In the past, Macy’s was known for innovation and numerous “firsts” that shaped the retail industry of the 20th century.
In the 21st, it finds itself facing many vexing dynamics disrupting the retail industry. In August, Macy’s announced it would close about 100 stores, and sales have been sliding for several quarters.
Back in 1924, Macy’s defined the very term department store by creating the “World’s Largest Store” — Macy’s Herald Square in New York City — filling over 1 million sq. ft. of retail space under one roof, offering a wide variety of products and experiences to customers.
Today, the retail equivalent is Amazon, a bigger-than-life retailer that has made virtually every known product in the world available to the masses, without the hassle of getting in a car or fighting holiday chaos to make a purchase. (It’s original slogan: “Earth’s Biggest Bookstore.”) Instead of being under one physical roof, this online retail model is ubiquitous — “everywhere yet nowhere.” It’s even on the kitchen countertop, in the form of the Echo connected speaker. To reorder a pack of dishwasher detergent, just ask Alexa.
Perhaps here is where the opportunity lies for Macy’s future success. It could capitalize on what it currently finds elusive and may be required for future success — a sense of connection and place. The current cycle of competing based upon discounting is not a sustainable model. Macy’s needs to escape that and undertake a fresh, innovative, and perhaps painful analysis of its business and its customers, and bring the two together in a new way that forms a connection once again. It also needs to become an exciting place again, whether in the mall or online.
To begin this journey, there are five things Macy’s should tackle, in this order:
- 1. Organize to innovate
- 2. Leverage “outsights” vs. insights
- 3. Brand realization (not brand re-creation)
- 4. Reinvent and simplify the box through experience — both physical and digital
- 5. Real estate/future state: Pause on off-loading real estate until they figure out 1-4.
1. Organize to Innovate
Macy’s should “go small or go home.” By that, I mean they should create a small internal team leading the innovation effort, with the ability to access external resources as required.
A few key elements are essential for success:
- A mandate from the CEO
- Independence and autonomy from the business
- A team armed with innovation expertise and what I call “outsights” (more on that in a moment)
2. “Outsights” instead of insights
Legacy is often the biggest challenge to innovation. This means that businesses tend to talk to themselves in order to feed the machine. All of our insights, customer data, and market data are typically gathered, and then organized, in a way that tends to support existing business practices and belief systems.
For instance, retailers use merchandise sales data to analyze the success of a product they are providing to the customer. It either has strong sales or weak sales, which they use to determine how much, or if, they want to continue to provide this product to the customer.
Of course, this result is all relative to the rest of the products they are providing, all of which were initially chosen based on a merchant’s belief in a particular product — as well as the company’s legacy of what they have provided in the past and the vendor relationships they have created over time.
This can result in a business continuing to do the same thing simply because it “works,” or sort of works, and is what they have always done — not what may be possible or best for the future customer.
Most companies utilize these consumer “insights” in a similar fashion:
- First, we ask questions that are familiar to us, and will inform our business as we currently offer it to the customer.
- Then we bring this information “into” the business to affirm or confirm the current belief system.
- And in the absence of confirmation, we discount it as something to continue to study, or implement because it is relevant to what we already do — but in reality it does not resonate or have relevance to the customer.
“Outsights” is a term I have coined for gathering insights from sources or scenarios that are “outside” of your brand or company’s core customer, demographic, product line, or current digital audience. For example, most companies compile dozens of surveys and insights based upon their “best” customers, or unhappy ones. What they neglect to do is to dig deep beyond their current customer base. But in order to acquire new customers, they need to have nuanced knowledge of their competitors’ customers, and the customers who don’t currently shop with them. This knowledge of the future customer could lead to shifts in the business, from basic marketing, to defining new customers, exploring new categories, and pursuing opportunities that are not yet in their wheelhouse, but may be feasible for them to do — and win at.
3. Brand Realization (Not Brand Re-Creation)
Who are you, who are your current customers, and who will be your future customers? This assessment requires truly understanding and defining the categories and services that, combined, create a unique experience that matters to your future customer. Once that assessment is done, drop the businesses/categories that aren’t important to your future customer. This culling needs to align with what a company wants to be famous for.
To be successful in this changing world, we need to step back and challenge our current assumptions of who we are (or think we are) — far enough to get outside of the current business mindset.
A futuristic outside-in approach would be to question your beliefs based upon research of future customer needs, trends, and future reality (whether or not it fits within your current reality). This entails looking at not only what you are providing to the customer, but also how and where you are providing it, and understanding this from an outsider’s view. This may lead to the following questions to center innovation around:
- Who am I — in tomorrow’s world?
- Who will I be relevant to?
- What products/services will be relevant, and together will create a newly defined offering?
- Where will I and my products/services be relevant (or which ones in which locales)?
- Will these products/services need to be segmented into physical, digital, and locational preferences?
After these questions are explored and defined, the last and perhaps most important question to answer is:
Where do I want to play and where do I want to be “best in class”?
This last question opens a huge door to a multitude of possibilities that could lead Macy’s to reinvent their go-to-market strategy, both physically and digitally.
4. Simplify the Box, Utilizing Experience as Your Guiding Force — Both Physical and Digital
If there is one thing we can learn from companies such as Apple, Google, Amazon, and most recently Warby Parker, it’s that experience combined with relevance, with an emphasis on simplicity, is a recipe for success.
Unfortunately, the current Macy’s shopping experience in-store and online is complex and falls short of inspirational.
Simplifying the experience can be accomplished through reducing “visual noise” and clutter, usually the result of over-abundance of messaging, multiple displays for similar product, and redundant merchandise. This can be addressed by reducing merchandise SKUs, categories, and the number of brands represented. Rotating displays by brand is one method of reducing displays. An equally important element in a simpler and more streamlined experience model is the ability for the customer to easily navigate, find the desired product or brand, and then buy as quickly as possible without having to search the floor for a register or service desk.This last element is where the merging of digital and physical could come together in new ways, from navigation through the store to check-out.
With that brief critique, I would offer several considerations for Macy’s to explore across both their physical and digital realms:
- Leave store experience, layout, and design to the design and innovation experts, since they can explore it without the weight of legacy.
- Create clearly defined, individual, unique experiences across different categories.
- Let the mission of creating a compelling “experience” drive merchandising decisions and real estate (not current belief systems).
- Limit, simplify, and localize merchandise. Significantly reduce categories, SKUs, underperforming partnerships, focusing on highest performing relevant merchandise.
- Create competitive independent businesses (categories), and keep only the most relevant with potential for growth within individual markets to drive merchandise and real estate decisions.
- Lastly, through this work —
- Create a store experience/category management “kit of parts” that can create unique experiences within the environment, and enable transitioning in and out of physical and digital worlds based upon customer preferences and locations.
- Explore virtual worlds, and what they might look like in the stores and in the digital arena.
On that last point, while retailers have begun their businesses either in bricks and mortar or on-line, none have yet to fully merge the two experiences, and create a new way to shop that is compelling and familiar both realities (this is the elusive “omni-channel” experience.) While many businesses are beginning to experiment, such as Lowe’s testing a virtual reality “HoloRoom” within the store, and Warby Parker bringing the online shopping experience into your home through free try-ons of their eyewear, none has yet merged the physical and online experience into a consistent experience across both platforms.
I believe what is holding the industry back is the false assumption that the physical and digital experience are two different experiences. The real question to answer is, Why do a website and a store have to look different, and interact with customers in different ways? I propose that they do not, and the first one who successfully merges the two into a true single experience will win in both realities.
5. Real Estate/Future State
Why should Macy’s wait to evaluate real estate holdings, until defining the outcomes of the four issues above? It will give them:
- The flexibility to shrink, create new partnerships, vacate, or sublease space to complimentary or brand building partners within varied markets. That can create a stronghold — both defensively and offensively.
- The ability to reinvent the stores utilizing a store experience/category “kit of parts” that can be applied to both the physical and digital realm.
- The chance to reduce square footage and create relevant destination experiences based upon the future customer.
This plan may appear daunting. But if a small, nimble innovation team were given the mandate and autonomy to work independently from the business, quickly testing and garnering customer “outsights,” they could enable Macy’s to not just plan for survival, but for real success in the eyes of shoppers — and Wall Street, too.
Mark Nitkey is a Contributing Columnist and former executive at Apple, Victoria’s Secret, and Ahold.