The Thanksgiving Parade. Vibrant holiday storefronts. The movie Miracle on 34 Street. Macy’s was the pinnacle for extravagance, tradition and shopping. Those days are over. In the 1920s, department stores were innovative and brought people in for one stop shopping. Jump ahead to 2017, Macy’s is barely surviving and it’s leaning on discounted items sold at its off price Macy’s Backstage outlet to increase sales.
The basic rationale behind department stores—a one-stop shop for customers—is eroding. Millennials are shopping online more while older shoppers are turning to discounted retailers. Stores like T.J. Maxx and Marshalls have seen annual sales exceed those of department stores like Nordstrom and J.C. Penney combined. TJX Companies, the parent company of T.J. Maxx, Marshalls and Home Goods, share price of $73.90 which is three times that of Macy’s today.
Macy’s Backstage is trying to connect with savvy shoppers by offering more designer items at a discounted price but, some might not be buying it because it’s not discounted enough. “They are diluting the Macy’s brand down to the T.J. Maxx level,” says Jeff Sward, retail and merchandising expert and founder of the site Merchandising Metrics. “The upside is that they are slowing the erosion of market share shifting to the T.J. Maxx level of the business,” Sward continues.
— ⏳DaysFan28⏳ (@DaysFan28) November 1, 2017
Macy’s has had nearly three consecutive years of sales declines. Even though its latest earnings report beat the forecast for profit per share, same-store sales fell for the 11th consecutive time. Five years ago, same-store sales increased 3.7% in 2012.
“With its low stock price it should have failed by now,” says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland. Backstage and Macy’s other initiatives to drive people to store are like “rearranging chairs on the Titanic,” he said.
With Backstage outlet stores, the teacher has become the student in the realm of customer tastes. Macy’s is taking business models from stores like T.J. Maxx and Marshalls. For a Marshalls shopper, the excitement is the hunt for new things every time they go into the store. Macy’s is trying to cash in on that thrill.
— Ethan Hyde (@toechhisown) May 6, 2017
That’s not how it looked on Black Friday for the Macy’s at Queens Center Mall. In the very messy Last Act clearance section, which is part of. It was pure chaos. Shoe sizes were mixed up. Designer clothes were strewn on the floor or dangling off of hangers. One frustrated shopper slammed down a purse she intended to buy saying that it was still too expensive even though it was part of Macy’s Backstage discounts.
Aggravated shoppers or not, Macy’s is planning to expand Backstage effort. “…It continues to grow as we get smarter about it,” said chief executive officer Jeffrey Gennette, on the earnings call for the third quarter.
Along with Backstage, Macy’s is pushing its app, digital sales, and new loyalty rewards program in attempts to win back straying shoppers. The rewards program is targeted to its loyal shoppers, which make up about 10 percent of its customer base and currently accounts for about half of its sales. Gennette wants customers to spend more…much more. This includes dishing out more cash on Backstage items.
Why did you do that?!? The quality of everything was just garbage!! #MacysBackstageSucks
— LadyA🇺🇸 (@CurlieAmy40) October 17, 2016
But Macy’s seems to be misunderstanding its new customers. Discount shoppers are practical. They shop on the premise that products are affordable now and might not be there tomorrow. They aren’t going to spend more than they can afford.
Millennials have also embraced working from home or remotely, so there’s no need for fancy clothes in a corporate office. Many men aren’t buying extravagant suits anymore, and those that are can find them cheaper on Amazon or in other stores. Women and men are also opting for more inexpensive fashions from other retailers like Zara and H&M. Behavioral-finance folks who preach that spending on things like dining and travel makes millennials happier than buying a blender or another pair of jeans would be right. A 2014 Harris Poll found almost 4 out of 5 millennials said they would rather spend their money on experiences than things.
@Macys i spent 2 hours ordering furniture off your site only to be told it’s out of stock! Still showing in stock on website. It’s 2017, step your updated inventory game up. Thanks for nothing #shopamazon #macysfail
— Zach Evers (@yanksfan2345) December 2, 2017
It’s not only millennials who are ditching Macy’s. “When I came to this country, the biggest stores were Woolworth, Sears and Macy’s,” says Dee Semion, a 69-year old shopper on Black Friday. “I don’t shop at Macy’s because I can get things cheaper at other stores. It’s too expensive.”
There is another downside of Backstage; it is key to Macy’s current identity crisis. “A major risk is poor execution, which could convey the impression that Macy’s sells low-quality merchandise, perhaps becoming viewed as a retailer that has an in-store dumping ground for unwanted goods, says Bruce Kaser, associate editor of stock and investment advice site The Turnaround Letter.
Macy’s is looking to re-write its retail fate with Backstage and appeal to a larger base of shoppers. “Macy’s will need to make a cultural shift to successfully incorporate this concept, as they have previously gone to great lengths to avoid operating and being perceived as a discounter,” says Kaser. “This cross-over strategy generally has had mixed success.”
Is it too late for Macy’s? It is hastily trying to roll out rewards programs, provide free shipping (a staple of online shopping), polish its app and appeal to this savvy customer instinct of hunting down a sale all while trying to also push high-end brands. “It’s tough to say you want to win the race to the bottom” says Sward. “It’s even tougher when you want to win that race and still be a home to better brands.”
Like a giant deflating Snoopy balloon in the Thanksgiving Parade, Macy’s might not be able to stay afloat. The struggling department store is trying to grab everything on its way down, including cashing in on discounted products through Macy’s Backstage.
“Woolworth is gone, Sears isn’t as big as it used to be and it seems like Macy’s is going too.” says Semion.
— Macy’s Backstage (@MacysBackstage) March 8, 2017