Commentary

Macy's Bets Big On Going Small

Macy's thinks the future of retail is shrinking. The company announced accelerating plans to expand its small-format concept and will open 30 more of the wee locations starting next year. That’s in addition to the 15 downsized stores already open for business, including the just-opened Bloomie’s in Seattle.

The smaller stores, roughly one-fifth the size of a typical Macy’s, are designed to showcase on-trend merchandise and offer more convenient services, including picking up digital orders, exchanges and returns – all while making it easier for customers to get in and out.

The company says the decision is based on the superior performance of the small stores opened for an entire year. Because they are located in off-mall shopping centers, they bring Macy’s closer to target customers and encourage more frequent visits.

“Our small-format stores are efficient to operate, provide the customer with a shopping alternative within our omnichannel ecosystem and present a unique opportunity to target high-traffic shopping centers,” says Adrian Mitchell, chief operating officer and chief financial officer for Macy’s, Inc. in the announcement. “Our small-format strategy is one way we intend to harness the full power of the Macy’s brand to deliver sustainable, profitable sales growth for Macy’s, Inc. beginning in 2024.”

Bloomie’s, the smaller sibling of Bloomingdale’s, is also part of the small-is-good strategy. In addition to the new Seattle store, it has a store in Fairfax, Virginia. and the Chicagoland area.

In an appearance on Jim Cramer’s “Mad Money” show on CNBC, Macy’s execs shared that Bloomie’s, which caters to more luxury clients, and Bluemercury, Macy’s beauty retailer, will provide growth opportunities ahead.

That’s good, because growth has been hard for Macy’s to find. The department store category has been challenged for years, and the current pullback in apparel spending isn’t helping. In the company’s most recent quarter, sales fell 8% to $5 billion, and digital sales -- once seen as a growth avenue -- dropped 10%. At Bloomingdale’s, sales fell 2.7%.

While competitors, including Kohl’s and JC Penney on the lower end and Nordstrom and Saks on the higher end, have also been challenged, some observers say Macy’s response to changing consumer preferences haven’t gone far enough.

“Macy’s is struggling to stay relevant as consumers have many choices,” wrote David Swartz, an analyst who follows Macy’s for Morningstar, following the retailer’s last earnings report. “We think Macy’s has been too slow to respond to competitive threats and lacks the efficiency of fast fashion, the customer service of luxury retailers, or the low prices of discounters.”

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