Will Story help Macy’s launch an exciting new chapter?

Macy’s just launched Story concept shops in 36 stores across the United States. The new “narrative-driven retail experience” occupies about 1,500 square feet in most stores. The move comes less than a year after Macy’s acquired the Story brand and made its founder, Rachel Shechtman, its brand experience officer. This is the latest step in Macy’s attempts to become more relevant and remarkable after years of declining market share and lackluster profitability.

Similar to the original Story boutique that opened in Manhattan’s Chelsea neighborhood in 2011 , Story at Macy’s will focus on one merchandising theme at a time, and completely change every few months. The first installation is called “Color” and features some 400 curated products from brands like MAC Cosmetics, Crayola, and Levi’s Kids, as well as dozens of other small business partners. More than 300 color-themed community events are planned to help customer activation. In a press release Jeff Gennette, Macy’s, Inc. chairman and chief executive officer, commented that “the discovery-led, narrative experience of Story gives new customers a fresh reason to visit our stores and gives the current Macy’s customer even more reason to come back again and again throughout the year.” 

In a Forbes post last year after the Story acquisition was announced I expressed two fundamental concerns about the new partnership. One was whether Shechtman and team were going have the room to truly innovate and to do so quickly. My fear was that Macy’s historically go-slow culture might stifle the necessary creativity and decisiveness. The fact that Story at Macy’s is a fully realized and well-executed concept that was brought to life in less than a year is encouraging. Credit should be given to Gennette for his willingness to experiment aggressively.

The second was less a concern, but more of a cautionary warning. Even if Story proved to be successful in its initial roll-out and gets scaled to most of the chain, it seems obvious that it will barely move the dial on financial performance or, more importantly, do much by itself to accelerate Macy’s move out of what I call the boring middle. Yet, as every journey must start with the first step, it is potentially an important piece of a broader renaissance that necessarily will take a lot of time and considerable investment.

A visit to the Story shop at Macy’s in Dallas’ Northpark Mall over the weekend reveals both the opportunity and the challenges. Story’s visuals are eye-catching and easily seen from the other side of the vast store, which is situated in one of America’s most productive malls. The merchandise presentation is eclectic and fun, albeit seemingly a bit random. Two associates stand ready to help, though I am the only potential customer on a Saturday afternoon. There are a lot of interesting impulse and gift items, but it’s hard to understand a cohesive value proposition that will drive meaningful incremental traffic given the frequently changing theme.

Story at Macy's features more than 400 products.

Most striking to this observer is how out of place Story seems—and how it calls attention to much of what is decidedly mediocre at a much better than average (in my experience) Macy’s location. Story’s bold design stands in stark contract to the rather stark and neutral visuals of adjacent departments. Most apparel and accessory sections throughout the store are swimming in a sea of sameness: rack after rack and tables stacked high with mostly uninspiring fashion, virtually every one topped with a promotional sign offering 25% to 50% off. While Story’s layout is relatively cozy and invites exploration and discovery, the rest of Macy’s main floor looks like just about every other moderate department store in just about every city I have been to in recent years, e.g. sprawling and unmemorable.

After visiting Story I was reminded of a time, many moons ago, when as a young management consultant getting paid far more than I was worth, I splurged on some large and rather expensive stereo speakers (note to Millennials: that was a thing at one point). As soon as I had my bright and shiny new toys wired to my old equipment, I quickly realized that what I already owned paled in comparison. It wasn’t long before I felt compelled to upgrade the whole damn system.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Four truths and a lie from this year’s ShopTalk

Once again ShopTalk proved itself to be the must-attend retail event of the year. The 4th annual conference was both bursting with people and content, having grown to more than 8,000 attendees, five tracks and a solid number of prominent main-stage speakers across four action-packed days.

Most presentations and panels that I attended were strong. Yet a few speakers unfortunately hit speed bumps when their talks veered into shameless self-promotion, parroted trite expressions (“we put the customer at the center of everything we do”) or set forth declarations as bold new insight when they were merely observations that are obvious to anyone who’s been paying attention the past few years.

Nevertheless, as the dust settles, I came away with a few key points.

TRUTH: Embrace the blurThe delineation between physical and digital is increasingly a distinction without much of a difference . Most consumer’s shopping journeys involve a digital channel and the growing role of mobile makes the lines ever more blurry. While this has been true for years, many brands at ShopTalk seemed to finally be accepting this and taking necessary actions.

TRUTH: It’s about markets, not just physical locations. Just weeks after his brother Blake died, Nordstrom co-president Erik Nordstrom, in a refreshingly modest and honest fireside chat with CNBC’s Courtney Reagan, spoke of the company’s strategy to harness the power of stores and online to be more relevant on a market-by-market basis. He under-scored the reality that for many retail brands the store is the heart of an increasingly complex shopping ecosystem and that the customer is really the channel.

TRUTH: Physical retail isn’t dead. But it is very different. In some ways it seemed like attendees were officially cancelling the retail apocalypse. Sure many stores are closing: sometimes out of irrelevance, sometimes out of gross mismanagement or insanely leveraged capital structures, sometimes out of a needed correction to the ridiculous overbuilding of retail capacity. But Walmart, Target and many other brick & mortar centric retailers are showing new signs of life by treating their stores as assets, rather than liabilities. As just one example, investments in using the store as a key part of the supply chain (ship from store, order online/pick up or return in store, etc) are helping neutralize some of Amazon’s (and other’s) perceived superiority.

TRUTH: The problem is you think you have time. As many presentations centered on artificial intelligence, machine learning, robotics and the like, it seemed clear that the pace of technology adoption is only accelerating. Similarly, talks on shifting consumer behavior served as a stark reminder that customer wants and needs are growing ever more dynamic and more difficult to predict. And news of recent mass store closings and bankruptcies make it clear that those retailers that don’t move quickly and decisively are likely destined to die.

LIE: A slightly better version of mediocre is a compelling strategy. While I won’t name names, at least one retailer that featured prominently in the program may need more than a miracle on 34th Street to make them meaningfully relevant again. As the collapse of the middle continues apace, it seems increasingly obvious that some brands are making only incremental changes–or merely moving to where the puck is. What passes for innovation at some retailers might close competitive gaps, but whether it gets them to being truly remarkable is very much an open and critical question.

In addition to catching up with old and new friends, one of the things I like most about ShopTalk is the ability to get a robust and fairly comprehensive snapshot of where retail stands: the good, the bad, the ugly and, sometimes, the head-scratching. Regardless, I come away better educated, inspired and hoping that more retailers will see the light.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Macy’s and JC Penney earnings offer evidence of the stall at the mall

On the basis of early results (and specious or unreliable indicators), many industry observers predicted this would be the best holiday season in a long time. It turns out, eh, not so much. In fact, at least one guy was pretty skeptical all along.

But you don’t have to be some sort of retail savant (I’m not) or have the gift of prophecy (I don’t) to have seen this coming. While the idiotic U.S. government shutdown, along with every retailer’s favorite scapegoat (the weather), had a largely unexpected dampening effect, anyone who was paying attention could have predicted that retailers with highly customer-relevant and remarkable offerings would do comparatively well and that those stuck in the boring middle would continue to struggle. Which brings me to Macy’s and JC Penney, the two mall-based department stores that reported earnings this week.

Under the newish leadership of Jeff Gennette, Macy’s has embarked on a number of new initiatives, which my fellow Forbes contributor Walter Loeb recently outlined. While I applaud the company’s willingness to try new things, its results continue to be decidedly uninspiring. As sales continue to go nowhere, Macy’s has resorted to what just about every other retailer that can’t seem to get on a path to being truly customer relevant does—namely, cut costs and close stores. As the saying goes, when all you have is a hammer, everything starts to look like a nail. w

JC Penney recently reported fourth-quarter earnings and managed to top analysts’ estimates. And when we say “top,” we mean they were not quite as horribly sucky as anticipated. Same-store sales were down “only” 4%, and operating losses were only somewhat awful. And, you guessed it, the company also announced it was going to close a bunch of stores.

Amid the generally bad news—which comes, I might add, as Sears (its neighbor in hundreds of locations) hemorrhages market share—was one bright spot: The company did manage to reduce bloated inventory levels by some 13%.

New CEO Jill Soltau also said that the company “has the capacity to produce improved results.” You know, kind of like I have the capacity to complete a triathlon. So good luck and Godspeed to us both.

As Macy’s and JC Penney close the financial chapter on 2018 and try, yet again, to reset their overall cost base, there are five things that need to be kept front and center as we move forward.

1. The stall at the mall is real, and there is no going back. As I’ve written about many times, the moderate-department-store sector has been losing share for decades, first to discount mass merchants and category killers and then (mostly) to off-price retailers. The format is structurally disadvantaged. Accept the things you cannot change.

2. Stop blaming Amazon. To be sure, the growth of online, and Amazon in particular, has added extra challenges, but most of the share losses in the past decade have not been to online-only players, and as mentioned above, both these brands were struggling way before Jeff Bezos had impressive biceps. And by the way, I’m pretty sure there is no law against Macy’s and JC Penney having really good digital capabilities (see Neiman Marcus, Nordstrom et al.).

3. Get out of the boring middle. If you continue to swim in a sea of sameness, you are going to drown. If you continue to chase promiscuous shoppers, your margins will stay low. If you continue to try to be a slightly better version of offering average products for average people, your best-case outcome is average results. Better is not the same as good. You have to choose to be truly remarkable.

4. It’s a customer-relevance problem, not a cost problem. Given the structural issues facing mall-based retailers, as well as the broader shift to online shopping, we often jump to the conclusion that brands like Macy’s and JC Penney can shrink their way to prosperity. This is fundamentally wrong and, in most cases, ultimately destructive. It also belies the fact that plenty of “traditional” retailers have managed to thrive by opening stores and foregoing massive cost-cutting. Time and time again we see that brands that get into big trouble have a problem being customer relevant and memorable yet decide instead that they have a too-many-stores and too-much-staff problem. This is not to say that Macy’s and JC Penney can’t thrive with less square footage; they can and should optimize their store fleets. But there is plenty of business to be done directly in and, more importantly, by leveraging brick-and-mortar locations. As we move ahead, the overwhelming majority of Macy’s and JC Penney’s efforts must be about growing share with their target consumers through improved relevance.

5. Aggressive trade-area based goals. We need to get away from the hyper-focus on comparable-store sales and realize that online drives offline and vice versa—and that the store is the heart of most brands’ customer ecosystems. Accordingly, the metric we should pay most attention to is how retailers are gaining share (customer relevance) and profits on a trade-area by trade-area basis, regardless of channel. If Macy’s and JC Penney are going to be around for the long term, they likely need to be growing at least 3-5% in every trade area where they have stores and be growing faster than inflation overall. Closing many more locations risks impacting both customer relevance and necessary scale economies.

In the next year or two, things are likely to remain especially noisy as the long overdue correction in commercial real estate settles out and the weakest competitors make their way to the retail graveyard. And even if that were not true, both Macy’s and JC Penney face significant structural headwinds as well as daunting operating challenges making their way out of the boring middle—although, to be fair, Macy’s is definitely further along.

Despite the noise, from where I sit, one thing is clear: Neither brand will cost-cut or store-close their way to prosperity. If revenues don’t start to consistently grow faster than industry averages (and that’s likely to come with relatively flat physical-store sales and online growth of at least 15-20 %), then both chains will continue to lose relative customer relevance, and a downward spiral is likely inevitable.

A slightly better version of mediocre is rarely a winning strategy.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Retailers’ pointless pursuit of the promiscuous shopper

I’m not sure who said it first, but it’s certainly true that great brands don’t chase customers, they attract customers to them. But I think it goes deeper than that.

This week, as many retailers close their books for the fiscal year, those that remain stuck in the boring middle are very likely to experience weakening margins–or margins that remain materially below industry averages. And when some of the faster growing public “digitally-native” brands share their quarterly numbers, there is a good chance that their margins will be poor as well. The relentless, expensive and mostly futile pursuit of the promiscuous shopper deserves much of the blame.

By promiscuous shopper I don’t simply mean those folks that are value conscious or use technology to be sure they aren’t getting ripped off. Many people do that. What I’m referring to are those shoppers that have virtually zero propensity to remain loyal within a particular category and are constantly searching for the best deal. Clearly having too many of these customers in a retailer’s portfolio can make it impossible to grow enterprise value if they don’t spend at all without receiving a big fat discount. In some cases (as Peter Fader and Dan McCarthy’s work has illuminated) many of these customers may actually have negative marginal value. So the more a brand grows, the worse it gets. But enough about Wayfair.

Of course plenty of this is self-inflicted and hardly new. Over multiple decades the retail industry has done a great (and by “great” I mean “lousy”) job teaching customers to wait for a deal and that regular price is not only mostly meaningless but is often “the sucker price.” The long-suffering department store sector is perhaps the poster-child for this behavior, with constant promotions and the layering on of “friends & family” and private label credit card discounts. That doesn’t seem to be working out all that well. But we also have Bed, Bath & Beyond with their ubiquitous coupons, as well as plenty of other retailers offering a litany of buy 1, get 2 (or 3!) free promotions that obliterate any concept of regular price.

Despite a long-history of “promotional retail”, in recent years this chasing of the promiscuous shopper has gotten worse and now makes it imperative for retailers to get their acts together. Pricing information used to be relatively scarce (or hard to come by). Today, not so much. As the power has shifted to the customer it’s next to impossible for any retailer to get away with having uncompetitive pricing. More pernicious, though, is the heavy discounting on the part of venture capital funded “disruptive” brands. As these companies seek to maintain their growth trajectory and/or seek to be the last brand standing in a rapidly maturing segment (think flash-sales 5 years ago and subscription meal kits today), massive discounts are being thrown at new customers, many of whom will simply go back and forth from one largely interchangeable brand to the next. This will end badly.

So what’s the solution? First of all, if the underlying business model is unremarkable, a more sensible promotional strategy is necessary, but not sufficient. To be sure, JC Penney spends way too much time and energy chasing promiscuous shoppers. So does Macy’s. But their issues go beyond a lack of more sophisticated target marketing. There are always better ways to chase customers, but it’s the chasing that is the core issue.

Nevertheless, all brands need to understand both their marginal customer economics and lifetime value at a detailed level. They need to find more ways to treat different customers differently. In some cases that means stop pursuing customers that can never be profitable. But in most cases it will mean a much more finely honed and personalized set of customer-focused strategies informed by deep customer insight.

The fact is very few brands can ever “own” discount–and those retailers that try to compete with them are merely engaging in a race to the bottom. If your brand only gets love when you pay for it, aside from the not so nice metaphor, you might want to get to work on the underlying reasons.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I was honored and humbled to move up to #5 on Vend’s 2019 Top Retail Influencer List and to be recently named a Top Retail Tech Influencer to follow on Twitter.

The critical question for struggling retailers: Too much store or not enough brand?

I suspect hardly anyone is surprised when an ailing retailer announces plans to shutter locations en masse. Across the last several years we’ve seen dozens of once mighty chains close hundreds of stores in hopes of staving off a trip to the retail graveyard.

Last week, having already closed some 120 stores in a bid to shrink to prosperity, Macy’s announced that it plans to eventually reduce the size of many of its under-performing stores. These “neighborhood stores” (four of which are currently being tested) will also undergo merchandising and service changes. In a Wall Street Journal article discussing the new strategy I was quoted as saying ““If you’ve got too much space, it means your brand isn’t resonating. It’s not a real estate problem, it’s a brand problem.” And while that quotation was a bit out of context and not meant specific to the viability of Macy’s new strategy, I do think it’s critical for retailers to be sure they are working on the right problem. From my experience, more times than not, a massive retrenchment of brick & mortar space is most often an indication of poor customer relevance, not bad real estate.

Of course, this does not mean retailers should not prune store locations and/or look to resize current (or planned future) locations. Clearly real estate decisions, be they specific location or size of footprint, need to reflect today’s consumer and competitive situation. And we know that the United States is, on average, significantly over-stored. We know that some retailers went a bit wild and crazy with store expansion plans in an era of cheap money. We know that the growth of e-commerce can often cause a radical rethink of physical asset deployment. Some store closings and some optimization of space is inevitable for most retailers.

If a consolidation of a retailer’s real estate portfolio, along with a robust digital strategy, results in a more remarkable customer experience that, in turn, leads to growing customer value then the strategy may well be sound. But this is rarely the case. Usually the shrinking to prosperity strategy is driven by a lack of physical store sales productivity which has been caused by losing market share to competitors with a better value proposition. So–at least in theory–you can improve productivity metrics by reducing the denominator. But that presumes that sales (the numerator) are at least stable. And the track record on that is poor. Show me a list of retailers that have cut their square footage massively in recent years and you’ve pretty much got a list of bankrupt or nearly bankrupt brands.

A lot of times Amazon–or e-commerce in general–is cited as the reason that retailers need a lot less square footage. Unfortunately this argument doesn’t hold up all that well. In turns out there are plenty of “traditional” retailers that have winning value propositions that are doing little if anything to the size of their stores. In fact many are opening stores. This is because their value proposition is unique, highly relevant, remarkable and well-harmonized across channels. I very much doubt Apple, Sephora, Costco, Nike, TJX, Neiman Marcus, Nordstrom, among many others, will be announcing major contractions of their physical space anytime soon because their brands are more than big enough for their real estate.

Of course, the impact of e-commerce and shifting consumer preferences affect different categories quite differently, so there is no one size fits all prescription when it comes to any given retailers situation. Having said that, it always gives me pause when a brand that (allegedly) serves a large audience and derives most of its sales from brick & mortar locations discovers it must shut down a store in an otherwise well performing mall or in a trade area that has oodles of other “national” retailers that are not struggling in the least. Again, this suggests the problem is with the brand, not the location.

For Macy’s in particular, their neighborhood store strategy may well turn out to be value enhancing. Time will tell. But in some ways it is akin to admitting defeat in those trade areas unless other aspects of their overall digital strategy lead to meaningful market share growth.

When retailers get into trouble the easy thing to do is cut costs. Most struggling retailers have the expense optimization hammer and are always looking for the next nail. What’s harder, but ultimately far more important, is to become truly customer-obsessed and to invest behind being more remarkable than the competition. Until that happens, whether we are talking about Sears, JC Penney, Dillard’s, Kohl’s, Macy’s or any other brand that remains largely stuck in the boring middle, shrinking is not going to be the answer.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.