Macy's new CEO pledges radical merchandise, pricing changes

Dive Brief:

In an interview with The Wall Street Journal, Macy’s new chief executive Jeff Gennette outlined his strategy to make over the company, promising a more nimble off-price/full-price hybrid retailer with more inspiring merchandise — an effort designed to compete with off-pricers like T.J. Maxx that have stolen market share from department stores.
Changes include a revamped approach to pricing and discounting: While Macy’s store card users can gain an additional 20% of their purchases, Gennette (who replaces longtime Macy's CEO Terry Lundgren, who remains as executive chairman) said that many layers of discounts will go. “We’re still going to be a promotional department store,” he told the Journal, adding shoppers won’t need “a Ph.D. in math to understand our pricing.”
Merchandising changes include a move toward self-service shoe sales akin to those at many off-price retailers. The strategy won’t involve any store openings, however; in fact, Macy's is on track to close 100 stores this year, with many analysts saying there will — or should — be many more.

Dive Insight:

Gennette’s promotion to the top spot at Macy’s was by no means unexpected. He started there in 1983 as a Macy's West executive trainee and steadily climbed the ranks, ultimately rising to president and de facto heir apparent to Lundgren following a five-year stint as chief merchandising officer.

"They’ve been grooming Gennette since 1983 — they must have decided he’s a superstar,” Lee Peterson, executive vice president of brand, strategy and design at customer experience consultancy WD Partners, told Retail Dive last year. “What I wonder about Gennette is whether he’s going to be more of the same [as Lundgren]. Does he have the guts and the permission [from investors and board members] to implement real change? I would guess that’s not his mission.”

In fact, radical change could be difficult with Lundgren still hovering in the wings. “[Gennette] probably has a lot of forces on him,” Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive. “First of all, [Lundgren’s] still in the building.”

The changes Gennette has proposed also could drive away loyal customers, an all-important segment considering that 10% of Macy's 43 million customers account for half of its sales. Two-thirds of those core customers also shop at off-price retailers, but Macy’s ability to capture them back is limited, Egelanian says. “I think this is part of an ongoing narrative at Macy’s,” he said. “The short answer is it’s actually going to speed up their decline because it’s going to alienate their core customers — who are declining anyway. They’re not going to reinvent themselves as a discounter. They’re not just a little behind, they’re 15 or 20 years behind.”

Egelanian also said that the Gennette’s new pricing approach brings to mind the disastrous changes brought to J.C. Penney in 2012 by then-CEO Ron Johnson. In fact, there’s no chance of talking to retail experts about pricing without hearing about Johnson, who attempted to step away from the kinds of never-ending promotions vexing many retailers (including Macy’s) today. Johnson halted Penney's practice of marking discounts upon discounts on tags, dumping inflated manufacturer-suggested prices in favor of lower everyday prices. That upset customers, who apparently liked the idea that they were getting a deal, even if nobody really paid that “original” price.

The problem is that Johnson changed the prices “but didn’t change the merchandise, and totally confused the customer,” Egelanian said. “Again, you better well know what you’re selling — whether it’s a commodity and price-sensitive, or specialty retailing.”

But other Johnson moves, like his expansion of Penney’s Sephora partnership as part of its mall-inspired approach, have worked for Penney, and could work for Macy’s. “Everyone looks at [Johnson’s tenure] like ‘Oh, this was a tragic mistake.’ I don’t think so. The things [Johnson] was talking about are things that [Macy’s is doing],” Peterson told Retail Dive last year. “We have to start to measure the success of physical stores in a much different way. It can’t be as quantitative as it was in the past. It must be more qualitative. Did customers have a good time? Did they engage with the brand? Did they receive great customer service? People are buying goods in stores less and less often, especially stores like this. Stores have to become something.”