Macy's is betting its future on a new small-store, off-price concepts

Macy's is betting its future on a new small-store, off-price concepts

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The Macy's department store sign in the Herald Square flagship location in Midtown Manhattan on September 10th, 2016 in New York.

The Macy's department store sign in the Herald Square flagship location in Midtown Manhattan on September 10th, 2016 in New York. (Dreamstime/TNS)

DALLAS - Macy's CEO Jeff Gennette needs some wins, and he thinks he has a promising one about 25 miles northwest of downtown Dallas.

The largest U.S. department store retailer will open its first Market by Macy's in the upscale suburban shopping center of Southlake Town Square on Thursday.

The new concept, the brainchild of Macy's brand experience officer Rachel Shechtman, will be front and center Wednesday when Gennette meets with Wall Street analysts to update investors on the company, which has lost a third of its market value over the last year.

Macy's said Tuesday it will close 125 stores - of its 674 total - over the next three years and lay off about 2,000 workers.

Macy's is also shutting down its second headquarters in Cincinnati and consolidating its digital headquarters in San Francisco to New York, the company said. It estimated the cost of exiting those stores and operations will be about $450 million to $490 million. It's also closing customer service center in Tempe, Ariz., and consolidating that operation into its Mason, Ohio, and Clearwater, Fla., facilities. All together, the retailer said, the moves will save the company $1.5 billion a year starting in 2022.

Gennette said it's planning to grow with its off-price concept and new small-store format.

The 20,000-square-foot Market by Macy's - about a 10th of the size of a big multi-level Macy's anchor store - is one of two concepts Gennette says Macy's has created to appeal to that "large swath that's not shopping in malls today."

The other newish concept is Macy's Backstage, developed in 2015 as an answer to discounters such as T.J. Maxx and Nordstrom Rack that have shaved market share from U.S. department stores.

The plan is to step up expansion of Backstage, adding 50 more this year. Most of its 200 existing Backstage stores are carved into existing Macy's department stores with separate entrances and a different mix of merchandise. Some of the new Backstage stores may be freestanding locations similar to seven of the early ones that opened in the Northeast, he said. Backstage stores are posting sales increases while Macy's overall has reported weaker sales trends in recent months.

At the same time, Macy's is remodeling its mall stores in strong, viable centers. So far, 150 Macy's stores have been upgraded, and 100 are planned for this year.

"We're investing in the malls where the developers are, too," Gennette said. "These are the still-vital malls that are standing the test of time."

Macy's has been spending about $1 billion a year on its business, including its online operation, which generates sales of more than $6 billion a year.

A new customer service area is right inside the first floor north entrance at the Macy's in NorthPark Center in Dallas. Upgrades have been made to several departments. Two local Macy's stores are part of its Growth50 stores program.

Walking around the Market by Macy's in Southlake with Shechtman, Gennette said, "we hit the brief," meaning the chain did what it set out to do.

The Market by Macy's boutique concept is a homey shopping experience with bookshelves, tables and gifts and accessories displayed among the women's, men's and children's apparel. Live plants are in the mix, as is a restaurant with a lounge atmosphere for meeting with friends and staying a while. Beauty makes a statement with its own branded department called Getchell's, named for Macy's first female executive.

The plan is to open a few Market by Macy's locations this year and not just one in each market, Gennette said. Macy's is looking for upscale lifestyle centers where many of its customers from the malls have gravitated. And, like all Macy's stores, the new shops are places where customers can pick up and bring back online purchases.

Fort Worth is the next stop with a Market by Macy's in West Bend, a new office and retail development near the Fort Worth Zoo that houses Bonobos, Warby Parker and restaurants HG Sply Co. and East Hampton Sandwich Co. Macy's-owned Bluemercury is open there and at Southlake Town Square.

Atlanta and Washington, D.C., are in the works, he said.

Bluemercury may offer hints about where more Market by Macy's stores will open. Macy's purchased Bluemercury from the founders in 2015 for $210 million. Since then, the free-standing beauty store has expanded to 26 states with 190 locations, with founders Barry and Marla Beck running the show. However, they're now leaving the company they created 20 years ago, and Macy's hasn't named a new CEO.

In 2018, Macy's also acquired Story, a New York single-store concept founded by Shechtman that emptied out every couple of months and reopened with an entirely new theme of merchandise. Shechtman closed her shop and went to work for Macy's, putting the Story concept in 36 stores nationwide last year. NorthPark and Houston Galleria have the concept in Texas.

With all that going on, Macy's sales have still been flat in recent years, hovering around $25 billion to $26 billion.

"We know the customer likes our brands, but we're not always serving her well," Gennette said.

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