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Macy's Story Doesn't Have a Happy Ending

By closing nearly half of the curated store-within-a-store Story boutiques it opened, Macy's (NYSE: M) is indicating its attempt to attract younger consumers isn't working out as planned.

In theory, changing the boutique every month or so with new themes, merchandise, and looks ought to keep bringing customers back to see what's new and exciting. But in reality, it doesn't match with how today's consumer is shopping. Macy's business is in a spiral and needs a cohesive plan to help it regain its bearings.

Macy's flagship store in Manhattan. Image source: Macy's.

A sad story

Story was a one-off concept that worked well in the wealthy Chelsea neighborhood in New York City where it was founded, but it wasn't a model that could be replicated in other cities.

The retailer maintains Story will remain an integral part of its business, but Macy's doesn't have time to continue its dalliance with experiments. Despite a rather strong economy, Macy's, J.C. Penney, and Kohl's are struggling. Macy's Christmas holiday sales may not have been as bad as its peers or what analysts expected, but the retailer's fortunes are not encouraging.

That's why its new three-year Polaris Strategy is a good start.

More changes coming

Under the new program, the department store will be taking an ax to its expansive retail base, closing another 125 retail stores and a tech center in San Francisco. It will also fire around 9% of its workforce, or some 2,000 employees. The winnowing is needed since it currently operates about 870 stores, including 680 flagship Macy's and Bloomingdale's stores.

CEO Jeff Gennette said in a statement, "The changes we are making are deep and impact every area of the business, but they are necessary."

Unfortunately, Macy's looks like it will be muddling its message once again, making it clear it isn't quite ready to fully let go of the quirky boutique concept.

Same story, different name

When Macy's bought Story, some believed it was a so-called "acqui-hire." That is, what the retailer really wanted from the purchase was Story's creative mind, Rachel Shechtman, the company founder.

Shechtman was brought on board as Macy's brand experience officer, a job that had her overseeing the entire chain's in-store experience. Now, under the Polaris program, she's been given the added responsibility for another new idea it's testing called Market by Macy's, a small-format store that it says will open in off-mall "lifestyle centers" that will focus on health, beauty, and local food vendors.

These niche, curated retail concepts echo what Nordstrom is trying. But for all its struggles, Macy's has a few ideas that have worked for it.

Going with its strengths

For example, the discount businesses -- Macy's Backstage and Bloomingdale's The Outlet -- have capitalized on a good part of where consumer preferences have shifted, while Bluemercury, a spa and beauty chain with stand-alone stores and in-store boutiques, has become one of its best performers.

Last quarter, Bluemercury sales grew by double-digit rates, and it launched a customer loyalty program that saw 30% of its customer base sign up.

To its credit, Macy's has said it will be investing some of the $1.5 billion it anticipates saving this year from its Polaris Strategy into expanding its discount footprint, opening an additional 50 Backstage store-within-a-store locations, and seven freestanding stores.

It might do better investing in more of these stores than trying yet another experiment.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.


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