Business

Macy’s Upgrades by Becoming Less Like Macy’s

A small deal gives a big hint about an urgent revamping of its shopping experience.

Breaking the mold.

Photographer: Victor J. Blue/Bloomberg

Sometimes the most revealing corporate strategic moves are not the splashiest ones.

Case in point: Macy's Inc. announced Tuesday afternoon that it had acquired a minority equity stake in b8ta, a retail upstart perhaps best known for its gadget stores that provide a hands-on shopping experience. Macy's said it would expand its partnership with b8ta, using the newcomer's software to scale a new shop-in-shop concept in its department stores.

The value of the investment wasn’t disclosed, suggesting it is not an eye-popping figure. But it is important in that, coupled with other recent announcements, it provides a big hint about what the retail giant wants its next chapter to look like. And investors should be encouraged that it involves Macy's looking less like a traditional department store.

While Macy's had a good holiday season and a strong start to its latest fiscal year, its long-term challenges are still formidable. Mall traffic is slipping as more shopping moves online, and specialty chains like Ulta Beauty Inc. and off-price concepts like TJX Cos.' Marshalls and Home Goods are providing intense competitive pressure.

Tough Competition

Shares of Macy's have sunk over the past five years as specialty beauty chains such as Ulta and off-price apparel and home goods retailers such as TJX gain traction with shoppers

Source: Bloomberg

It is urgent for Macy's to make meaningful changes to the shopping experience at its stores, and this arrangement with b8ta serves that cause. In February, Macy's introduced a concept it calls Market @ Macy's, small pop-up areas that give temporary space to both budding and big brands. B8ta's software will be used to power this effort, making it easy for brands to swap in and out. Macy's says b8ta's technology will allow it to scale the Market idea more quickly.

This appears to be an acknowledgment by Macy's that it needs for its stores to be less predictable and for its space to be able to be transformed quickly to showcase of-the-moment products.

Macy's has already signaled its intention to move in this direction. In May, it announced it had acquired Story, a disruptive retail concept that is something of a hybrid of a store and a gallery, with set-ups and product assortments that rotate every month or two. At the time, it also appointed Story's founder and CEO, Rachel Shechtman, as brand experience officer of Macy's, suggesting it intends to infuse the main Macy's brand with Story's approach to selling goods.

Together, these are good indications that Macy's is serious about overhauling its staid stores to make them into distinctive experiences. That’s a much more promising avenue for durable growth than some other initiatives, such as its off-price sections known as Backstage.

Still Healing

Macy's comparable sales have been positive for two consecutive quarters, but that followed a long stretch of declines

Source: Bloomberg

And while huge old companies are fond of saying they think or act like scrappy startups, this might be a rare case where it is true. In May, a department-store startup called Neighborhood Goods announced it had raised $5.75 million in funding as it works to open its first store in Plano, Texas. (Aside: "Department-store startup" is a phrase I never thought I'd write.) Neighborhood Goods will also aim to frequently rotate the brands it displays and plans to use experiential features like a restaurant and a speaker series to lure people through its doors.  

Macy's has the right idea by trying to break out of the stuffy department store mold. Now it just has to hope it's not too late for its efforts to make a difference.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Sarah Halzack at shalzack@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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