How Macy’s and Other Department Stores Are Reinventing Themselves

Nordstrom Local Store, credit: Nordstrom

Nordstrom Local Store, credit: Nordstrom

By Tricia McKinnon

Once the cornerstone of the shopping experience, department stores are struggling.  While online competitors usually take most of the blame, the truth is that consumer shopping habits have fundamentally changed.  The retailers that are succeeding in today’s highly competitive markets are not just online retailers like Amazon but off-price retailers like T.J. Maxx and dollar stores like Dollar General.  

The Great Recession has made a long-lasting impact. Many people who became thriftier during the great recession still have those habits today. Additionally, despite the economic recovery wages have not increased by the same pace. This trend bodes well for discount stores but is less favourable for department stores.   Comparable sales at Kohl’s decreased by 3.4% in the first quarter of 2019 ending a streak of six consecutive quarters of positive comparable growth. Nordstrom faired slightly worse with comparable sales down by 3.5% in the first quarter of 2019.  Macy’s was the bright spot. In the first quarter of 2019 Macy's had comparable sales growth of 0.7%, its sixth consecutive quarter of comparable sales growth.

Despite having difficulty finding their footing in a more competitive landscape these department stores are not sitting still.  They are racing to transform their businesses with a slew of initiatives ranging from reducing square footage to refreshing stores to creating new reasons for customers to frequent their stores. While many say that the department store is dead perhaps it’s really the old department store experience that is a thing of the past.  Spending hours browsing through a large store looking for the perfect item no longer feels necessary with the internet in your pocket.  What was once a strength – a huge store where you could find everything now seems like a liability.  There is too much choice and it’s hard for customers to find exactly what they are looking for.  This is just one of many elements of the shopping experience that customers have less patience for.  

But department store executives are working hard to figure out exactly what is resonating with consumers.  With 90% of shopping still taking place in-store it’s not that people aren’t shopping IRL it is that they are shopping in different places. Earning a consumer’s time is harder than ever but here are some of the initiatives that department stores are using to lure customers back in their stores.  

1. Macy’s launches new store within a store concept. Last year Macy’s purchased Story, a popular Manhattan based store. Story sold merchandise inspired by a key theme with products and a store layout that changed every few months.   One of the key reasons for acquiring Story was to breathe new life into the 160 year old department store.  Macy’s hopes that it can leverage Story’s ability to create exciting and engaging customer experiences to drive traffic within Macy’s stores.  

Since the acquisition the original Story location has closed and in April of this year Macy’s rolled out Story shops to 36 Macy’s stores. These stores sell more than 400 products from a range of well-known brands as well as merchandise from over 70 small businesses.  The shops are small, measuring only 1,500 sq. ft. The theme, colour and merchandise within the Story shops within Macy’s changes every six to eight weeks.  The theme for the first installation at Macy’s is colour and it will run until the end of June 2019 before changing to the next theme.  Customers can buy a range of merchandise from Story at Macy’s including Crayola socks, MAC Cosmetics and Levi’s denim jackets that can be personalized.  MAC Cosmetics, for example, is offering a “Make Your Own” palette station that is normally only available at professional stores.

Former Story CEO and Macy’s new Brand Experience Officer Rachel Shechtman’s goal with the shops is to provide an:“evergreen gifting destination.”  The shops are not expected to make a material contribution to Macy’s bottom line but Macy’s CEO, Jeff Gennette has said: “Story gives new customers a fresh reason to visit our stores and gives the current Macy’s customer even more reason to come back again and again throughout the year.” The pop up store trend has been successfully used by many retailers to provide a new way to connect with consumers and drive traffic.

2. Kohl’s right sizes and partners with complementary businesses. Back in 2017 Kohl’s launched an initiative to right-size it stores.  Kohl’s believes that it can reduce its average store size without having a material negative impact on sales. One the initiatives that Kohl’s has launched in pursuit of that goal is a partnership with discount grocery retailer Aldi. Aldi has signed leases to open up to ten stores within Kohl’s department stores. The first Aldi located adjacent to a Kohl’s store opened in February of this year. Given that food and beverage are frequently purchased items Kohl’s is also hoping that some of the traffic at Aldi stores will spill over into its stores. 

This March Kohl’s announced a deal with Planet Fitness that will see Planet Fitness gyms located adjacent to 10 Kohl’s stores with the first one opening later on this year. Space in Kohl’s stores will be reduced in order to make room for the Planet Fitness gyms which are expected to take up to 20,000 sq. ft to 25,000 sq. ft. Kohl’s hopes that Planet Fitness customers will choose to buy activewear and accessories from Kohl’s leading to increased store traffic.  

In what is another sign of Kohl’s desire to dominate the fitness category, Kohl’s is also partnering with WW (formerly known as Weight Watchers) to open a WW studio in one of its Chicago store locations.  The studio will be 1,800 sq. ft and will host workshops on health and wellness and weight management.  Speaking about the focus on fitness, Michelle Gass, CEO of Khol’s has said: “[Active and wellness] has doubled over the course of the last four years. It’s now 20% of our business.” Kohl’s is planning on doubling down on fitness with plans to increase activewear and wellness merchandise, including accessories such as Fitbits by greater than 25% in 160 stores.

Speaking about its rightsizing strategy Michelle Gass has said: “we continue to see our rightsizing strategy as an important initiative to not only leverage our real estate assets but also drive traffic to our stores through key partnerships.” “We see the rightsizing strategy as a large opportunity for Kohl’s.”

3. Nordstrom focuses on services. In September of 2017 Nordstrom launched a new store concept called Nordstrom Local.  Nordstrom Local stores are small.  They are only 3,000 sq. ft and they do not carry dedicated inventory. The stores are focused on service and providing a great experience.  Some of the services offered at Nordstrom Local stores include personal stylists, free of charge, manicures, pickup for eCommerce orders (including curbside pickup), returns, alterations, gift wrapping and complimentary refreshments. 

There are currently three Nordstrom Local stores all of which are located in LA. Two new Nordstrom stores are planned to open in NYC later this year.  Speaking about Nordstrom Local, Shea Jensen, Nordstrom’s Senior Vice President of Customer Experience, said:  “we know our local market strategy is driving outsized market share gains in LA.” One of the key drivers of the popularity of these locations is the ability to easily return and pick up online orders. These locations are also drivers of eCommerce since customers know that they have a convenient way to return items especially if they are buying multiple sizes and variations of products.

The services offered by Nordstrom Local stores varies depending on the needs of the local market.  In a press release about the two Nordstrom Local stores that will open later this year (one in Greenwich Village and one on the Upper East Side), Nordstrom said: “to help further customize the NYC service hubs to best serve local customers, Nordstrom will partner with customers in each neighborhood to understand what they would value most when Nordstrom Local opens its doors. These customers will play a critical role ahead of the opening in determining some of the services that will be offered in each location to help better ensure the service hubs will offer the conveniences customers desire.”

These stores have performed very well for Nordstrom.  On average a Nordstrom Local customer spends 2.5 times the amount of a regular Nordstrom customer. Speaking about the Nordstrom Local concept Jensen has said: “we want to use this as a way to complement our footprint, not double down, where we know we have customers.” 


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