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Macy’s spurs omnichannel push as broad physical retail contraction looms

January 8, 2016

Macy's is closing stores

Macy’s is closing stores

With Macy’s online sales growing at a brisk pace during the recent holiday shopping season while in-store sales contracted even more than expected, the retailer is scaling back its bricks-and-mortar business and reinvesting the savings to accelerate its omnichannel strategy in 2016.

Consumers are shifting shopping behaviors online – increasingly driven by mobile – at a pace that some traditional retailers are finding hard to keep up with. While Macy’s has been aggressively pursuing a mobile strategy for some years now, news that it will restructure in 2016, including closing 40 stores, points to just how significant the evolution in shopping is.

“Macy’s is making the right moves by closing underproductive stores and reformatting their store design to meet the demanding needs of today’s empowered shopper,” said Shelley E. Kohan, vice president of retail consulting at RetailNext.

“The mobile-driven aspect at Macy’s has been executed well but the company has the burden of being a battleship that cannot be turned around on a dime coupled with updating legacy systems and thick management structure,” she said.

“Macy’s will be looking at a more horizontal structure as will be the trend for many retailers in 2016 to 2020.”

The silver lining
Mobile and desktop sales were a significant success story for numerous retailers during the recent holiday season, including Macy’s and Bloomingdale’s, which saw nearly 17 million online orders filled in Nov. and Dec., up 25 percent. The strong digital performance was attributed to significant fulfillment capacity, site functionality and aggressive digital marketing.

At the same time, Macy’s Inc.’s comparable store sales declined 5.2 percent.

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The retail attributed the decline to poor sales for cold-weather goods given the unseasonably warm temperatures in the last two months of the year and lower spending by international tourists thanks to the strength of the dollar.

Pursuing growth
In response to these results, Macy’s said yesterday that it will make cutbacks to pursue growth and regain market share in its core omnichannel businesses faster and with more intensity.

The retailer plans to reduce expenses by approximately $400 million while investing in growth strategies, particularly omnichannel capabilities.

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To achieve the savings, Macy’s will consolidate stores into five regions and 47 local districts, down from seven regions and 58 local districts, to reflect a smaller portfolio of stores. Staff reductions will also take place at stores, among senior executives and in back-office organizations.

Credit and customer services will be consolidated and non-payroll expenses reduced.

Strategic moves
Macy’s is likely to look at several ways to enhance its omnichannel prowess, including beefing up its mobile offerings across a number of avenue, including app development, mobile payments and in-store analytics.

“As one of the leaders in mobile commerce, Macy’s can continue to bolster its success by adding more real-time capabilities and analytics that enhance the customer experience based on ‘customer context’ – the interrelated factors of customer insights and environmental conditions that make the shopping experience relevant,” said Ken Morris, principal at Boston Retail Partners.

“Real-time retail is the ability for retailers to personalize the shopping experience based on an individual’s preferences, purchase history, what’s in their closet, their most recent online browsing history, time of day, weather and their physical location – all based on real-time information,” he said. “A true unified commerce experience is where Macy’s should invest.”

Broad contraction
Macy’s is not alone among bricks-and-mortar retailers in facing declining store traffic and sales while online performance continues to improve.

As a result, more retailers are likely to announce store closings at a pace that could be higher than last year.

“The retail store closings will accelerate into 2016 and the year may be plagued with more store closings than 2015,” Ms. Kohan said. “Although the connotation of ‘store closings’ can be negative, this can also be a positive for some retailers and position them to become more profitable.

“The retail landscape has been changing and the shift from a retail dictated business to a consumer driving business is a factor in this need to create environments that resonate with the shopper,” she said. “The uptrend of store openings as compared to the population growth over the past few years leads to one conclusion – ‘over-stored’ or simple economics of greater supply than demand.”

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