Gennette Spells out Macy’s Recipe for Success

The ceo says Macy’s is adding new experiences, economic models and formats to the business and is aligned with vendors.

Jeff Gennette, chairman and chief executive officer of Macy's Inc., says the company has “a recipe for success.”

“It's what we are doing with our digital strategy, getting brick-and-mortar healthier and having a mobile platform and app that ties it all together. That's what we have been really focused on,” Gennette explained.

Gennette has reshaped the Macy's management team since becoming ceo in early 2017, and has helped recast the perception of the $25 billion Macy's as no longer being slow to change. During his conversation with WWD's deputy managing editor Evan Clark, Gennette said the company conducted a forensic diagnostic of the customer and essentially, she's focused on five things: fashion, inspiration, great value, convenience and experience.

“There are two buckets of experience,” Gennette said. First, the table stakes for creating a satisfying consumer experience is about “eliminating that friction” in the shopper journey. It's got to be fast and easy to buy online, with properly trained people at the call center to resolve customer issues, and it's got to be fast and easy to buy or return products in the stores, Gennette stressed.

The second bucket of experience is about “engagement,” Macy's ceo added. “That's more complicated for us. Sometimes that is like going back to basics, getting back to what department stores were known for — special events, trunk shows, doing that online or in stores. We are now looking at events across our entire store portfolio and online.”

Story, the Chelsea store Macy's purchased this year which changes like a gallery every four to eight weeks and sells products, and The Market @ Macy's, a new pop-up format focused on innovative products, each play a role in making Macy's more experiential. Expect an announcement soon “about what Story means in Macy's to really help with the experience in a number of stores in 2019,” Gennette said.

Years before Story was purchased, Macy's purchased Blue Mercury and most recently bought a stake in B8ta, a tech start-up that helps Macy's power The Market @ Macy's.

Discussing potential acquisitions, Gennette said, “We have been very careful about acquisitions that we make. When I look at all of our acquisitions, it all basically serves a customer through our strategy. We were in trouble with beauty. We had a vibrant fragrance business but we had strong competitors taking market share from us in color and treatment so what was the solution? We looked at the overall landscape. We looked at Blue Mercury and it was a customer-centric model, a brand-centric model. It also gave us a beauty play that was off mall, and then we could take Blue Mercury and drop it into Macy's doors.”

The Market @ Macy's provides “a caravan of new content that comes into the space,” Gennette said. Currently, the Market is housed inside 12 Macy's stores, though the company plans to take it to many more. The range of product can be wide, Gennette noted, citing anything from Warner Bros. product launches to handbags or 3-D printing of insoles. In any case, “it's all curated for that particular store and we use B8ta technology for that. So that's a new economic model that brings interesting things into the store that makes sense for us, for the brands, and certainly makes sense for customers looking for newness and reason to come in and shop.”

“We really have to curate for the customer in the store and you've got to get really good at it, and in the past we used to do that with human beings. Now we do that with much more science than ever before,” Gennette said. “The local store is being curated for the customers that shop in that zip code. But online, you need to have a much broader assortment. It's like narrowing your stockkeeping unit assortment in the store, really getting to the most important things, and having a much broader sku assortment online, and using your full menu optimization tools to customize that at the customer level.” He noted that Macy's emails, getting personalized and customized, are also part of the ingredients of the success recipe.

Macy's, Gennette continued, is utilizing “new economic models helping to make the brand more interesting today,” including playing “more aggressively” with leased shop concepts and the vendor direct strategy, which also known as drop shipping.

Drop shipping, where the order is taken by Macy's but shipped by the vendor to the consumer's home, has triggered a massive expansion of the number of sku's Macy's presents online. “Online back in April, it was about 900,000 and now you are looking at about 1.5 million,” Gennette said. “It's an opportunity to curate that through analytic engines and to touch new customers. We looked at failed searches. We looked at categories that customers want us to have that we didn't. We took vendors that we did great business with and put their entire assortment online, and we are seeing lots and lots of new business as a result of doing that.”

By comparison, Macy's has about 150,000 sku's in its typical store, according to Gennette.

The vendor direct program, Gennette said, maintains “the curatorial perspective of a Macy's merchant. We want to make sure that what is on the site is with the customer in mind.”

Much of the merchandise added to the site over the past six months has been in home categories, including electronics, home decor and occasional furniture.

“When customers go to our brand, they may not expect us to have a speedboat or a washing machine and those types of things, but you would see those categories that are natural extensions of our brand,” Gennette said. “We don't want (customers) to feel like they just got it from a third party. We want them to feel like it's a Macy's experience.” So, for example, in many cases, a return could be made to Macy's.

Discussing the leasing model, Gennette said that European department stores are 40 to 60 percent leased while those in Asia are virtually 100 percent leased. But Macy's is less than 10 percent leased “so Macy's is going to grow,” the amount of space it leases to brands. “It's going to be north of 10 on the Macy's side.” Bloomingdale's, currently north of 10 percent, “may go up a couple of points but we are about where we want to be. Bloomingdale's is probably going to grow a little bit, depending on the business and the store and what part of the country it's in.”

“Anything we can do to increase the experience in a building, and the amount of time a customer spends in a building, is always good,” Gennette observed. “What you are seeing with us is an increase in the amount of categories there are within a building...It's not just apparel and accessories. Leasing gives us an economic model that can make the experience more interesting.” A leased shop arrangement could also bring in a brand or category, a service such as LensCrafters, or food and beverage, that was lacking in the store.

But you just can't do that with any brand. “When the brands have their own infrastructure. When they have their own outlets. When they got their own teams competent in operating retail,” then a leased shop could be considered, Gennette explained. “For most brands, the bulk of their business is the wholesale model. They are not equipped to do a lease model.”

Asked if Macy's could bring a bigger upscale component to its assortment and services, Gennette replied, yes, to a degree. “With particular stores, where you have a very high-end customer in the Macy's portfolio, you are absolutely going to see that from a leased model or from an aggressive owned (merchandise) model, to get in the best products to serve the highend Macy's customer.”

With the Macy's division, “We have the opportunity to reach down or reach up,” depending on where the store is located and the customer profile of the store, Gennette added.

Under Gennette's leadership, Macy's has evolved into a nimbler, streamlined organization able to make changes faster having fewer layers of decision-makers. He said the company is “fit for growth” largely due to changes made in the team structure, involving having collapsed three organizations — private brands, merchandising and planning — into one. Before the changes, “If you were to poll vendors, they would have said Macy's is too slow. Macy's is about the deal. Macy's is not customer-centric. Those were things we used to hear.”

A more up-to-date perspective is that Macy's has “win-win partnerships” with vendors, Gennette maintained. Outside their own stores and web sites, “Macy's and Bloomingdale's are the best expression of these brands in America,” Gennette said. “We bring these brands to life the way they were intended to be brought to life. We show them in their completeness...We are working closer with our vendors than ever before. We are in this together. There is always debate and conversation that goes on between us, but we are aligned.”