As Macy’s CEO Jeff Gennette prepares to exit his role, he’s executing a strategy that gained momentum earlier this year – an aggressive push into the off-mall retail landscape driven by promising results. The retailer’s Chief Stores Officer, Marc Mastronardi, has previously characterized these smaller format stores as “exciting brand extensions.” In a recent video release, he emphasized their role as a “growth vector for Macy’s Inc.”
According to Mastronardi, these smaller stores have proved instrumental in optimizing Macy’s physical store presence. They bring the company closer to its existing and desired customers while encouraging frequent visits. The small-format stores play multiple roles in Macy’s omnichannel market strategy, such as expanding market presence, replacing underperforming locations, or entering markets where Macy’s has no existing foothold.
Customer feedback has been overwhelmingly positive, with praise for the store environment, streamlined checkout processes, and friendly and helpful staff. Notably, in the second quarter of this year, Macy’s small-format stores experienced positive comparable growth. They earned “exceptionally high” customer experience scores without significantly cannibalizing sales in existing markets.
GlobalData Managing Director Neil Saunders sees Macy’s off-mall strategy as a logical response to changing consumer behaviors. He pointed out that Macy’s absence from many large strip malls and outdoor malls has left untapped opportunities. As shopping patterns evolve, Macy’s decision to adjust its strategy and commit to opening more small-format stores appears well-founded.
The impact on sales, particularly in relation to legacy Macy’s or Bloomingdale’s stores, will largely depend on location, according to Saunders. Macy’s hopes to draw sales away from other off-mall retailers like Kohl’s, TJX, or Target, rather than eroding its existing store sales. While some cannibalization may occur, the potential gains for Macy’s could outweigh any losses.
In March, Gennette noted that approximately 99% of Macy’s mall-based stores were profitable on a four-wall basis. However, Saunders believes further store closures are likely inevitable, especially given the challenges of struggling malls and evolving consumer habits. Some Macy’s locations appear to be in a state of decline, with the retailer seemingly unwilling to invest in their revitalization. In addition to these challenges, ongoing shifts in shopping patterns may weaken more locations and render them less viable over the next five years.
Ultimately, Macy’s is grappling with the need to modernize its store footprint, recognizing that its extensive space allocation was designed for a bygone era. As the company continues its journey of transformation, the move toward smaller, off-mall stores represents a strategic shift to better align with the preferences and demands of today’s consumers.