Macy’s And America’s ‘Over-Storing’ Retail Crisis
Real estate is one of the biggest — and most difficult — costs for retailers to manage. And that's not the only thing impacting retail. Here's how location technology can address stores' woes.
Macy’s plan to shutter 100 of its 728 U.S. locations as part of a plan to “recreate its physical footprint” has been expected by retail industry observers for the past year.
The department store chain’s decision came during a fairly positive Q2 earnings report. The store closings also come two months after Macy’s CEO and Chairman Terry J. Lundgren began transitioning out of the chief executive post he’s held for 13 years.
On that same day that Macy’s announced its cuts, casual dining chain Ruby Tuesdays said it too was going to close 100 of its 724 U.S. locations that were “underperforming.”
Speaking of timing, the U.S. Commerce Department’s July report showed retail sales were flat — though that has mostly to do with the lower price of oil causing less consumer spending at gas stations. Nevertheless, the performance of the U.S.’s 3.7 million retail shops weren’t especially positive.
Death of Bricks By Clicks Is Exaggerated
Does all this portend the takeover of e-commerce and the death of brick-and-mortar? Far from it. As most observers know, roughly 90 percent of consumer purchases happen in physical stores. While e-commerce’s 10 percent claim on consumer spending is rising rapidly, what we’re seeing with Macy’s is a realization that the “omnichannel” consumer experience demands a re-thinking of the century-plus old concept of “the store.”
Macy’s stated goal of “re-creating its physical store footprint” by closing 100 stores can be translated as a strategy that intends “to capitalize on Macy’s unique competitive advantage of operating in the most attractive retailing locations in America.”
While still maintaining a significant bricks-and-mortar presence in 49 of the top 50 U.S. markets, Macy’s will “operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations.”
Stores will remain critical customer touchpoints for Macy’s, along with online shopping and mobile apps, as omnichannel retailing continues to evolve, the department store chain said in a statement.
Over the long-term, the retail location reduction will “help us to accelerate our progress in building a vibrant omnichannel brand experience,” said Jeff Gennette, Macy’s, Inc. president, who is designated to succeed Lundgren as CEO in Q1 2017. “With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping,” he added.
Why Bricks Beat Clicks (Still)
Shopping online has some obvious advantages over physical stores. Items tend to be cheaper, as price comparison across sellers is quick and seamless. On top of that, the costs associated with online fulfillment are lower versus those of physical spaces (e.g. staffing, energy/utility bills, and especially rent/leases). Add to that the added convenience of avoiding crowds and transportation by buying products online.
And yet, brick-and-mortars have clear advantages that still outshine e-commerce. It’s so easy to underestimate the tactile quality of looking at a potential purchase item in person — particularly when it comes to clothing, appliances, and furniture. And despite the advances of 3D printing technology, no delivery can compete with the satisfaction and immediacy of seeing the desired item and taking it home within minutes.
Large scale retailers like Macy’s have adopted omnichannel strategies like online ordering and in-store/curbside pickup. And Macy’s was something of a pioneer in the space when it installed 4,000 beacons across all its stores nearly two years ago with indoor proximity and rewards marketing platform Shopkick.
But when we spoke with Lundgren in January about Macy’s approach to omnichannel and beacon-based in-store engagement, the CEO noted that it was all still emerging from the experimental phase.
“Beacons are very important right now, though I don’t think we’ve maximized its capability at this point,” Lundgren said at the time. “Customers have to opt-in to use it and they can demonstrate clear interest. Nevertheless, it’s still in the very early stages.”
Location technology, both indoor sensors like beacons and geofencing areas near shops, can help businesses make the most of where they are when it comes to attracting local consumers.
Apart from directly connecting shops and shoppers “in the moment,” location technology can also help businesses manage the risks and costs associated with finding and maintaining a physical retail presence.
“Finding a location is almost like peeling an onion,” says Bryan Eisenberg, CMO and a co-founder of Austin, TX-based IdealSpot, which uses real-time market data to help businesses choose where to place their locations. “You’ve got to look at all the different layers. You might never get to the full heart of the onion but at least you can get most of it peeled away.
The first thing Eisenberg suggests brick-and-mortars consider is the area their shop is (or will be) situated in.
“Start by looking at where your competitors are, take a look at actual drive times,” he says. “Don’t just look at a circumference around an area. That’s not how people decide to where to eat or get coffee. People think, ‘If it’s 15 minutes away, even though it’s 3 miles, it’s too far.’ A lot of things can happen within a radius in terms of getting from Point A to Point B. A good location depends on the city and the expectations that people have when considering where to go.”
Among other geomarketing signals, IdealSpot provides its clients with GPS drive times along with the locations as a way of determining the success of a particular spot.
… Size Doesn’t
As retail veteran Ryan Craver, CEO of kid’s apparel brand Trimfit, has pointed out, people are becoming increasingly comfortable with the idea of shopping online. But he is quick to concur with his former boss, Hudson’s Bay CEO Jerry Storch, on the blunt view that stores aren’t dead.
“The way this country is ‘store’d’ today isn’t sustainable given the significant shift happening,” Craver told GeoMarketing. “Store boxes and leases are in some cases currently worth more than the profit they can generate as a retailer. We’re going to have to shrink how big the stores are. We’re going to have to shrink how much is in the stores. It’s going to happen, it’s going to be uncomfortable but ultimately required to bring the industry back to a healthy spot.”
And that’s what Macy’s, one of the largest retailers in the U.S., is trying to achieve by cutting back on the number of stores it operates.
“Retailing is changing, there’s no doubt about it,” Karen Hoguet, Macy’s CFO, told analysts during the Q2 earnings call. “Our company is committed to being tomorrow’s leader in omnichannel retailing. We will strike the right balance between stores and digital. And the closing of 100 locations will get us to where we think we need to be, all while maintaining a significant physical presence in virtually every major market across America.”