Can Macy's Compete in the Modern Marketplace?

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Can Macy's Compete in the Modern Marketplace?

By Tim Denman - 08/16/2016
As shoppers continue to migrate out of the mall, department store chains like Macy's need to reinvent themselves or risk losing valuable market share to their more nimble rivals. While Macy's has been an omnichannel champion for years, its strategy has failed to connect with shoppers and sales have continued to shrink.

Last week the iconic American department store chain announced plans to close 100 of its underperforming stores and double down on its digital efforts in an attempt to greater connect with a changing and fickle shopper base.

"All of our stores except a very few are cash flow positive, but not all of our stores fit today with our desired long-term retail footprint," CFO Karen Hoguet said in a recent earnings call with analysts. "While our weaker performing and less well located stores are cash flow positive, many of these don't produce acceptable returns on investment and often don't represent a customer shopping experience that reflects our aspirations for the Macy's brand. And as we all know, market demographics change over time, and this country is over-stored given evolving customer shopping habits."

While no one can say Macy's has been unwilling to invest in the future of retail, it has failed to turn its huge omnichannel outlay into tangible results, as Macy's sales continue to slip. The retailer announced that its Q2 revenue stood at $5.86 billion, down 4% from last year. Although a 4% sales reversal is alarming it is actually an improvement over the 5.6% the brand endured in Q1.  

"Macy's is an iconic retailer with a long history of success, and one of many victims of Amazon," Adrien Nussenbaum, U.S. CEO and co-founder, Mirakl said. "In the same week that Jeff Bezos pockets roughly $800 million personal dollars, Macy's is forced to suffer a tremendous physical retail loss. The marketplace momentum of Amazon and eBay is undeniable. You either believe there is a world where many retailers exist, or you believe there's increasingly only Amazon. I believe in a world where such a monopoly does not exist, and these iconic retailers not only survive but thrive. But they need to embrace the marketplace model to do so."

While Macy's has yet to go diving into marketplace retailing it has made significant changes to its operating model in reaction to ongoing shopper trends. For example the retailer has embraced the concept of off-price retailing with it Backstage stores which are beginning to show traffic lift, and reach the stated goal of introducing new shoppers to the brand.  

"As we have said, we are focusing on setting the company up for a comeback," Hoguet said. "And while we are very pleased with the improved sales trend, it does not change our feeling of urgency for making changes to better position Macy's and Bloomingdale's for the future. We believe we can benefit from right-sizing the company. This will force us to make necessary overhead reductions to preserve profitability and ongoing cash flow. And while it will shrink the company somewhat, these closings will positively impact our return on invested capital and help us to accelerate our growth."
 
While closing underperforming physical locations will help Macy's shed some dead weight from its lineup, while simultaneously giving the brand an opportunity to capitalize on its impressive real estate holdings, the retailer needs to continue to make drastic changes to the enterprise in order to compete in the digital-first age.

"Macy's can be no more in its current form," said Dianne Inniss, customer experience and innovation strategist, ThoughtWorks Retail. "The brand can survive but the current model cannot. Macy's needs to shift and these store closings are just the first part of a messy process. Legacy retailers like Macy's are like cargo ships in a speed boat race. They cannot accelerate or maneuver as quickly so they're dumping excess weight off the top, trying to catch up. Macy’s need to fundamentally rethink how they manage their technical and business architectures in order to  be more nimble, responsive, engaging and relevant to the needs of today’s and tomorrow’s customers."