Macy’s goes national, online and off, with the twentysomething shopper in its sights
By Don Davis
“Hope springs eternal” was the advertising theme this spring for Macy’s Inc., which was appropriate for a company that now owns the largest collection of U.S. department stores, a retail format whose demise has been predicted for decades.
The format may date to the nineteenth century, but there is plenty new at Macy’s, starting with the company’s name, which was slated to change from Federated Department Stores on June 1. On the same day, the company planned to adopt the ticker symbol “M”, a coveted single-letter descriptor that many believed was being reserved by the New York Stock Exchange for software giant Microsoft Corp.
For M to be a hit on Wall Street, Macy’s will have to continue to foil those who say the department store cannot survive in the era of Wal-Mart, specialty retailers and the Internet. Company executives say they plan to use increasingly feature-rich web sites, better online selection and faster delivery to complement the 859 Macy’s and Bloomingdale’s stores around the country.
The company has committed $230 million to the direct-to-consumer channel, mostly to build two big, high-tech distribution facilities designed to ensure faster delivery of a bigger assortment of products. At the same time, the web sites are adding items, including a new line of home products from Martha Stewart, and new features, some aimed at making Macys.com more appealing to younger women.
“We see Macys.com as far more than a selling site,” Peter Sachse, chairman of the Macys.com unit, told analysts in April. “We see it as the online hub of the Macy’s brand.”
The most coveted customers
While some customers will make purchases online, Sachse said the site will offer a range of features—from customer reviews and side-by-side item comparisons to listings of in-store events and credit card bill payment—designed to build loyalty to the brand and drive customers into Macy’s stores.
Like many retailers Macy’s has discovered that its best customers shop both online and in stores. “When our customers shop online and in stores they spend 20% more in stores than the average in-store shopper, and 60% more online than the average online shopper at Macys.com,” says Sachse (pronounced SAH-she).
While the brick-and-click strategy is hardly new, there have been few retailers to try it with the size and resources of Macy’s, and the longstanding ties to the middle class woman shopper who is the department store’s traditional customer. Company research shows 98% awareness of the Macy’s brand among women between the ages of 25 and 54 and with incomes of $35,000 or more.
Company executives refer to “her” when they speak of Macy’s typical customers, and with good reason. Macy’s says 63% of its $22.4 billion in sales last year were in women’s apparel, shoes, lingerie, accessories and cosmetics. Men’s and children’s departments accounted for another 22%.
“Macy’s is going to be the one that defines Internet retailing for that kind of merchandise because they’re the only ones that can afford to make mistakes along the way,” says Michael Levy, marketing professor at Babson College and co-author of the textbook “Retailing Management.” “The great thing about big companies like that is they can mess things up and they don’t go out of business.”
That means Macy’s is likely to be around for a while, and that what it does will not only be worth watching for other department store companies like Neiman Marcus Group Inc. and Dillard’s Inc., but also for specialty retailers in such categories as apparel, home furnishings and jewelry.
A bigger role for the web
Federated, now Macy’s, got to be the biggest owner of traditional department stores—which leaves out discounters like Wal-Mart Stores Inc.—through a string of acquisitions culminating in the 2005 buyout of the May Co. At the time, May owned 491 department stores, and several hundred specialty stores that Federated sold off.
But being the biggest department store owner is a dubious distinction today, given that department stores accounted for only about 7% of nonautomotive U.S. retail sales in 2004, down from 11% a decade earlier, according to consulting firm A.T. Kearney. Federated continued the winnowing by closing about 80 of the May stores in 2006, and company chairman Terry Lundgren told analysts he might have closed more but for contractual obligations.
While the Bloomingdale’s brand survives at 37 stores, Bloomingdales.com and the Bloomingdale’s By Mail catalog, a key part of the company’s strategy is to build Macy’s as a national brand. That means national advertising on television and in print, and bigger ad spend on the Internet.
“Our core woman shopper, like the rest of us, is spending a larger and larger part of her media day online,” says Anne McDonald, chief marketing officer. “We need to increase our time there, just as she increases her time there.” One sign that’s happening: online ad impressions for Federated and Macy’s more than doubled to 12.8 million in March from 5.5 million a year earlier, according to Nielsen/NetRatings’ AdRelevance report.
It also means turning Macys.com into a web site that can hold its own against the best of the online competition, while driving more traffic into Macy’s stores. Most of the $230 million the company has allocated over the past year for the direct-to-consumer business will go into two initiatives: building two new distribution centers to fulfill online and catalog sales only and upgrading the web site to make it more appealing and more closely tied to the Macy’s stores and brand image.
The first of the new distribution centers opened in April in Portland, Tenn., and will ship orders to customers in the Midwest and South. The plant covers 600,000 square feet, can be expanded to 1 million square feet and will employ more than 500 when fully operational. A similar facility to serve the West is scheduled to open in 2008 in Goodyear, Ariz. The Chester, Conn., center that fulfills direct-to-consumer orders in the Northeast could be next in line for an upgrade, company officials indicate.
Martha and more
The larger and more modern facilities will allow Macy’s to expand its online selection, which today amounts to 38,000 products and 170,000 SKUs. Over time, that is expected to grow to more than 300,000 SKUs, says Kent Anderson, president of Macys.com.
That online selection is already growing. Maternity clothes, sunglasses and furniture were scheduled to be added to the web site offerings by early summer, and a new Martha Stewart line of home products is promised for the fall.
The other big advantage of having distribution centers around the country is that Macy’s will be able to tell customers when to expect their purchases, Anderson says. While Macys.com promises to ship an order within three days, it cannot say when it will be delivered, Anderson says, because goods coming from the East Coast may have to cross seven UPS zones to get to a customer on the West Coast. The new distribution centers will cut that to two UPS zones.
“That will shorten the time it will take the product to arrive and allow us to make a delivery commitment as part of checkout,” he says. “If I buy it I can expect it in X number of days, which is frankly much more of the Internet standard than what we’re doing today.”
Web traffic jumps
Macy’s expects to keep those distribution centers busy, shipping 4 million online and catalog orders this year. As part of the company’s adoption of Macy’s as the primary brand in September, Macys.com has become the flagship web site, and that’s showing up in more traffic. The number of unique visitors to Macys.com grew to 7.8 million in April, up 24% from a year earlier, according to comScore Media Metrix. Traffic to department store sites as a whole was up only 4% during that time.
Macy’s says online sales were $620 million in 2006, up 38% from the year before, and projects $1 billion in web sales by 2008. “In the next two years, Macys.com alone should be the fastest growing part of Federated, not only in percentage terms but very close to No. 1 in absolute dollars as well,” Sachse told analysts in April.
From four employees when the web site launched in 1998, Macy’s online staff has grown to 350, 90 of them involved in planning and buying the online selection. Sachse says the company has added to its staff recently by recruiting e-commerce personnel from Amazon.com Inc., the Land’s End unit of Sears Holding Corp., and Gap Inc.
Macys.com has been redesigned and got good reviews in the annual mystery shopper survey of 150 retail web sites late last year by consultants and researchers The e-Tailing Group Inc. “They do a lot of savvy things,” says Lauren Freedman, president.
She gives Macys.com strong marks for allowing customers to search by price and brand and to compare many items side by side, for highlighting promotional items in search results, for store locators that show which stores have such items as furniture and mattresses, for highlighting in-store events like make-up demonstrations and fashion shows, and for lots of seasonal promotions that continually change.
“It feels like Macy’s,” Freedman said as she clicked around the web site. “Buy one pair of shoes and save 50% on a second pair. Those are things you would expect from a Macy’s promotion.”
Jeffrey Grau, senior analyst at research firm eMarketer, singled out the Easy Returns link on the Macy’s home page that clicks through to a page explaining how goods ordered online can be returned in stores or by mail. That can help boost online sales of products consumers often want to see in person, like apparel. “If it’s easy to return, that’s one barrier removed,” Grau says.
Desperately seeking Danielle
Macy’s is using e-mail marketing aggressively, and regularly tests two promotional e-mails against each other, sending the winner out broadly the next day. “In the traditional retail world it would take weeks or months to test something like this,” Sachse says. “As an Internet retailer we can turn it around in 24 hours.”
As it adds features to Macys.com, Sachse says Macy’s pictures a prototypical young woman shopper he calls Danielle. She’s 25, gets her news online rather than from a printed newspaper, uses video recorders so she can watch TV shows on her own schedule, doesn’t own a landline phone, and uses only text and instant messaging. “E-mail is for her parents,” Sachse says.
“Danielle is all about Web 2.0,” says Sachse, who says Macy’s had customers like Danielle in mind in September when Macys.com introduced customer product reviews, using technology from Bazaarvoice Inc. He says 50,000 reviews had been posted by April. Future enhancements under consideration include video, customer blogs and commentaries by shopping-savvy “power users” whose opinions Danielle might value.
Consumers like Danielle are the future. Attract her and Macy’s itself could guarantee its own.
don@verticalwebmedia.com
