Macy’s will raise the curtain on a new off-price business — called Macy’s Backstage — with the opening of four stores in the New York area this fall. The news begs the question: What took so long?
Macy’s is entering the crowded off-price retail arena late in the game and in a relatively limited way. The company’s more upscale competitors, including Nordstrom and Saks Fifth Avenue, have been in the off-price clearance business for years. Indeed, their discount arms — known as Nordstrom Rack and Off-Fifth — now outnumber their parent companies’ full-line department stores. Of course, with 885 stores Macy’s is a much larger operation. Still, the four pilot stores are a tiny drop in the discount bucket.
The new stores — in Brooklyn, Queens, New Hyde Park, and Huntington — will average about 30,000 sq. ft. and sell merchandise, including apparel, home goods, and jewelry, discounted from 20% to 80%. “Backstage is a new retail concept that the Macy’s team has built from scratch over the past six months,” says Peter Sachse, Macy’s chief innovation and business development officer, adding, “It will be an exciting shopping experience supported with compelling marketing, both traditional and mobile.” He says the company plans to “test and learn” from the pilot locations so that it can make adjustments before rolling out additional locations. (It should be noted that Macy’s has some experience with off-price retail as its upscale subsidiary Bloomingdale’s launched an outlet-store format in 2010 that has grown to 13 locations.)
So why now? Macy’s, which yesterday reported disappointing first-quarter earnings, is trying to bolster sales amid a challenging retail environment. While the company blamed a confluence of factors, including bad weather, port delays, and a stronger dollar, for weak sales, the rising popularity of discounters may be more significant. TJ Maxx and Marshalls, Ross Stores, Burlington, and their ilk have been stealing market share from department stores for years and outpacing full-price retailers in terms of sales growth. Shoppers, who turned to bargain hunting during the recession, are apparently hooked on the concept as they continue to frequent discounters in rosier economic times. Indeed, total sales for the five largest off-price retailers in the US increased 6% during 2013, versus a slim 1% gain from national apparel sales (department stores’ main category), reports market research firm NPD Group. Discounters are a force Macy’s can no longer afford to ignore.
Macy’s also is finishing up a $400 million renovation of its flagship in Herald Square that has transformed the world-famous store into an upscale emporium that caters to more affluent shoppers, particularly foreign tourists hungry for luxury brands. The pilot stores may make room for some of Macy’s less pricey merchandise, although some analysts worry that the Backstage outlets could cannibalize sales from Macy’s full-line stores.
Alexandra Biesada shops every day, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.