Middle of the road isn’t such a great place to be if you’re a retailer. Just ask Macy’s (m).
Shoppers are now either gravitating toward the deeply-discounted items found at T.J. Maxx (tjx) and outlet stores such as Nordstrom Rack, or, if they have the means, they’re focusing on high-end stores such as Neiman Marcus and Macy's sister chain, Bloomingdale's.
That bifurcation in the retail industry is leaving many mid-tier stores struggling to find growth: witness Macy's (m) anemic first-quarter results, which included a slight but unexpected decline in sales. The long-time department store leader's performance contrasts with growth last quarter at downmarket rivals J.C. Penney (jcp) and Kohl's (kss), as well as at upmarket competitor Nordstrom (jwn).
To remedy that sales decline, Macy's is developing strategies that zero in on its top 150 stores, or about 20% of its fleet, particularly its very best 30 stores, which it calls its "platinum doors." The goal is simple: getting a sales lift in time for the crucial holiday season by adding a lot of higher-end merchandise, more staff, new technology, and a redesign.
The retailer has already done this to a large extent at a few of its most important stores. Its flagship store in Manhattan's Herald Square is nearing the end of a multi-year, $400 million renovation, and is now in essence partly a luxury department store, housing brands such as Louis Vuitton and Longchamp, which few Macy's stores carry, and a Coach (coh) boutique designed by Dutch architect Rem Koolhaas. The Macy's store in San Francisco's Union Square is also a beauty and could easily be mistaken for a luxury department store. Macy's has also bought the upscale Bluemercury beauty and spa company, which it plans to expand.
“We believe there is opportunity to elevate these stores further and accelerate their growth,” Macy's Chief Financial Officer Karen Hoguet told Wall Street analysts this week. “Hopefully, we will begin to see the benefit this fall, particularly in the fourth quarter.”
The 150 stores were chosen based on their sales growth, the state of economy in those markets, customer service scores at those stores, and their profitability.
More specifically, Macy's plans to add higher-end merchandise to those 150 standout stores. At the 30 platinum stores, Macy's may remove some clearance items so it can offer more new merchandise. (The retailer is launching a new outlet chain this year called Backstage that will give it a venue to clear much such inventory.) The best stores will also get more inventory of hot items, redesigns, more staffing, and new technology.
Unfortunately for Macy's, many of its stores are old and located in malls that are struggling, partly because of store closings by JCPenney and Sears (shld) in recent years. By contrast, the Macy's stores at booming malls — such as Long Island's Roosevelt Field — are thriving. So such stores are about to get a lot more attention from the company.
“If you think about it, the top malls in the country are doing extraordinarily well, as are we,” Hoguet said. “But we think we can actually push that growth further.”