RETAIL STORE RATIONALIZATION – DIVING INTO MACY’S MARKET STRATEGY

 In Strategy

The United States is in the middle of a massive retail rationalization.  Overstoring and added competition have put significant pressure on retailer financial performance.  Retailers are scrutinizing stores and markets to understand the factors supporting and hindering success.  Large retailers like Macy’s have proactively closed a portion of their store base while many others are forced to close stores as part of bankruptcy proceedings.

Historically, Macy’s has closed stores opportunistically based on lease expiration or attractive real estate sale opportunities for underperforming stores.  In August of 2016, Macy’s announced a larger 100-store closing program as part of a strategic restructuring of its business that allowed the company to cut costs and redeploy capital towards growth initiatives.  Most of these 100 stores have already been closed or slated for closure.

Pro4ma analyzed Macy’s markets to gain a better understanding of the difference between recently closed (RC) markets and go-forward (GF) markets.  We also looked at prior closures (PC) markets, markets that closed before the major store announcement in 2016.  We observed distinct patterns related to market size, diversity, income, education, economic activity, and retail density in these three types of markets.

Bigger Markets

The GF markets that remain open have 33% more households within 10 miles of the store than the RC markets.  Additionally, GF markets have slightly higher percentage of families and families with children.  RC markets are similar in family make up to PC stores.

More Diverse

The single biggest demographic difference in Macy’s GF markets is diversity.  These markets are significantly more diverse than RC markets.  Specifically, these markets have a higher percentage of both Asian (8% GF versus 6% RC) and Latino (21% GF versus 17% RC) people.  In addition to the higher percentages of these two ethnic groups in GF markets, these markets have a 5-point higher percentage of people that speak a language other than English at home (27% GF versus 22% RC) and a 4-point higher instance of foreign born population (18% GF versus 14% RC).  The GF markets are also more diverse than PC markets, though PC markets had a higher portion of Black residents than either GF or RC markets.

Higher Median Income

GF markets have median household income of $60K, 15.5% higher than RC markets and 9.2% higher than PC markets.  In addition, GF markets have 2.6-points higher percentage of households making $100K or more while the RC markets have 2-point higher penetration of households making less than $50K.  Additionally, while home ownership for all three types of markets is similar, median home value for the GF markets is 29% higher than RC markets and 19% higher than PC markets at $237K.

Greater Educational Attainment

The GF markets have a higher percentage of people over 25-years old with a bachelor’s degree or greater than RC markets (35% GF versus 32% RC).  PC stores are in-between GF and RC markets based on education.

Similar Labor Force Trends but More Jobs and Construction Permit Growth

Labor force growth and employment growth were similar in GF and RC closed markets and slightly worse in PC stores. Unemployment was consistent across all markets.  However, GF markets have stronger building permit growth and more jobs than RC markets.   GF markets also have a higher percentage of people engaged in Finance, Information Technology, Transportation and Warehousing, Wholesale Trade, and Scientific Industries and a lower percentage in Agriculture, Manufacturing, Construction, Retail Trade, and Hospitality Industries.

More People and Less Competition

GF markets have much less competition than RC markets.  The median number of General Merchandise stores in GF markets is 7 versus 8.5 for RC markets.  However, the number of people in the 10-mile radius of the market per General Merchandise store tells an even more dramatic story, with about 60% more people for each general merchandise store.  GF markets have more clothing and accessories stores and overall retail stores than RC and PC markets, but adjusted for population, the markets look similarly dense.

Backstage Market Strategy Hinges on Retail Density

Macy’s began testing Backstage, an off-price concept, in 2015.  The company plans to open 100 stores this year and will end the year with about 150 Backstage locations.  Macy’s has noted that the addition of Backstage to existing stores provides a significant lift to overall comp store sales.

We analyzed the 70 Backstage locations currently listed on Macy’s website to determine how they differed from other go-forward markets.  Based on demographics alone, the markets are not obvious candidates for the off-price concept.  The Backstage markets have higher income, education levels, home ownership percentage, and are about the same size as the go-forward store market averages.  The one major observable demographic difference is diversity. These markets have a lower percentage of Asian and Latino people and a significantly higher proportion of Black people. However, the Backstage markets are much more over-stored than the go forward markets; Pro4ma observed significantly higher number of general merchandise stores (9.6 versus 7.0 GF average), apparel stores (69 versus 43 GF average) and overall retail (227 versus 172 GF average).  Macy’s is emphasizing value in the face of heavy competition with Backstage.

In Summary

While we can make some interesting observations about Macy’s from afar, external market data is most useful when viewed in context of company performance data.  We assume Macy’s made the closure decisions after completing a thorough analysis of both internal and external factors.  The realignment will have implications for its merchandising and marketing going forward.  Most market observers still believe the company has a significant hill to climb to improve its relevance to consumers.

By viewing data in context, Pro4ma can help you understand the market trends impacting performance and the optimal market conditions for success.  Contact us today for a free market assessment at info@pro4ma.com.

Macy’s Markets by the Numbers – Go Forward Markets (Indexed to Recently Closed Markets)

Note: Circled numbers represent Macy’s Go Forward stores indexed to recently closed stores. 

Source: Pro4ma Inc.

About Pro4ma

Pro4ma helps retailers and other multi-unit businesses use data and predictive analytics to improve financial performance. Pro4ma synthesizes a diverse range of demographic, economic, competitive, and company-specific data sources into a single, scalable platform with robust modeling capabilities that retailers can use to understand and maximize financial performance and investment returns. Pro4ma transforms data into dashboards that track relevant KPIs and provide insights for the entire enterprise.  Learn more at http://pro4maprod.wpengine.com.

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