This article appeared first in The State of Fashion 2019, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here.
BoF: As you look to the fashion industry in 2019 what are the biggest challenges and opportunities for fashion and retail today?
Jeff Gennette: Consumers are their own curator now. They’re armed with more information that is informing a more competent point of view about how they put themselves together and how they use fashion for individual expression. That’s flipping what the role of a retailer is today and recognising that you’ve got this customer that is, in some cases, ahead of you. But you also do have a lot of customers that are looking for you to help them curate, and then allow them, through personalisation engines, as broad a menu as possible online so they can curate for themselves.
We’re also finding that our customers are spending less on apparel and expecting more experience. We now have new economic models that can help us add experiences into our brand that we didn’t have at our disposal before. A store needs to be broader than just a place of transaction. It needs to be a place where people gather and if you don’t bring in experience, education and entertainment, you’re not going to do as well. When you create community within a store and you bring customers together they stay, they linger — and they buy things but they come together in another way.
Consumers are their own curator now.
We’re also looking at VR, and how it bolts onto a strategy and drives customer advocacy. We played with VR to say, ‘Okay, let’s put it into our furniture business.’ We had this issue with furniture, which is one of our signature businesses, where we could only sell the whole assortment in no less than about 20,000 square feet. Now with VR we can do it in 5,000 square feet. It’s opened up our ability to get furniture into a lot more of our buildings. It’s massively increasing the basket size of that purchase [and] it’s massively reducing the return rate. Using technology to solve a stubborn problem and solve where a customer is needful of more inspiration is how we’re looking at technology. I think this confluence of experience and technology with any retailer today would be the second biggest thing that I would comment on.
Then, the last thing is going from a ‘house of brands’ to a ‘branded house’. Customers aren’t buying monolithically by brand any more. As a retailer, you’d better have your own ethos about what you stand for — that’s your particular competitive mode. It better be something that a customer gives you credibility for and that you can credibly do, and you can do it with the least friction possible. This idea that what you stand for [is more important than] the sum of all the parts of what you used to carry in your brand.
BoF: What has changed in the way you think about the function and purpose of a retail store? If everyone can buy everything online, what is it that really gets someone into a store now?
JG: This took us a long time to figure out. We had too many stores through many acquisitions over the years, [so] when you look at a store of our size, we were almost virtually all mall-based. We had to look at our portfolio and shed those units that didn’t make sense to the [local] community, either because the mall developer wasn’t investing, or the mall was extraneous because we had a more powerful location nearby.
We spent a lot of time over the last five years shedding a lot of those extraneous stores. We ended up with a remaining portfolio that is balanced well across all the major markets in the country. We look at those flagships and aspire for those to be just these heart-pounding, all-five-senses tourist attractions, like what we’re doing in Herald Square. That’s our vision for what a flagship could be.
Then the next category of stores is our regional flagships and there’s about 250 of them in the States that will stand the test of time. They’re the A malls that are evaluated by Green Street. All of our mall developers are investing heavily. What they’re doing in those malls is they’re actually taking a lot of apparel and accessories out of those malls and re-mixing their tenant mix. They’re putting in a lot more food and beverage and they’re putting in more entertainment. They’re putting in mixed use [and] community centres.
A store needs to be broader than just a place of transaction.
Then the third bucket is tertiary malls. The mall developers are not investing in them; they’re milking them for cash. But they’re neighbourhood stores for us and so we’ve got customers that want to pick up their basics. They really want to use their fulfilment options; they want to buy something online; they want to have it shipped to the store. We can operate them much more efficiently to make them better experiences.
We have new economic models like what you’re used to in Selfridges, where 50 percent of what is in that building is leased. It’s about 5 percent in the States, so I can start playing with that line, the economic model, to say, “Look, I’ve got space. You’ve got a brand and I’ve got traffic. I’ve got a devoted customer that, frankly, [if] I put your brand in there and I give you space for it and start leasing more of that for something that’s added into the customer experience.” We’re looking at services…like travel, watch repair, post offices, pharmacy [and] what we’re doing with optical.
BoF: In a way, that’s more of a real-estate model, right? It’s almost like a mall within a mall, is that correct?
JG: Yes. For instance at Selfridges: when you go into that store, you don’t know what’s leased and you don’t know what’s owned. It’s absolutely seamless to the customer. I think it’s got to be; what are the needs of the customer and how do you make it as easy for them as possible? When they walk in and it’s Macy’s, it’s got to be a Macy’s experience. A concession model traditionally has all been about that brand or that subset and it hasn’t been customer centric. I think the hybrid is that whatever’s in that building has got to be [consumer focused so] that the customer is able to navigate any way that they choose.
BoF: One of the things you mentioned was that neighbourhood stores can be run more efficiently; what did you mean by that?
JG: Today we have a lot of businesses that are really transactional and we treat them like there is a service component to them. There’s six businesses in the entire store that need really [hand-to-hand] attention at all times. Those businesses are businesses where Macy’s remains relevant, so we’re in the game with market share [for big ticket segments] like furniture, mattresses, as well as men’s clothing, dresses, fine jewellery, women’s shoes and the entire beauty floor.
When you start looking at [other] businesses like most casual sportswear, kids, handbags, if you have the brands and you have the right values, you can do it without human capital. That’s where you can be much more efficient. If you look at what’s going on in off-price right now you see that it is operating with very reduced selling cost. But what they have is they have a thrill of the hunt. They have a much faster turnover. They’ve got new content that’s arriving daily. They’ve got great prices that are incredibly transparent to the customer. It’s very easy, there’s no sales, no gimmicks.
You start to think about those businesses, particularly in a lot of the apparel businesses, and if you get that model right you can do it with less human capital cost, which would mean that you start to eliminate registers, you start to reduce space in these stores and really curate the assortment so that you just bring into that local store that content which is right for that community.
BoF: How does that connect with the online component?
JG: Hand in glove. It’s totally supportive and symbiotic, especially when you think about ‘buy online, pick up in store’, [considering what] we carry right now — about ten items online to one item in a store in terms of the SKUs. We believe, in terms of ‘endless aisle,’ that we can take that SKU assortment higher. In the past, you had to have that one item that you were ordering online in that store in order for a customer to pick it up and so we were constrained by whatever the customer was ordering online. [So] we added a thing called ‘buy online, ship to store’.
The customer is loving the fulfilment options that most retailers, who are omni-channel, are [moving towards]. You have lots of options once it hits that store. You could have it delivered to the customer’s office if they choose. In most cases, they come and pick it up and they hang out in the store. In about 20 percent of those cases, that customer buys something else when they’re in the building. Generally what they’re buying is equal or higher than the value of what they’re picking up, something we call radiated sales.
BoF: If there are fewer check-out areas and less human capital, does that mean the future of retail potentially has robots and automation in terms of serving customer?
JG: I wouldn’t say it’s robots, but what I would say is that every customer that comes into our stores has got their mobile device. If we can make that as purposeful and as useful to them as we know it can be, there’s so much that opens up to them that gives them control of that transaction and that experience.
The power of the mobile device is [that] everything the customer needs is going to be in that device. However she wants to transact, what payment types she wants to pick, what coupons she wants to select, if she wants self-checkout, everything is in that portion of the mobile app. This idea about the store opens up and you can do whatever. It will tell you product reviews, it will give you online video. It just exposes you to whatever you want to know about that building or the products within it or the services that we offer within it.
Then the third idea about the mobile app is what we call My Stylist, which is your opportunity to get help on demand. When we offered our beauty customer the opportunity to self-select, we saw how many of our customers did not want to deal with the sales colleague. They want to know that you’ve got their size, their colour. Once they find that, they don’t necessarily want to deal with a colleague.
BoF: As you gather more data from your customers about their purchasing behaviour, the way they operate in store, the way that links to their online behaviour, what can you imagine a company like Macy’s could do with that data?
JG: The biggest opportunity is what we can offer the customer in terms of a recommendation engine that satisfies every one of her needs. If she’s got a tendency or proclivity to buy a particular brand, but only on sale, it notifies her when we’re taking markdowns on that brand and we’re going to save a size 8, if that’s her size. We’re going to have her style that’s ready to go whenever she wants to buy it.
She’s got to agree that this is something that she wants. The customer is going to be in charge on this. We’re going to be able to have data to operate as a tool for her, but our biggest mission is; how do we make it easier for a customer? There’s still way too much friction with all retailers. You’ve got Amazon that’s done a great job with convenience and price, but no brick-and-mortar interface with that. I think Macy’s does a good job on those subjects. We have brick-and-mortar interface, which gives us our competitive mode.
This interview has been edited and condensed.