Macy’s store reduction reflects retailers’ boundless search for omnichannel
Macy’s plans to close 100 bricks-and-mortar locations is indicative of a desire to balance its digital and physical presence, but this is just one of the big risks being taken by retailers desperate to gain an upper hand in omnichannel.
The department store is hoping to solve its revenue woes by dropping 100 of its weakest store locations and work on building up its most successful locations and digital offerings after seeing double-digit growth in digital within the second quarter but overall sales were down four percent since last year, fueling its decision. Macy’s big decision follows the massive acquisition of Jet.com by Walmart in its attempt to corner a successful omnichannel retail plan.
“Closing poor performing stores is a strategy that retailers’ have practiced over the years and is essential to minimize losses and maximize profits,” said Ken Morris, principal at Boston Retail Partners. “However, with the new role that physical stores play in influencing and/or fulfilling online orders, the decision to close stores becomes more complicated.
“We are seeing more consumers showrooming in stores to try on clothing or test products before they ultimately buy online,” he said. “There is also a growing trend of retailers using store inventory as a distribution center to ship online orders or enable consumers to buy online and pick-up in the store.
“When evaluating the real value and contribution to profits, retailers need to attribute value to the stores role in consumers’ cross-channel purchase and fulfillment journey.”
The iconic department store is making drastic changes to its business and ecosystem in an attempt to upturn these recent disappointing quarters. While Macy’s is a longstanding company, the digital age has exponentially changed the way consumers shop, making a big impact on retail.
While Macy’s has been focused on innovating in the digital and mobile space, it has been holding on to a large but disappointing bricks-and-mortar presence. The department store plans on continuing making updates to its mobile applications, which have been a big driver in consumer connection as well as sales.
Technology updates have allowed Macy’s to streamline its mobile wallet and digital coupons and has seen success by making it more convenient for customers to act on promotions, use coupons and navigate. The company will be working internally to continue innovating in this area to make sure its digital capabilities are at the top of its game.
During the second quarter earnings call, Macy’s chief financial officer, Karen Hoguet noted that while environmental factors, such as a colder winter, can have a great impact on revenue, these are uncontrollable. However, mobile and digital factors are fairly stable and can be controlled, which is prompting the retailer to focus on seeing positive results in these areas.
Recent Macy’s news
In January, Macy’s had a similar announcement to close around 40 stores as well as cutting back on company positions after a disappointing holiday season. The cutbacks are part of its continual attempt to stay on top of the consistently unstable retail market.
Macy’s also recently piloted a mobile Web-based artificial intelligence platform that enables shoppers to ask product questions and receive responses, highlighting the growing role that cognitive learning and predictive analytics are playing in the retail industry (see more).
In a significant enhancement to Macy’s smartphone app, it also now boasts an in-store mode, creating a destination for on-premise shoppers and playing catch up with retailers such as Walmart (see more).
“With the closure of physical store in some areas, Macy’s will need to continue to make its online experience as convenient as possible,” Mr. Morris said. “A mobile-friendly Web site and/or app is essential.
“For consumers in markets where there is no store available to try clothing before they buy, Macy’s will need to offer a low-cost or free option for customers to return or exchange items,” he said. “Macy’s already has a booming e-commerce presence with more than $6 billion in online sales and are the 7th largest online retailer.
“As their online sales grow they will continually consider closing more stores but I’m sure they will look at where the online and offline sales occur and close only those locations that fall below the combined geo-sales numbers. The stock rose 5.5 percent plus after their recent store closure announcement – the highest jump in over 13 years. I guess ‘the street’ likes the move!”