Macy's has figured out the formula to survive the retail apocalypse
- Macy's first-quarter results beat expectations and showed a second consecutive quarter of positive comparable sales, proving to investors that customers are coming into its stores again.
- The department store is focusing on improving the in-store experience rather than using continuous promotions to try and lure customers.
- Macy's success shows customers still value brick-and-mortar stores.
- Watch Macy's trade in real-time here.
Macy's has figured out the formula to survive the retail apocalypse.
The retailer's first-quarter results showed a second straight quarter of positive comparable sales, proving to investors that the legacy department store can be resilient.
Amid continuous mall closures around the US and a number of retail stores burning out, Macy's has proven that its sudden return to sales growth wasn't a fluke. Instead, it's a new start to winning over customers by offering an experience rather than continuous discounts.
"I think that there's hope and that's the important thing," Bob Phibbs, CEO of the Retail Doctor, a New York-based retail consulting firm, told Business Insider. "Winning the war in any business is done by inches, not by leaps."
Macy's is finally listening to what customers want instead of depending on promotions and discounts, Phibbs said. Customers will always find lower prices online where transactions are near frictionless and companies like Amazon act as warehouses with search engines. To survive, retailers need to offer customers access to something that no other store has, instead of trying to attract attention with continuous discounts that cheapen the brand, Phibb said.
Indeed, Macy's seems to have changed its focus from the heavy-discounting cycle that plague stores like Victoria's Secret and Sears. Nordstrom, another retailer that found itself losing customers, admitted that sales promotions just weren't attractive to its consumers.
"We are not in the commodity business," said Macy's CEO Jeffrey Gennette in the company's most recent earnings call. "We are in the experience business."
The department store recently acquired STORY, a New York City concept store that reinvents itself every six-to-eight weeks, in hopes of incentivizing customers to keep coming back to see what's new. It has also been piloting augmented reality and virtual reality to give customers an option to see furniture in real living spaces. To improve the overall shopping experience within its stores, the company introduced mobile check out. Like Starbucks and Chipotle, Macy's is investing in making transactions painless and getting rid of lines.
Phibbs believes legacy retailers can make it in the age of e-commerce - only if they take advantage of the data available to predict where customers are going and what customers are demanding. It allows them to better curate their inventory which will decrease the need for discounts and allow customers to pick up online orders in-store, which is a lot cheaper than the cost of offering free shipping, he said.
"This is the most competitive retail environment I've ever seen," Gennette said in the earnings call. "And we know that we need to get up every morning committed to winning our customers business."
Macy's reported adjusted earnings of $0.42 a share, easily beating the $0.35 a share that analysts surveyed by Bloomberg expected. Comparable same store sales came in at 4.2%, blowing the 1% gain Wall Street expected out of the water.
Macy's is up more than 10% on Wednesday and nearly 25% this year.
