Macy’s: The Biggest and Last Department Store Standing? Or an Emerging New Model?

The Robin Report - Macy'sI was among the very first, if not the first, some thirty years ago, to declare the demise of the department stores. And, indeed, their share of market, particularly in apparel, has steadily declined during those years, lost to the apparel specialty chains.

Sticking with my prediction in an article I wrote in January of 2005, I likened Terry Lundgren, then CEO of Federated Department Stores (now Macy’s) to Gary Cooper in the classic film, High Noon. At the time, Federated was “gunning” to acquire May Company, and my analogy to Mr. Cooper had to do with the possibility that Mr. Lundgren might be the last man standing in the department store sector.

I also said at the time that Lundgren could seize the moment to propel his vision beyond just being the biggest and last department store in a dying channel to transforming the old traditional model into an exciting, relevant and branded destination for fun and entertainment and, in The New Rules of Retail lexicon, from my co-authored book, a neurologically connecting and addictive shopping experience.

Well, here we are five years and a deep recession later, and what I’m hearing, reading and seeing is that Lundgren & Co. did seize the moment to lay out a grand plan for a strategic transformation, some of which is beginning to emerge. However, if his vision is achieved, should we continue to call it a department store?

I believe what we’re talking about is a Macy’s branded and enclosed mini-mall, full of a lot of go-to events, cafes, restaurants, and small, branded and lifestyle specialty shops, both owned and leased. So, Macy’s, the brand, becomes the destination, an experience so compelling that consumers will leave the Internet or any other store that just sells stuff.

Assuming I’m right, what do we call this new business model?

Don’t Miss the Forest Looking at the Trees,  And, it’s Back to the Future

One can be dazzled by the flurry of new tactics being announced by Macy’s on an almost weekly basis. However, we need to step back and view all of them together, forming a larger “forest” so to speak, as a strategic evolution that, if successful (and if followed by the other traditional department stores), will in fact make my prediction come true: the demise of department stores as we have traditionally defined them for the last half century. However, they will have evolved to a 21st Century version of their original model launched in the mid-to-late 1800s.

Founded in 1858, Macy’s was dubbed one of the original “palaces of consumption” along with Lord & Taylor, A.T. Stewart , and Arnold Constable in New York, Jordan Marsh in Boston, Field, Leiter & Co, (later Marshall Field & Co.) in Chicago, and many others across the country.

These giant stores, also called “cathedrals” due to their architectural grandeur, were precursors to the modern shopping malls. They housed just about any product a consumer needed or might want, in addition to restaurants, tea rooms, child care, beauty parlors, public phones (remember those?), soda fountains, sponsored entertainment, kids’ events, fashion shows, and, more.

Is some of this beginning to sound like déjà vu?

Now I want you to pause, think and clearly understand the greatest irony of all. During this period, roughly 60% of the population resided in rural areas, far from these “palaces.” These original department stores offered such an overwhelming and compelling experience that those rural families would tear themselves away from the Sears catalogue, the Internet equivalent of the time, to travel for hours to these beautiful and exciting stores and to spend the entire day enjoying and probably spending more, just for the experience.

So, what is Macy’s declaring to achieve, and what must their other department store brethren do to tear consumers away from the Internet and their mobile devices? Do I hear “…. create an overwhelming and compelling experience?” I think so.

Re-achieving the status of “palaces of consumption” or “cathedrals” as they were called in those early years could very well propel this channel back to its dominant model and competitively advantageous position. Who knows, they may even steal back the apparel share of market they’ve lost over the years.

But, I also think they have miles to go, particularly in their secondary and tertiary markets. The recently announced $400 million renovation to the flagship will obviously be a huge leap forward. And, one of the renovation’s goals is to elevate the Macy’s experience “back to the future,” as described below.

The Robin Report - Macy's

The Experience Alone is Not Enough

While those stores full of great experiences led to the attribution of the line: “if you build it, they will come,” and they did, it is not enough today. Just as the Sears catalogue brought the store to consumers in the late 1800s, so too, must Macy’s and all other retailers take their stores to consumers today via the Internet and mobile devices.

We call this “new rules” strategy “preemptive distribution”: operating on a fully integrated, seamless matrix of all distribution platforms with the objective of connecting with consumers first, faster and more often than the hundreds of other equally compelling competitors, and to do so where, when, how and as often as the consumer desires. Macy’s refers to the integration of their in-store and online distribution platforms as their “omnichannel. ” They’ve invested enormous capital and manpower into it, advancing aggressively to a seamless process that provides the consumer unlimited access, wherever and whenever they choose.

The third “new rule,” without which the first two are rendered useless, is the fact that neither a great neurologically connecting experience nor preemptive distribution can be achieved without dominant control of the value chain. Obviously, the manufacturing, logistics, distribution, inventory, marketing, presentation and selling involved in the complex department store business model require enormous collaboration between all participants in the value chain, including the thousands of vendors that supply it. However, for Macy’s to be able to provide the consumer experience promised by the brand and to be accessible to consumers instantaneously, whenever, wherever, however and as often as they demand, Macy’s must have dominant control over the entire value chain of its complex business.

The Brand, the Experience, the Exclusivity, the Access

It all starts with management’s priority commitment to the Macy’s brand, clearly defining its positioning, including what it is going to stand for to its consumers, an experience so compelling and differentiated that they will make Macy’s their first go-to destination, in-store or online.

A best practices example of this kind of brand positioning and commitment in the traditional department store sector was Selfridges in London in the mid-1990s. Then- CEO Vittorio Radice declared that Selfridges was not going to be a department store that sold stuff or other people’s brands, but was going to be the dominant go-to brand. He said, “place is more important than product.”

Radice recreated Selfridges, positioning it as an exciting, entertaining, fun and totally compelling destination for consumers, essentially one of the coolest places to be in London. Oh, and by the way, while people are at Selfridges, enjoying a Bollywood film event, or dining in their restaurant, or attending any other of a steady stream of events, they could also shop through the store and buy all kinds of desirable brands and products.

To recreate Selfridges as a go-to experience, Radice removed the departmental infrastructure, both organizationally and structurally, and replaced it with a lifestyle buying/merchandising group and a totally reconfigured store layout organized around lifestlyes vs. departments. He believed the department store model was not only irrelevant, but an impediment to providing consumers a great experience. The Selfridges example is not to suggest that Macy’s should adopt that brand re-creation template. Their structure and organization is much larger, and way too complex to radically transform, so they probably couldn’t even do it if they wanted to.

However, and particularly since the May acquisition, Macy’s has focused on strengthening and leveraging the power of the Macy’s brand.Capitalizing on the high national and international consumer awareness levels owing to its history as one of the original “palaces,” its role in the film Miracle on 34th Street, the Thanksgiving Day Parade and the Fourth of July Fireworks, Mr. Lundgren and team have pursued several strategic initiatives to elevate the consumer experience, and will continue to do so.

The “My Macy’s” slogan, for example, implicitly promises special “for me,” exclusivity “I can find nowhere else,” that caters to “my local preferences.” And, they are supporting this promise by restructuring the organization, consolidating to seven divisions and spreading merchandising decision-making out to sixty- nine localized markets. They are also growing their private brand arsenal, currently 20% of total sales. The company says that half the product they sell is only available at Macy’s.

In addition to the differentiation and exclusivity provided by private and exclusive brands, the strategy also affords Macy’s greater control over their value chain, which in turn provides them reduced cycle times and more frequent line creation. They own two profit margins with their private brands (as well as the charge-backs), and control the all-important merchandising presentation and shopping experience.

Macy’s has also been focusing on making their stores an exciting go-to experience destination. Fashion shows, culinary events, book readings, flower shows, and celebrity appearances, many of them from their roster of exclusive or capsule brands such as Martha Stewart, Karl Lagerfeld, Sean John, Tommy Hilfiger, Donald Trump, Michael Kors and others, strengthen the brand-building efforts.

While these experiences are not physically accessible online, they help Macy’s connect mentally with their customers, attracting them into the stores. Thus, Macy’s “omnichannel” is fully integrated and transparent, providing quicker and easier access to consumers (preemptive distribution) and providing quicker and easier access for consumers.

The Palace of All Palaces

Returning to my “back to the future” narrative, Macy’s has announced a $400 million renovation of its New York Herald Square flagship: the world’s largest store and one of the first “palaces of consumption.” Indeed, this vast reinterpretation of the original palace into the future is a further step in the evolution of department stores into an emerging new model.

Roughly 100,000 square feet will be added, to total 1.2 million sq. ft. of selling space, making the world’s largest store even larger. CEO Terry Lundgren told WWD that they were being careful to “preserve and restore the historical integrity of this landmark building…blending Macy’s architectural legacy with advanced technology and contemporary design is what makes this project so special.” There are plans to restore the exterior of the building, to uncover windows, and preserve much of the original infrastructure, including one of the original wooden escalators.
Remodeled areas will include the world’s largest shoe shop, replete with a coffee/wine and chocolate bar, several café-type dining areas, and a new restaurant. A new “mstylelab” on the lower level will be outfitted with leading edge retail technologies and services for junior and young men customers. And, the De Gustibus Cooking School with a demonstration kitchen and other elements of The Cellar will be brought up to the home area.

Lundgren commented that the expansion and restoration will also create “a modern, customer-centric shopping experience” to reflect “how a new generation of customers prefers to shop.” And, his next statement was the one that really caught my attention. He said, “In many cases, product will be organized by lifestyle to help customers create looks and build wardrobes across categories.”

The significance of that last statement might go unnoticed by many. Lundgren’s commitment to this lifestyle aspect of the shopping experience could well be the first “shot across the bow” of the branded apparel specialty chains, most of whom have used this same strategy to gain apparel share from department stores.

I have long speculated that if the big stores could begin to organize their products and services around lifestyle it could actually provide them a huge competitive advantage, because they already trump the specialists with the breadth of their selection. Once again, this speaks to an easier, more convenient shopping experience without having to traverse the maze of departments and floors.

Finally, I could not sign off without offering up what could be the severest blow to the specialists. I’m waiting for the department stores to roll out their private or exclusive brands as branded specialty chains. While Macy’s did so with their Aeropostale brand several years ago without great success, I believe it was simply ahead of its time. Look at Aeropostale now.

The Macy’s Mini-Mall: The Future is Now

So, Macy’s has been implementing a strategic evolution, with its various stages having varying degrees of success. However, all of their initiatives are directionally spot-on for evolving Macy’s “back to the (palace of) the future.”

Will “department store” continue to be an apt definition? At the end of the evolution won’t Macy’s resemble more of an enclosed mini-mall, full of go-to events, cafes, restaurants and small, branded and lifestyle owned and leased specialty shops? And, Macy’s, the brand, will become the destination, with a mini-mall full of experiences so compelling that consumers will leave the Internet or any other store that just sells stuff.
One thing I am sure of is that even though many of Macy’s initiatives will result in similarities to its origins as kind of a grand palace, the future is now for the department store sector. And, Macy’s is certainly providing a roadmap for transforming the department store model into a more relevant 21st Century model yet to be named.

And, at the end of the day, they can call it whatever they want, as long as consumers connect with it the moment they hear it.

How about….well….Macy’s?

Robin Lewis About Robin Lewis

Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women’s Wear Daily (WWD), and Goldman Sachs, among others, and has consulted for dozens of retail, consumer products and other companies. In addition to his role as CEO and Editorial Director of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.