Why the Macy’s Death Spiral Isn’t the End of Retail
It has been a tough few weeks for retailers. Last week, Macy’s announced that it would close 63 stores and Sears said that 150 of its locations, including 108 Kmarts, will go dark. The stock prices of Macy’s and Kohl’s have plummeted, dragging those of Nordstrom and J.C. Penney along with them.
None of this should come as a surprise. After some 20 years of relentlessly assaulting Barnes & Noble and bankrupting Borders, Tower Records, and Circuit City, Amazon has proved that consumers are more than eager to make the bulk of their purchases online. More worrisome, perhaps, is the prospect of a future of joblessness. According to the Bureau of Labor Statistics, cashiers constitute the occupation with the second-largest number of employees (3.5 million in the U.S.). Macy’s alone will be shedding 10,000 jobs.
Complicating the matter further is last month’s debut of Amazon Go—a 7-Eleven look-alike grocery store without a checkout line. Customers walk in, pick up what they want, and walk right out. There are no cashiers. All purchases are charged automatically.
Are brick-and-mortar retailers destined for a storeless and humanless future?
Perhaps. As soon as a product can sell itself because customers already know how to use it, the need for knowledgeable salespeople is gone. The hemorrhaging of skilled retail sales jobs reflects the inevitable social cost of greater convenience and abundance.
Before the appearance of department stores and supermarkets, general stores, small shops, and itinerant peddlers sold many household items—such as soap, garments, paint, and perfume—locally. For centuries, face-to-face selling was dominant, with customers making repeated purchases from craftspeople. It wasn’t until mass manufacturing gathered steam, fueled by the national railroad and wider transportation networks, that the concept of a department store became viable. John Wanamaker, whom many generally regard as the pioneer of marketing, opened the first department store in Philadelphia in 1876. Unlike small shops at the time, Wanamaker’s made use of price tags and a money-back guarantee. Out went constant haggling with small-time proprietors, and with it, various cottage industries.
Just as Wanamaker and its progeny—Macy’s, Lord & Taylor, Nordstrom, Saks, and others—forever changed the retail landscape in dense cities, Sears made a dent in sparsely populated rural areas. Sears, Roebuck & Co.’s mail-order business flourished at a time when farmers in rural America were selling their crops for cash and buying what they needed from rural general stores. Truly the Amazon of its day, Sears leveraged its buying volume and ruthlessly cut out the middleman—the much-hated, high-priced rural stores.
From Macy’s to Sears, the world of retail has been an epic race to the bottom: As the economy grew, consumers became more familiar with everyday items. When the novelty wore off, store ambience and friendly staff members became less important, if not downright frivolous. Today, low prices reign supreme. Little wonder that only discount retailers such as T. J. Maxx and Marshalls managed to escape unscathed this holiday season.
But this doesn’t mean that retail is nothing but a dog-eat-dog business. If anything, the Apple Store has shown that face-to-face retailing still has a place beyond the bargain basement. Evident everywhere at the Apple Store is the cutting-edge retail experience, from the use of roving credit-card swipers to the petting-zoo layout that encourages customers to test-drive products. No one is taking the human staffer away from the scene.
A look at the company’s training manual reveals an exhaustive list of tactics to keep customers happy. Words are carefully minced. Recruits are drilled with role-play and job shadowing. They are warned never to say that a computer may “crash;” it merely “stops responding.” “Listen and limit your responses to simple reassurances that you are doing so. ‘Uh-huh,’ ‘I understand,’ etc.,” the manual sternly instructs. The technology website Gizmodo calls it “the Humanity 101 textbook for a robot university.”
More often than not, Apple employees exhibit a fair dose of real empathy. In one incident, an employee at Apple’s Genius Bar carefully took out the motherboard of an iPhone that had been earlier submerged in water and transplanted it into another phone for the purpose of retrieving a voicemail message from a woman’s deceased son. Imagine the level of customer loyalty that this employee was able to generate. And keep in mind that he felt good doing it too.
All these niceties do translate to the bottom line. Apple stores routinely top the list of the highest earners per square foot of real estate. In 2012, Tiffany ($3,017 per square foot) came in a distant second after Apple ($6,050 per square foot). With more than 30,000 staff members working at the retail branch network, a top Apple salesperson can move as much as $3 million worth of merchandise per year.
But a company doesn’t have to be high-tech to win the high-end retail game. Sephora, the cosmetics retailer, is giving traditional department stores real competition by offering customers the chance to try out products without conventional interactions with a commissioned sales representative.
Then there is Wegmans, the century-old, privately owned grocery chain that a Fortune survey from last year named the best supermarket in America. It also ranked fourth in Fortune’s 2016 100 Best Companies to Work For list. Wegmans’s secret? “Its focus on employee training to ensure customers have the best experience has been a winning strategy that creates superfans eager for a new location to open near their home,” Market Force Information writes.
Of course, this just means that the retail wheel is spinning faster than ever. At one extreme, customers expect rock-bottom prices, and retailers have no choice but to scale down to the bare essentials and automate as much as possible. At the other extreme, customers still yearn for better integration across a variety of offerings, such as technology by Apple or lifestyle by Sephora.
The original proposition of a department store—creating a central market for everyday items—is evidently outmoded. The current downsizing at Macy’s is at best a short-term solution. To avoid becoming discount stores, Macy’s and other brick-and-mortar retailers must come up with novel and integrated shopping experiences of their own.
Howard Yu is professor of strategy and innovation at IMD Business School.