It\’s the Distribution Century, and Macy\’s Gets it

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\"RRIt’s coming guys. It’s looming large. And Macy’s $210 million acquisition of the Bluemercury spa and beauty chain indicates that they see it, and are moving on it. And the “it” is the future. While this acquisition was a brilliant tactical move for all of the reported reasons, not the least of which is a new source of revenue and growth with 60 stores in 18 states, it sends a much larger strategic message regarding the future, not only for Macy’s, but the entire industry.

It’s a future that will see the collapse of the traditional wholesale/retail business model and the literal terms “wholesale and retail.” And, I’m sorry, but the current definition of “department store” will no longer define what Mr. Lundgren and team are ultimately doing with Macy’s, and for which I highly applaud them. From what I observe of Macy’s evolution (and a few others as well), it’s greatly expanding beyond the commonly held definition of omnichannel, which is limited to integrating the physical stores and the online business. Macy’s understands the term “omni” as broadly defined in the dictionary, meaning everywhere. Thus, it’s seeking other relevant physical and online distribution platforms beyond its nameplate stores. It’s also providing all of its platforms for other brands it deems compatible with the Macy’s brand. And, in fact, Macy’s distribution platform even hosts competitive brands, such as Burberry’s or Ralph Lauren, The North Face and many others. These are brands that have their own stores, but also choose to use Macy’s distribution platform as another access point for their own consumers that happen to be shopping in Macy’s. Contrary to competing against each other in the same space, the combination creates a synergy (explained below). And across the street so to speak, Madewell, Top Shop, Brooks Brothers and Bonobos are operating on Nordstrom’s distribution platform.

Note, I did not define Macy’s or Nordstrom as department stores. They deserve a better and more accurate definition. The reality is that the term department store, and other last century channel definitions, need new names. They are so embedded and confining to rigid structures, disciplines, processes and operations, that they constrict the ability for strategic and visionary expansion. It’s akin to HBS Professor Ted Levitt’s HBR article: Marketing Myopia, in which he challenges businesses to expand the definition of the business they are in to be limitless within its capabilities. For example, had the Rock Island Railroad defined itself as being in the transportation business, rather than confining itself to the railroad business, it could well have entered the airline, trucking and shipping industries, and perhaps even stretching into the automobile industry.

Likewise, the great traditional wholesale brands such as Nike, Timberland, Ralph Lauren, Vans, and many others cannot accurately define their businesses as traditional wholesalers. They are now operating on multi-distribution platforms, including their own physical stores.

One more piece of evidence: Michael Kors is rapidly opening freestanding stores around the world, and just as aggressively converting its so-called wholesale business in department stores (oops — there\’s that word again) to shop-in-shops. John Idol said that the comp store sales in shop-in-shops was even higher than in freestanding stores this last quarter. They will have converted 700 wholesale accounts to shop-in-shops this fiscal year, and since this model performs so much better, they will continue to convert until virtually all are on that model. In other words, they are rapidly becoming \”channel agnostic\” even between their own retail stores and the in-store shops of wholesale customers. As long as they control the brand, its presentation, and the customer experience, they don\’t care where the product is sold.

In fact, the more enlightened C-level leaders across all sectors are beginning to use the term “direct to consumer,” understanding that to achieve this kind of distribution, it must be controlled by the brand. This, of course, begs the more frequently asked question: Will multi-branded stores such as Macy’s transition to a concession model (aka lease space) for some of the more powerful brands who will control and operate the space? Mr. Lundgren, of late, has more than implied that he could favor such a model. In fact, one could say the transition has already begun; there are some brands in both Macy’s and Bloomingdale’s that have concession-like models.

So, you might ask, if “direct to consumer” is the future distribution model, why would Victoria’s Secret, or any other strong brand that leased and operated its own boutique in Lord & Taylor, hypothetically speaking, be called “direct to consumer” when they are located within another brand’s store? Simply, the smart brand knows there are a significant number of their core consumers who shop in Lord & Taylor regularly. So, to continue the example, leasing the space in Lord & Taylor or any other branded building is the same as if they were to open a free-standing store. In fact, there is a synergy that results from brands sharing each of their strengths. Both L&T and VS pull in new customers from each of their respective traffic. JC Penney has benefitted from this synergy with Sephora who has dedicated space in many of their stores.

So, what will replace the definitions of retail, wholesale, department stores, discount stores and all the rest of the “so-last-century” business model descriptors?

Omni-Brand to Consumer

We took a shot at it in our co-authored book: The New Rules of Retail, by describing the business model that the winning brands, whether they be traditionally defined wholesale or retail brands, are evolving to. We named it the “Omni-Brand to Consumer” model. This is the space of highly differentiated and dominant brands. We purposely did not use the words retail, wholesale or channel, because the name on the door or the website must be differentiated and dominant enough to be a “brand” in the minds of consumers, no matter what it is selling. , whether or not it is selling other brands or all of its products bear the name on the door.

Omni-Brand to Consumer also means operating on all possible distribution platforms with such superiority that they competitively preempt the competition, either by reaching the consumer first, or by compelling consumers to make the brand their primary destination with a superior experience.

Back to Macy’s

So, Mr. Lundgren, in my opinion you and your team, including Bloomingdale’s, are evolving to this newly defined model. In doing so, you have more importantly taken a giant step in defining the “distribution century.”

And, since Macy’s continues to be so successful, in defining the future, you can call the business model anything you want to. Just please don’t call it a department store any longer.



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