FAIRFAX, Va. — Shoppers browse racks of clothing with a glass of wine in hand. A display of pet accessories and a water bowl greet four-legged visitors. Couples push strollers through a store on a neighborhood walk.
It’s not a local boutique. It’s Bloomie’s, a new store from Macy’s.
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The department-store operator is thinking smaller and outside of the mall with its latest stores as it shutters more of its giant mall anchors. Macy’s has opened 10 locations in strip centers — mini-versions of its namesake stores and Bloomingdale’s — and plans to add five more this fiscal year. The shops, called Market by Macy’s and Bloomie’s, are about one-fifth of the size of the retailer’s typical Macy’s and Bloomingdale’s stores.
It has not announced the locations of the four Market by Macy’s stores, but said the additional Bloomie’s store will be in Seattle.
Macy’s off-mall expansion is part of its answer to investors who think of department stores as dusty and dull. The company is chasing customers in bustling shopping centers and fast-growing suburbs as it exits dying malls. Inside these new and smaller stores, it’s offering a slimmed-down assortment of popular brands with displays that rotate frequently to stay fresh and on-trend.
This year will offer a pivotal test for the strategy, CEO Jeff Gennette said in a CNBC interview. The retailer will wrap up the test-and-learn phase of the stores and decide on expansion plans by year-end, he said.
“The hope is that we’re going to have a model that we’re going to be able to scale more aggressively in 2024 and beyond,” Gennette said in a call in March. “We’re very bullish on the concept. We’re very bullish on the early learnings. The size, the locations are all working.”
Early returns suggest a strong start for the strategy: Sales at the off-mall stores have outperformed the rest of the company. At Market by Macy’s and Bloomie’s, comparable sales at the stores open over a year grew 8% and 12% in the holiday quarter, respectively, including licensed departments. That compares with a decline of 3.3% at Macy’s and feeble growth of 0.6% at Bloomingdale’s during the same three-month period, including licensed departments and online sales.
Off-mall stores also have drawn younger and more diverse customers, including some who are new to Macy’s, according to company leaders. Still, it is too soon to know if the experiment will pay off. Most of Macy’s roughly 700 store locations are still in enclosed malls. By opening the strip-mall shops, the retailer could steal business away from its larger namesake mall stores.
As Macy’s expands the concepts, the smaller locations could run into the same struggles its legacy stores are facing.
Simeon Siegel, a retail analyst for BMO Capital Markets, said department stores have faced an existential crisis as e-commerce outmatches them on convenience and choice.
“They don’t need the widest assortment,” he said. “But they do need a compelling assortment.”
Siegel said that as retailers try new store formats, investors are forced to ask, “Are they just making a smaller version of the problem they’re already trying to solve?”
The strip-mall experiment comes as shares of Macy’s have lagged behind both the S&P 500 and the retail-focused XRT. So far this year, Macy’s shares have dropped nearly 26%, underperforming the nearly 7% rise of the S&P 500 and the roughly flat year-to-date performance of the XRT.
Investors have sought clarity on how the company will refresh its stores and lift sales as Gennette prepares to retire and pass the baton to incoming CEO Tony Spring, the current Bloomingdale’s CEO.
Thinking outside the typical box
Macy’s has looked for growth in open-air shopping centers as it closes underperforming mall locations, reduces head count and tries to refresh its brand.
In February 2020, it announced plans to close 125 stores over three years and lay off about 2,000 corporate employees. The retailer has closed about 80 Macy’s locations and plans to shutter another five this year, Gennette said in March on an earnings call.
The first Market by Macy’s location opened in the Dallas suburbs the same month the company announced the closures. A month later, the company temporarily shuttered stores and furloughed thousands of employees when the pandemic hit.
The global health crisis accelerated existing trends, with more millennials moving to the suburbs, and customers seeking quick ways to pick up and return online purchases.
Macy’s Chief Stores Officer Marc Mastronardi said mall stores still play an important role, but some customers prefer the shorter drive the new locations offer.
“The Market by Macy’s really dial in more so to discovery and to convenience,” he said. “They’re local. They’re easy to get to. The format is simple to shop.”
Macy’s tinkered with the off-mall format as it opened other locations near Dallas and Atlanta, two parts of the country which have seen an influx of new residents. It replaced a shuttered mall location near St. Louis with a Market by Macy’s.
And it opened its smaller Bloomingdale’s concept, Bloomie’s, in Fairfax, Virginia, in 2021 and in the Chicago area last year.
Macy’s said an off-mall shop can fit one of three criteria: It could open near a mall store with high demand. It could replace a larger location at a struggling mall. Or it could help the company break into a brand-new market.
Market by Macy’s stores have worked best in shopping centers with grocery anchors or stores such as off-mall retailers that draw traffic, Mastronardi said.
Market by Macy’s takes a local bent
Inside of Market by Macy’s, shoppers find a narrower mix of merchandise than in the mall stores. It includes apparel, handbags, beauty and shoes from national brands like Michael Kors, Calvin Klein and Ralph Lauren, along with Macy’s private brands like women’s clothing line, INC. Stores have a mini-toy shop through a Macy’s deal with Toys R Us. They also host special events and feature local businesses.
Technology has helped guide decisions about what to sell in the stores, which have flexible layouts and displays. Sensors from the tech firm Retail Next show traffic patterns similar to a heat map.
For instance, the company now stocks fewer home goods and kids’ clothing, and more of what sells well, such as fragrances, dresses and men’s suits.
Fitting rooms are spacious and modern, and placed at the center of the store. They include a cash register where a sales associate can help find an item in another color, size or brand, including merchandise that may not be available in the smaller store.
Joy Salvador, senior director of strategy and new store format for Macy’s, said the retailer has researched and tracked customers’ responses — down to the fitting-room wallpaper they favor in social media posts.
Shoppers at Market by Macy’s skew more toward a customer looking for gifts, or shopping for occasions, than the mall stores, Salvador said. It also skews a little more toward men than other locations, perhaps because of the convenience factor, she added.
Most customers come from a narrower radius —as little as 10 miles versus mall stores, which can draw from as many as 100 miles away.
Merchandise has a local bent, too, she said. For example, the company carries Japanese beauty brand Shiseido in an Atlanta store with a larger proportion of shoppers of Asian descent, and more Black-owned beauty brands like Buttah Skin in another Atlanta area store.
Bloomie’s wants consumers to sip and shop
Bloomie’s stores have resonated in shopping centers with hot and higher-end national nameplates, such as Williams-Sonoma, Sephora and Lululemon, said Charles Anderson, Bloomingdale’s director of stores.
The shops feature contemporary brands like Theory, Ramy Brook, AllSaints and Bloomingdale’s own brand, Aqua. It has a concierge-like desk where customers can turn for services like tailoring, personal styling or help with an online order and return.
A restaurant concept aims to draw customers and encourage them to linger: in the Fairfax location, shoppers can order a mojito, empanadas and other Cuban fare from an outpost of a Washington, D.C.-based restaurant, Colada Shop. It hosts a three-hour happy hour each day — and customers are encouraged to shop while sipping.
For Bloomingdale’s, Bloomie’s is a way to bring its brand to untapped parts of the country. Bloomingdale’s had 55 locations as of late January, including its outlets and the two Bloomie’s stores. Many of its stores are in cosmopolitan areas on the coasts.
Anderson said Bloomingdale’s has “a lot of run room — particularly with shifting customer demographics post-pandemic.” Its next Bloomie’s store will open in Seattle, where it doesn’t have a store but has a large online business, he confirmed. The location will be in the backyard of its rival, Nordstrom.
New stores, lingering challenges
Bloomie’s may have more growth opportunities because of the strength of the Bloomingdale’s brand, too. For eight straight quarters, it has outperformed Macy’s namesake stores. (The retailer did not separate the same-store sales of the two brands until 2021).
It also caters to a more affluent shopper who may be more insulated from an economic downturn, as Macy’s and other retailers like Target warn of softer discretionary spending.
Yet Anderson acknowledged there’s a learning curve. He said some shoppers in Chicago struggled to adjust to the limited selection when Bloomie’s replaced a nearby legacy store.
The Bloomie’s in Fairfax is less than four miles from a full-sized Bloomingdale’s. Anderson said the company tweaked what it carried to make the stores complementary rather than competitive.
He said no matter the size, Bloomingdale’s wants to stand out with superior customer service and an eye for unique merchandise. “Small doesn’t need to be less,” Anderson said. “And so we aspire to deliver a complete experience within Bloomie’s.”
Macy’s, which draws a more middle-income shopper, is more vulnerable in a recession, and faces a squeeze if shoppers choose to shop online, at big-box stores or off-price players like T.J. Maxx instead.
The retailer said in March that it expects net sales to decline by a range of 1% to 3% in the fiscal year 2023 compared with 2022, which would translate to revenue between $23.7 billion and $24.2 billion. It said it expects its adjusted diluted earnings per share will range from $3.67 to $4.11.
Gennette told investors at the time that he expects discretionary spending to remain under pressure, as consumers pay higher prices for necessities.
That tougher backdrop is a reality that the store model can’t necessarily solve.
Neil Saunders, managing director of research firm GlobalData, has criticized Macy’s for having sloppy stores, bare displays and stale merchandise at its namesake mall stores. He said he’s intrigued by the off-mall stores, but thinks Macy’s must move faster.
Saunders said the small number of Market by Macy’s and Bloomie’s locations are “just a drop in the ocean.”
“Macy’s needs to have more courage in saying, ‘Look, we really need to shake up the model, and we need to make it work,'” he said.
Part of their hesitance, Saunders added, may be taking away from their mall stores.
“Those larger stores are very expensive to operate, so it could really push them down in terms of profitability,” he said. “But it’s almost like if you don’t cannibalize yourself and try this, someone eventually is going to come and cannibalize you anyway. So it might be better to throw caution to the wind.”