a letter pressuring the firm to follow the lead of Saks Fifth Avenue and separate its online and store businesses, while earlier this month NuOrion Advisors LLC called for the setting up of a Digital Special Committee to evaluate specific proposals for growing the digital business.

The setting up of the marketplace may satiate some of this hunger for more digital. That said, retail analyst Neil Saunders at GlobalData isn’t keen on the marketplace idea, warning in a note to investors that:

A possible danger of the marketplace is that it will decrease the overlap between stores and online which will, in turn, amplify the calls for Macy’s to spin off e-commerce…At present this is a strategy management firmly resists – and is something we applaud them for – but we do not see the matter going away any time soon...In our view, tearing digital and store asunder would be a huge mistake and would, over time, be the death-knell for Macy’s as a mainstream brand.

For now at least, the existing strategy seems set to hold as Gennette noted:

Having a strong integrated retail ecosystem that provides a seamless shopping journey, enables up to successfully attract and retain our most productive omni-channel customers. The growth of our omni-channel ecosystem is powered by our thriving online business, relevant full-line brick-and-mortar stores, and growing off-mall format stores, all soon to be further accelerated by the new digital marketplace platform. Our data validates that in markets where we have a physical presence, our online business is stronger. The interplay between our digital and physical assets is more important than ever, and we are focused on establishing an appropriate footprint in markets that drive our sustainable and profitable omni-channel rep. 

As to future digital developments, the firm has engaged AlixPartners to assist with next step strategies. Given that firm assisted Saks Fifth Avenue with its strategy to divide physical and digital, that's not exactly going to dampen down speculation about Macy's intentions in the same direction. 

But for now Gennette points to the importance of having made a solid omni-channel commitment early on:

I think any retail brand right now is reaping the full benefit with the right investments in the omni-channel customer. Clearly, what we've seen over the years has been just increased activity that's going on between the app, between the website, and store behavior. On an average transaction for omni-channel customers [there are] now around six different touch points before a purchase is consummated versus where it used to be five years ago, when it was in the two range.

Clearly, the more the customer is engaging with omni-channel, the more they like it. And that's a reinforcing load, so we certainly see huge interplay going on. Research is generally starting on the app. Most of our digital business, the majority of it, is now coming on via the app. A much bigger chunk of transactions is going on there via the app. But a lot of that behavior is while they're in a store, from research from pre -purchase discovery to purchase to post-purchase engagement. And then of course, what we're doing with all of our data and analytics and personalization is to reach out and see that behavior [and] where this is going. So, it's just getting to be a tighter and tighter loop and we fully respect the omni-channel behavior. We’re making the appropriate investments to ensure that it's a frictionless experience for him and her. So that's where that's going.

But he concedes:

It certainly begs where we're going with our entire market strategy.

My take

We also recognize the significant value of the market is assigning the pure e-commerce businesses. 

Gennette is clearly keeping his powder dry at the moment. Following Saks Fifth Avenue’s lead is transparently something that some important investors now have in their sights, especially given that the e-commerce arm at that retailer is looking at an IPO valued at $6 billion. But as GlobalData has warned, it’s a move that carries its own risks as well as rewards. The AlixPartners engagement kicks this down the road a bit, but it’s unlikely that we’ll get too far into 2022 without this becoming a major talking point again.