5 Strategies Macy’s Is Betting On to Power Its Turnaround
In less than one year on the job, Macy’s CEO Jeff Gennette is making his presence felt and helping turn the struggling department store chain around.
Macy’s recently released its Q2 2018 financial results and for the third consecutive quarter comp sales were up, helping to solidify Gennette’s strategic vision for the company. The retailer’s North Star Strategy is focused on improving the customer journey and reducing shopper friction points both online and in-store.
“It is early innings, but I feel good about the progress that we’ve made, the focus and energy of the team, and the positive response our customers have to our strategy,” Gennette said on a recent earnings call with analysts.
The cornerstones of the strategy is investments in experience, mobility, and growing digital sales. “Our recipe for success is healthy stores, a robust e-commerce business and a powerful mobile app,”Gennette said.
The retailer’s investment in its mobile prowess, especially its mobile app is paying dividends with sales up more than 50% on the app in the first half of the year.
“We're going to pass $1 billion in mobile sales in 2018,” Gennette said. “But it’s much more than that. The customer really uses [mobile] for understanding the brand, checking out customer reviews, navigating the store, mobile checkout. The mobile app is a real gateway for us, and we're going to continue to strengthen that.”
In addition to its mobility investments, Macy’s is focused on five key strategic initiatives as it looks to rebound in the struggling department store segment:
#1 Loyalty Program
Macy’s has redesigned its Star Rewards loyalty program and opened it up to all customers, regardless of how they pay for their purchases; previously they needed to use their branded Macy’s card to receive any loyalty benefits.
The benefits of the tiered program include:
- Bronze – All customers can enjoy star money days, perks and offers, and a birthday surprise.
- Silver – Customers who spend up to $499 annually at Macy’s with their Macy’s credit card will receive 25% off any day they choose with Star Pass coupons.
- Gold – With $500 to $1,199 annual spend, customers receive 25% off any day they choose with Star Pass coupons and free shipping on all Macy’s purchases when they use a Macy’s card.
- Platinum – With $1,200 or more annual spend on a Macy’s credit card, customers receive 25% off any day they choose with Star Pass coupons, free shipping on all Macy’s purchases, and 5% back in rewards on every Macy’s merchandise purchase in-store and online.
“We’re very pleased with the loyalty program,” Gennette said. “There has been a meaningful positive change in behavior at the platinum tier, which are our best customers. And at the bronze tier level, we now have more than one million new members. These are new customers to Macy's. Within the loyalty program, our best customers are spending more. And new customers are coming into the program. We will continue to expand and refine the Star Rewards program.”
#2 Backstage Expansion
Macy’s is expanding its off-price brand Backstage. It opened 47 new Backstage stores in the second quarter for a total of 65 openings in the first half of the year. The retailer is on pace to open 120 discount locations this calendar year.
“Opening a Backstage store within a Macy's is a significant operation, since we need to relocate departments to carve out space and then construct and merchandise Backstage,” Gennette said. “This process creates a ripple effect in the store and to date the teams have been handling it very well with minimal disruptions. Adding backstage makes existing stores more productive, gives our customers an exciting new experience, and will bring new customers into the brand.”
#3 Expanded Assortment
Macy’s is expanding its online assortment by partnering with vendors who will handle fulfillment. The new system is similar to the marketplace model used my many retailers across the industry. The ongoing merchandising expansion strategy is set to go live before the holiday shopping season. The assortment increase will include Macy’s well-known brands as well as some new brands and categories designed to connect with a greater customer segment.
“We’re almost doubling the amount of SKUs that we have in our inventory,” Gennette said. “That’s a lot of sales that we’re banking on that’s going to be digital, that’s going to be fulfilled by a vendor. We want to own the inventory until we consummate the sale.”
In addition to its third party merchandising strategy, Macy’s is relying on analytics to pinpoint shopper needs and tailor its offerings to meet demand. Last year the department store chain consolidated analytics into one center of excellence that serves the entire business. The analytics center of excellence is focused on pricing, POS discounts, markdowns, and discovering and acting on customer demand.
“We’re in the early innings of this, but we have appetites to continue to use science really married with the art of a retail fashion business,” said Gennette. “[A mixture of] art and science is what our success formula is going to be at both Bloomingdale's and Macy's.”
#4 Store Fulfillment
Macy’s is expanding its in-store pickup program, both its buy online ship to store initiative and its buy online pickup in-store program. Buy online pickup in-store has been expanded to 50 stores and will be rolled out to most of the chain by the end of the third quarter.
In addition to scaling the program, Macy’s is refining the service with a focus on an improved customer experience. The retailer will be introducing At Your Service stations in every store to make pickup quick and seamless for shoppers.
The retailer’s Growth50 initiative is the implementation of in-store enhancements at 50 stores throughout the chain based on success from its Woodbridge Township, NJ test location.
“Our Growth50 stores are performing as we had expected and leave the improved trend in brick-and-mortar in the first half of the year,” said Gennette. “We also see an outside improvement in customer satisfaction scores in the Growth50, which tells us that our customers are noticing and appreciating the changes that we're making.”
Macy’s Growth50 strategy focuses on the five Ps: product, presentation, process, promotion and people. Year-to-date net promoter scores of the Growth50 stores are up almost 10 points