Macy's just confirmed the end of department stores as we know them (M)

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Macy's just confirmed the end of department stores as we know them (M)

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Reuters

Macy's is morphing into a discount store.

The department-store chain is rolling out self-service systems in its shoe departments nationwide, meaning customers will serve themselves instead of finding a salesperson to retrieve shoes.

The rollout will be completed by August, the company said Thursday.

This model copies highly successful off-price retailers like TJ Maxx and Nordstrom Rack.

Customer service was once what set Macy's apart from those retailers.

But now customers don't even want that level of service when they're shopping, according to Macy's chief financial officer Karen Hoguet.

"Lots just say, 'Leave me alone, let me get the shoe I want and move on,'" Hoguet said at a conference in March.

Macy's started testing the self-service option in select stores earlier this year, and those shoe departments saw double-digit sales growth — which is "well above the shoe sales trends for the rest of the stores," Hoguet said Thursday.

Macy's is also copying discount stores by adding more off-price and clearance sections to its stores.

The retailer's off-price concept — called Backstage — is similar to Nordstrom Rack: it sells Macy's brands at steeply discounted prices of up to 80% off. Macy's has also been rolling out a clearance department in stores called "Last Act." The clearance section compiles discounted items from racks around the store and centralizes them in one place.

At least one of the two concepts will eventually end up in all Macy's stores, the company said Thursday.

"Whatever model performs best this year will be rolled out aggressively next year," Hoguet said.

Reuters

Macy's CEO Jeff Gennette said the company is going after the two-thirds of Macy's customers and more than 70% of millennials that shop at off-price stores on a monthly basis.

A couple years ago, Macy's opened a number of standalone Backstage stores and then last year started rolling them out within existing Macy's locations.

There are now Backstage sections in 26 Macy's stores, and the company plans to add them to another 19 stores this year.

Analysts have warned that Backstage will cannibalize sales from Macy's full-price brands. But Macy's executives on Thursday assured that's not the case, at least according to the company's internal data.

"We are encouraged by the performance of these combined-store sales, where total sales being lifted compared to the control group," Hoguet said.

Macy's is hoping that launching its off-price concept at mall locations will actually give the chain a leg up over other competitors.

"Most of our ferocious off-price competitors are off mall [locations] right now," Gennette said.

Macy's is realizing that the traditional department store model is crumbling, and it needs to become more like a discount store to stay competitive.

The department store's sales fell 7.5% to $5.3 billion in the most recent quarter, and same-store sales, or sales at stores open at least a year, fell 5.2%.

"We don’t have our head in the sand, as for the significant challenges we face in trying to get the business growing again," Gennette said. "These challenges are secular and not cyclical."

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May 11, 2017 at 04:27AM