Macy's Opening 30 Small Format Off Mall Stores

[ClownLoach]

The addition of pickup/returns for web sales could make this workable.

I'm going to completely disagree especially when it comes to apparel. Online shopping is a disaster for the category as it encourages the customer to buy far and away above what is needed, buy in multiple sizes, etc. And then the website gets the sale while the store eats the return. The impact is massive unless the chain makes some sort of model where the store doesn't take the hit for the return and isn't stuck with the inventory, but that is increasingly unlikely since many retailers are having vendors ship direct or the store ships (labor intensive) and then the store eats the returns. Even if the store got credit for the sale the labor usually wipes out the margin if all but one or two pieces of that big sale are returned.

I have seen where a store spends hours pulling dozens and dozens of colors of certain items only for the customer to sometimes take the order to their car, look at the items in the light or with whatever they want to match it up to, and then walk right back in and return all but one or two pieces. My favorite is when they place these orders for dozens of pieces from the parking lot and then call a minute later asking if their order can be picked up in the next few minutes because they're in a hurry; the store hasn't even received the order yet and obviously can't walk the aisles for her for free at the speed of light. They spent 10+ hours of the store's labor on this circular transaction when they could have walked in with whatever outfit they were trying to accessorize and match up right in the aisle then pay for the one piece that is less than $10 and leave. The store lost a couple of hundred dollars in labor for this $10 sale. I have fielded complaints from these customers who cost the company money and they do not care about the havoc they wreak "because you're such a big company you can afford to shop for me." I had a customer order twenty colors of plain T-shirts in every size and then they kept one of each color and returned the hundreds of others. They said they wanted to make sure they had what would fit each person, apparently it was for a class production where they could have just asked everyone up front what size they wear but instead they ordered from XS to XXXL and then returned nearly everything. Once again I would have been better off if they never bought anything. Worse, many of the shirts were apparently tried on even though we were told they weren't and at first it didn't appear to have wear until we found makeup stains primarily inside the collar area (from when they were tried on and pulled over the head/face area). Now we had to damage out dozens of shirts that could not be returned to stock.

As labor costs keep going up these ridiculous scenarios have to be stopped or the entire venture becomes unprofitable quickly. For those who say that I'm only promoting extremes, you're partially right, but it doesn't take very many of these bad shoppers with the mega orders that all get returned to destroy the profitability of a store. Two of the stores I ran until a couple of years ago have since closed and they were in low shrink areas - the high percentage of online transactions and big returns of not-on-program online only items pushed them into the red so their doors were closed at lease renewal. It only takes a couple percent of your customers to literally wipe out the slim operating margin of the entire store even worse than big shoplifting does.

[babs]

So it's an overpriced Marshalls? How different is it from a Nordstrom Rack?

[storewanderer]

So it's an overpriced Marshalls? How different is it from a Nordstrom Rack?

The prices are significantly higher than a Nordstrom Rack. There are way fewer customers. There is way less product. There is less staffing.

They have branded staffed cosmetics counters (smaller than a normal Macys), Mac etc.

When you ask me to make that comparison to Nordstrom Rack (a store I dislike), I think this format is doomed.

[ClownLoach]

So it's an overpriced Marshalls? How different is it from a Nordstrom Rack?

The prices are significantly higher than a Nordstrom Rack. There are way fewer customers. There is way less product. There is less staffing.

They have branded staffed cosmetics counters (smaller than a normal Macys), Mac etc.

When you ask me to make that comparison to Nordstrom Rack (a store I dislike), I think this format is doomed.

It's just a tiny Macy's with no atmosphere, no ambiance, looks like a Pop Up location as if they didn't even try. Probably 10% of the merchandise that would ordinarily be in a Marshall's. It's not a discount format either, although I suppose when these don't work out they could convert the leases they're stuck with into a freestanding version of Macy's Backstage and go up against Marshall's, TJMaxx and Ross. Looking at the very few reviews online they've already got complaints that the selection is too small.

[storewanderer]

So it's an overpriced Marshalls? How different is it from a Nordstrom Rack?

The prices are significantly higher than a Nordstrom Rack. There are way fewer customers. There is way less product. There is less staffing.

They have branded staffed cosmetics counters (smaller than a normal Macys), Mac etc.

When you ask me to make that comparison to Nordstrom Rack (a store I dislike), I think this format is doomed.

It's just a tiny Macy's with no atmosphere, no ambiance, looks like a Pop Up location as if they didn't even try. Probably 10% of the merchandise that would ordinarily be in a Marshall's. It's not a discount format either, although I suppose when these don't work out they could convert the leases they're stuck with into a freestanding version of Macy's Backstage and go up against Marshall's, TJMaxx and Ross.

I think that would actually have the potential to be effective...

[ClownLoach]

The prices are significantly higher than a Nordstrom Rack. There are way fewer customers. There is way less product. There is less staffing.

They have branded staffed cosmetics counters (smaller than a normal Macys), Mac etc.

When you ask me to make that comparison to Nordstrom Rack (a store I dislike), I think this format is doomed.

It's just a tiny Macy's with no atmosphere, no ambiance, looks like a Pop Up location as if they didn't even try. Probably 10% of the merchandise that would ordinarily be in a Marshall's. It's not a discount format either, although I suppose when these don't work out they could convert the leases they're stuck with into a freestanding version of Macy's Backstage and go up against Marshall's, TJMaxx and Ross.

I think that would actually have the potential to be effective...

Moving the Backstage format into these big box center locations? I couldn't agree more. And they need to integrate the clearance merchandise into the Backstage. It makes no sense that they segregate the clearance like this. Basically if they buy a liquidation type lot then it goes to Backstage, but if it didn't sell at Macy's at full price it doesn't?

The other concern customers mentioned was that "the store is new so not much has gone on sale yet..." but I think that's the entire point of the store, they carry very little stock and what is there will be the top 10% of Macy's SKUs so therefore they won't go on sale or clearance. Macy's and all the other department stores are still unable to get themselves out of the high-low pricing game they've made customers expect, that if it isn't on sale today (and you're coupon-less) then you should wait for a sale because it is assuredly going to be discounted in a week or two. I don't see them operating in that fashion on these small format stores as they need every profit they can get since they're paying rent vs typically owned anchor stores. Once the customers figure out these are full price only boxes they'll just use them as return centers which will bleed away all the profit. At least if they were Backstage they could directly sell anything that gets returned because they don't have to worry about planograms, branded departments and counters etc.

[veteran+]

It's just a tiny Macy's with no atmosphere, no ambiance, looks like a Pop Up location as if they didn't even try. Probably 10% of the merchandise that would ordinarily be in a Marshall's. It's not a discount format either, although I suppose when these don't work out they could convert the leases they're stuck with into a freestanding version of Macy's Backstage and go up against Marshall's, TJMaxx and Ross.

I think that would actually have the potential to be effective...

Moving the Backstage format into these big box center locations? I couldn't agree more. And they need to integrate the clearance merchandise into the Backstage. It makes no sense that they segregate the clearance like this. Basically if they buy a liquidation type lot then it goes to Backstage, but if it didn't sell at Macy's at full price it doesn't?

The other concern customers mentioned was that "the store is new so not much has gone on sale yet..." but I think that's the entire point of the store, they carry very little stock and what is there will be the top 10% of Macy's SKUs so therefore they won't go on sale or clearance. Macy's and all the other department stores are still unable to get themselves out of the high-low pricing game they've made customers expect, that if it isn't on sale today (and you're coupon-less) then you should wait for a sale because it is assuredly going to be discounted in a week or two. I don't see them operating in that fashion on these small format stores as they need every profit they can get since they're paying rent vs typically owned anchor stores. Once the customers figure out these are full price only boxes they'll just use them as return centers which will bleed away all the profit. At least if they were Backstage they could directly sell anything that gets returned because they don't have to worry about planograms, branded departments and counters etc.

I love that high/low pricing game you mentioned.

Kind of related, but Fresh & Easy had a severe version of that.

Customers depended on deep mark downs to shop. They would not buy FRESH. They would even HIDE close dated merchandise and come in to shop those items they hid. AMAZING!

I discontinued this markdown culture and donated all items to the local food banks. Waste numbers decreased drastically but some customers complained to corporate (very angrily). When the bosses saw the numbers and the increased profit margins they came in to study what I did and tried to replicate it chain wide (they waited to long so buy buy F&E).

[veteran+]

I think Macy's large formats are neglected and need downsizing for sure.

I think the pendulum swings too far in this small format, just like it did with the failure of Target small format. And I think the trend is dying.

The difference is Target has the capacity and capital to play around and try new things. Macy's does not. Macy's needs to fix their execution in their existing stores (which in many cases may mean closing the store) and once those are stable then they can play with these baby size stores.

What I wonder is Macy's basic claim that the presence of these small stores somehow enhances online sales in a given radius of the store. I think that is somewhat fuzzy, but depending on how true that really is, maybe this makes sense. The Wal Mart there at that shopping center is jam packed, recently remodeled, sort of odd to see Macy's next to Wal Mart.

Taking it a step further I did notice a couple people going into the store with boxes and returning items. So these would appear to be online order returns. I wonder if Macy's could do something better where they try to recover the sale. For instance you order something and the size is not right. So you initiate a "return" online but then it gives the option for an exchange at the small store in your neighborhood they will fulfill with your "exchange need size (s)" next business day from a large store nearby. They would just accumulate the requests, pull them from nearby stores, and courier them to the small store. Then for unwanted items the small store could just send them back to the large store end of day. I guess they'd be needing to process dozens of these transactions in a day for it to be worth it, and I suspect the volume isn't even close enough yet for this idea to be viable.

That's a busy shopping center, the Sam's Club also is very busy and is testing their newest prototype which has a large full service meat and seafood counter. I am unaware of any other Sam's in SoCal or Nevada with that "Fresh Market" counter which I'm assuming they only piloted in top volume stores. It is a difficult shopping center to drive through, two long strips of big box stores that face each other and thus share parking lots with the store directly across. It may be one of those examples where "less is more" and the stores are so high volume that shoppers may be sometimes deterred and decide to visit lower volume stores nearby to avoid the chaos. That Walmart and Sam's are probably going to be so wildly busy in December that they will crush any chance of this Macy's getting established.

I'm not sold on this idea that these help the company as a whole and may just enable unprofitable omnichannel and e-commerce sales. I feel like one of the biggest problems with most omnichannel operations is in store returns, because most of the time the store gets flooded with big returns that are now negative sales for them plus they're stuck with merchandise they don't sell. I studied this a bit at my last company as I was getting criticism for a deteriorating sales trend in parts of my market, specifically my more affluent areas, and summed it up that my stores that underperformed the region had return rates 4%-5% higher. Their sales were actually better up front until the returns were factored in, and these were bolstered by massive e-commerce returns. Where customers have high credit limits they have no qualms about ordering dozens of items online to choose the single item they want, and then they fill up the back of their Navigator or Escalade and return the rest to the store. They keep a single item priced around $50 and return $1500-$2000 at once. At one point I got so irritated with being reamed by my boss that I had my stores track large online returns and I took so many in a week that I would have otherwise had the top performing group in the company when I came in on the bottom 10% instead. When I visit my local Macy's I see many e-commerce items in their vast clearance area (note I'm not talking about "Backstage" discount product which is different). They usually have a tag that says something to the effect of not on plan for the store so they are marked down. I'm sure that other retailers like Target wind up taking this stuff and it becomes the pallets sold to the blowout store operators that were discussed previously on other threads. The returns are a very serious problem and I just cannot comprehend why anyone would invest in leasing new buildings to encourage them unless they have a malicious intent.

I could very easily see where this Macy's small format encourages this type of excessive purchasing and return behavior, makes the online sales look good for the Wall Street buffoons, and then the retail store eats it when it all comes back. If the company is being pressured by Wall Street to show that magical e-commerce sales figure even if it isn't really profitable then this might help deliver it and then raise the stock price (which in turn due to bought back shares may be temporarily subsidizing these locations until the wind changes on Wall Street and they decide to start scoping some other figure, if you want a perfect example of that look at what happened when they stopped caring about streaming service subscription counts and started asking about the profits instead....) Meanwhile the company has spent hundreds of dollars in shipping and handling costs plus has to mark down thousands of dollars in product that isn't on program for the store it was returned at. They obviously haven't made any money at all and would have been far better off if that customer never bought that $50 item and took their business elsewhere.

I think at some point someone with half a brain is going to start questioning all this e-commerce crap and how much it's contributing to inflation as it adds unreasonable costs to these stores that inevitably get passed along to every customer, and when it does I expect to see a massive culling of curbside pickup programs, free shipping and free returns, and all of this nonsense that just makes everything cost more for all of us. When that happens I would expect this entire fleet of small Macy's stores to slam their doors shut with little fanfare.

Where I do see this potentially being more valuable is the Bloomie's small format. Those large stores are clogged with very high end goods, especially housewares, that are slow turning inventory. I am sure that if they didn't have to sit on so much inventory they could open many of the smaller Bloomie's stores in new markets and then use them as a platform to sell the slower moving goods which get delivered to the customer or to the site. The distinction between the two is that Macy's is still very widespread with hundreds of locations while Bloomingdales is only a handful of stores and far too high of a cost to open a full scale store in areas they don't currently service since they obviously have to house hundreds of millions in inventory with the full size format. If say luggage didn't have to span 10,000 square feet of the floor and maintain multiple units of each size and color of the suitcase, but instead they carry the 2 or 3 most popular in each brand/line with signage to educate the customers about the additional sizes/colors available, and then a salesperson can immediately order any different size for next day delivery, I think the cost savings from the reduced overhead would cover the shipping costs plus they are going to be bringing in new customers from the new market entry. I don't see Macy's acquiring new customers with these boxes but rather just rearranging their existing ones to different channels or buildings while they're still sitting on deteriorating assets (big owned stores) that are further undermined by renting these smaller spaces. Of course only the best and most productive large Macy's would be worth anything to sell to another retailer while they replace the store with one of these smaller boxes elsewhere; the less productive sites just sit and these accelerate the rot. Basically I think Macy's is grown out as far as it will go, probably more than it should be, while there are numerous markets they could expand the Bloomingdales business into with a smaller format store.

You saliently expose and define the elephant in the room.

E-Commerce!

Destructive to the environment (it's carbon footprint). The waste of labor dollars from the beginning to end (and even after that).

Will retailers wake up and finally decide that this system is mostly not sustainable? Perhaps instead of focusing on smaller stores (to save on payroll <LOL>, rent, maintenance of building, taxes, et al) with their limited variety and customer service, they should return to venues where people can touch and smell and try on the stuff they want to buy?

I know that I will never buy clothing and shoes online again. They never fit correctly. Also the misrepresentation of quality and color and even size amongst almost all E-Commerce is exhausting.

[veteran+]

Macy's biggest problem is their past and their present.

They destroyed what they were by over expansion (mergers, etc) into areas they had no business in.

They were that upper class store below Bloomingdales and Neiman Marcus but clearly above May Company and Gimbles.

Adding to that, the market has changed drastically and they just do not have the skillset to adjust and reinvent for sustainable success.

Funny, but when I visit some of the original and updated flagship stores, they are nothing like the Macy's in West Covina, San Bernadino, Fresno (and even Rancho Mirage/Palm Desert) and other smaller markets.

[storewanderer]

I discontinued this markdown culture and donated all items to the local food banks. Waste numbers decreased drastically but some customers complained to corporate (very angrily). When the bosses saw the numbers and the increased profit margins they came in to study what I did and tried to replicate it chain wide (they waited to long so buy buy F&E).

So customers complained about a lack of markdown merchandise? I'd laugh that complaint out the door/off the phone. Gosh I don't know what to tell you- we didn't have anything to mark down (none of their business it went to a food bank instead). Maybe you can go look for markdowns at Whole Foods or Trader Joe's (or at the time Sprouts as at that time Sprouts didn't have a markdown program like they do today) instead, oh wait they don't mark down anything...

Or were they complaining that the stuff expiring today was still full price?