A case study in the risks of complacency.
by Jason Del Rey@DelRey Jan 12, 2017, 3:00am PST
It has been a very bad week for some of the country’s biggest department stores, with Macy’s feeling the brunt of it. The mass-market retailer’s stock has dropped 16 percent since it announced disappointing holiday sales results and details on thousands of job cuts on Jan. 4.
Macy’s has said that it has too many stores, in too many underperforming locations. It’s closing 100, and no one should be surprised if that number grows in future years.
Macy’s has also blamed what it calls “changing customer behavior.” That’s code for the rise of Amazon.com and the adoption of e-commerce shopping in general. It’s also the idea that a new generation is spending more money on experiences over physical goods.
But while Amazon has certainly had a hand in Macy’s struggles — and we’ll get back to this in a bit — Macy’s should look within, first, for the cause of its current predicament. Because if not Amazon, someone else would have come along and taken advantage of the complacency that’s been on display inside Macy’s over the last decade.
For starters, a trip into Macy’s this holiday season felt like a visit to a teenager’s bedroom: In its Paramus, N.J., store, items were strewn everywhere and no useful answers were to be had.
Even in a neat Macy’s, the selection of merchandise has left a lot to be desired — namely because there doesn’t appear to be much stuff that you can’t find elsewhere.
Prior to the rise of e-commerce, Macy’s could get away with some of this. But you can now buy the same stuff in lots of places — whether from Amazon or a brand’s own website. Comparing prices has gotten infinitely easier, too.
In short, a visit to Macy’s in 2016 felt a lot like a visit to Macy’s in 2006. That’s great for nostalgia, but very bad for business. Want proof? Macy’s market cap was $24 billion at its 2006 peak. Today it’s just $9 billion.
Macy’s is trying to fix its problems in a few ways. On the digital side, it’s pouring hundreds of millions of dollars into its e-commerce operation and opening an online shop in China, where its brand is strong.
In stores, it’s trying to go upmarket and downmarket at the same time.
It announced a new store concept in 2015 called Macy’s Backstage, an off-price outlet meant to compete with popular discount retailers like T.J. Maxx, Nordstrom Rack and Marshalls.
At the same time, Macy’s said in 2015 that it was going to add upscale merchandise to its top 150 stores. Being in the middle is tough.
The middle is definitely tougher with Amazon aiming directly for your business — what with a huge, and growing, selection of clothes and accessories and plans to build a bunch of its own brands in-house. By some estimates, Amazon will pass Macy’s in clothing sales this year.
The bottom line, however, is that Macy’s stores, by and large, have looked and felt the same forever. And in digital, Macy’s has long been on the defensive.
There are those in Silicon Valley, and the e-commerce industry at large, who cheer on the collapse of the once-mighty department stores. But the consumer should be hoping for the increased competition that could come from Macy’s and its brick-and-mortar peers figuring out a revival plan.
With troubles mounting, one might have thought Macy’s would have looked to an external candidate — one with a fresh point of view — when it was selecting a replacement for CEO Terry Lundgren, who is stepping down after 14 years as the top executive.
Instead, this up-mountain battle will soon rest with Jeffrey Gennette, the company’s president and a longtime Macy’s exec who is taking over for Lundgren.
Wish him luck.