Macy’s Rep as a Low-Cost Alternative to Luxury Department Stores Could be Its Saving Grace

Macy’s Inc. is finding new hope in off-price.

A report this week by consumer insights platform GroundTruth said the chain — which had its own bout of softness for the better part of two years — is thriving as higher-end department stores struggle.

“While the department store category was down overall in Q2 foot traffic, [Macy’s] bucked the downward trend, [increasing] their share of department store visitors in Q2, while their primary competitors lost foot traffic share,” the researchers wrote in the report, which analyzed store visits across retail for the second quarter. “Despite the recent wave of store closings, Macy’s reputation as a lower-cost alternative to brands like Neiman Marcus and Saks Fifth Avenue may allow them to ride the wave of off-price retail momentum.”

In the face of digital disruption, Macy’s in August 2016 announced its plans to shutter 100 doors and lay off more than 10,000 workers. Now, as it — and many of its peers — claws its way back to consistent profitability, the company is likely taking a page from successful discount sellers like Marshalls and TJ Maxx, which have stayed healthy despite digital competition.

“Amidst the news of department stores closing their doors, several retailers are starting to focus more on the off-price market to mirror the relative success of stores like Marshalls and Ross,” the report noted.

Case in point: This year, Macy’s has pledged to open 100 new locations for its off-price offshoot, Backstage, in its existing outposts in a bid to entice deal-seeking consumers. It will also introduce a dedicated Backstage distribution center in Columbus, Ohio, which will open in fall of 2019.

Macy’s debuted the concept in 2015, starting with six stores that grew to more than 60 outlets across the country. Shoes, accessories and apparel as well as home decor, cosmetics and jewelry all have a place on the selling floor.

Off-price success for mainstream department stores isn’t the reality for Macy’s alone; the report found that nearly all discount department stores outperformed their parent stores in quarter-over-quarter growth for store traffic. Nordstrom’s discount offshoot, Nordstrom Rack, saw the largest increase at 0.3 percent. Meanwhile, Saks Fifth Avenue’s saw its quarter-over-quarter store visits fall 0.14 percent in Q2, while Saks Off Fifth’s traffic grew 0.1 percent.

GroundTruth uses mobile location data to compile its research. The data in this report represent geo-precise ad requests observed in GroundTruth’s platform mapped back to defined business locations. Each ad request represents a real consumer on their smartphone while at a retail brand.

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