Can Backstage attract shoppers to Macy's mall stores?
As the department store pushes ahead on off-price concepts, experts say there's a fine line between attracting new shoppers and heading too down market.
Macy’s has embarked on an ambitious effort to remake the department store model and a component in the strategy is boosting its the off-price retail model, which includes Macy’s Backstage, an effort launched in 2015.
There are currently 33 Backstage locations, 26 of them inside Macy’s stores. There’s also the Last Act clearance program, a dedicated clearance section in both women’s and men’s apparel departments that has been rolled out chain wide.
“We see customers liking the everyday deep value opportunity being offered within our mall locations,” Macy's CFO Karen Hoguet said on the company’s first quarter conference call. “We are testing a few variations of our strategy this year, but we believe from our tests so far that this will both add incremental spend from existing customers and also lead to the addition of new customers, and whichever model performs best this year, will be rolled out aggressively next year.”
Macy’s is “still in the learning stages” on off-price retailing and Jeffrey Gennette, Macy’s CEO, has acknowledged the high risk of cannibalization. Backstage includes many categories not sold in the full-line stores, such as home décor, toys and baby as well as opening-price cosmetics — an opportunity for incremental sales.
“At the end of the day, we hope we will have a viable off-price concept that is on-mall. It takes advantage of still a destination that millions of American consumers come to each and every day — they come to a Macy’s,” Gennette has previously said. “Now they can come and there’s a viable off-price concept. We think that could be a competitive advantage for us in that most of our ferocious off-price competitors are off-mall right now.”
But will Backstage and off-price programs draw shoppers to Macy’s mall stores? The discussion forum RetailWire asked its BrainTrust panel of retail experts the following questions:
- Do you see the addition of Backstage driving new shoppers to Macy’s and encouraging core customers to come in more often?
- How will the Backstage concept affect Macy’s full-price operations if it proves successful inside the department store’s locations?
Here are eight of the most provocative and insightful comments from the discussion. Comments have been edited by Retail Dive for length and clarity.
1. Difficult and dangerous
Ken Lonyai, Consultant, Strategist, Tech Innovator, UX Evangelist: This sounds like an acknowledgment that the department store is failing. Attempting to forge two identities and doing it successfully is difficult and dangerous. Customers are not going to see Macy’s as a full-priced merchant and a discounter both. Most will choose their version of the store and in large part stick with it. The odds are with the off-priced store being the choice and ultimately cannibalizing the department store. The incremental spend increase is probably wishful thinking. And if Macy’s shifts to off-price, they are going to bump up against a lot of competitors and just as many difficulties as they now face.
2. Time will tell
Dick Seesel, Principal, Retailing In Focus LLC: My local Macy’s just opened a Backstage shop and also dramatically expanded its “Last Act” clearance installation in the same store. I wonder whether customers will see the difference. More importantly, do these off-price strategies undermine the core business that Macy’s needs to fix? And can Macy’s manage a low-margin business in a high-cost building? Time will tell, but I’m skeptical about these diversionary tactics.
3. A slippery slope
Chris Petersen, PhD., President, Integrated Marketing Solutions: Mr. Gennette’s strategy seems to come down to a single core assumption: “We think that [Backstage] could be a competitive advantage for us in that most of our ferocious off-price competitors are off-mall right now.”
There are some serious challenges to that assumption:
- Backstage may attract consumers to Macy’s corner of the mall, but overall mall traffic continues to fall year over year across the U.S.
- Virtually everything that will be sold at Backstage is online at Amazon or Walmart and available via home delivery or via click and collect.
- If buyers aggressively stock Backstage with different merchandise, what does that mean for the core brand? And what happens if differentiated merchandise doesn’t sell at Backstage?
Trying to become “off-price” is a dangerous, slippery slope that poses many threats for the core brand. One has to wonder why Macy’s doesn’t invest more in differentiating its customer experience both in-store and online.
4. Time for re-invention
Brandon Rael, VP Retail Strategy & Operations: This may provide some short term dividends, however it seems as though it would be a stretch for Macy’s to competitively navigate an off-price sector that is dominated by Ross Stores, T.J. Maxx, Marshalls, etc. We all recognize that the traditional department store model, which had dominated the shopping scene since Selfridges, is now struggling.
However, now is the time for re-invention of what Macy’s could be to the younger generation, versus having to struggle with a new brand identity in an already crowded off-price sector of retail. What will resonate with the millennial and Gen Z sectors is a Macy’s that focuses on multi-sensory, personalized, customized and friction-less, experience-first shopping journeys.
5. Down market risk
Jasmine Glasheen, Writer and Generational Marketer, Retail Minded: As long as Macy’s off-price concept features different brands than their regular inventory, their Backstage concept will be successful. However, as we’ve seen with Michael Kors and Coach, once a company goes down market it’s very hard to swim back up. The question isn’t whether Backstage shops will draw in customers because for the first few years they most assuredly will. The question is whether Macy’s will be able to maintain their brand image in the face of deteriorating customer service and down market inventory.
6. Leading the pack
Ken Morris, Principal, Boston Retail Partners: Off-price is one of the hottest segments in retail and using Backstage as a lure to bring customers into Macy’s department store is a smart strategy. Backstage will attract customers (some existing Macy’s shoppers and some new customers) who are looking for the thrill of the deal and some of these people will shop the full price merchandise if they don’t find the treasure they are looking for in the Backstage section.
When I worked for Filene’s, which was acquired by Macy’s, we had the Filene’s Basement concept. They were co-located in the Boston downtown crossing location and fed off the upstairs (full line) traffic. They had an automatic markdown strategy where every 15 days the price would drop by 25 percent. People would be lined up daily to find the treasure of the day.
Macy’s has already seen a lift in overall sales in the test location, which proves it is a winner. Look for other department stores to follow this strategy …
7. First move advantage
Dave Bruno, Marketing Director, Aptos: To me, there are no easy answer to these questions. While there is certainly risk in going down market, especially in higher-rent locations, there is also the biggest challenge Macy’s faces: the relentless decline of the department store. I applaud them for making bold changes to their assortments. I have also wondered if the big off-price brands might soon begin to take up some of the cheap mall space that departments stores are vacating. This move could give Macy’s a first-mover advantage as we witness the reinvention of the mall.
8. A dubious concept
Ricardo Belmar, Sr Director, Worldwide Enterprise Product Marketing, InfoVista: This is simply trading one type of customer for another, but the new customer now expects everyday low prices and will only shop the Backstage stores. The idea of testing an off-price concept is a bit dubious. Of course it will bring in short term sales — it’s new, it’s got the Macy’s brand, it will attract shoppers out of curiosity at first. If they buy something they may come back — but they won’t be going to a mainline Macy’s any more. Even Nordstrom is feeling this effect with their Rack stores.
The key for Macy’s is to avoid overlapping merchandise in the two concepts. Their Last Act concept is the place for putting mainline Macy’s products on clearance, not Backstage. That said, what Macy’s is accomplishing is converting their existing (low performing by their own admission) mainline stores into Backstage stores. I would not be surprised to see these mall-based Macy’s become 100% Backstage in the future as a result.
Follow Laura Heller on Twitter