Can Macy's hit the private label bull's-eye? - The Entrepreneurial Way with A.I.


Tuesday, March 22, 2022

Can Macy's hit the private label bull's-eye?


There was a time when retailers were quite shy about their private brands. Grocery stores would slap bland labels onto "generic" goods, while department stores would sew discreet tags onto their "signature" dresses, suits or cashmere sweaters.

Those days are gone, and leading the way in the development of full-throated, well designed and intensely marketed "owned brands" is Target. After embarking on a private label reboot in 2016, the mass merchant now boasts 48 such brands, across apparel, home, consumer goods and grocery. Together they brought in $30 billion last year (about $6 billion more than Macy's as a whole did), Chief Growth Officer Christina Hennington said during the company's Q4 conference call. Ten of them have notched annual sales of at least $1 billion each; several seem like brands that could stand on their own.

It's no wonder, then, that Macy's, which two years ago said it would revamp its own brands, has turned to Target veterans. Macy's nameplate (not counting its Bloomingdale's banner) runs 24 private labels across categories, representing 15% to 20% of its volume; the retailer doesn't disclose their revenue, a spokesperson said by email. In 2020, when Macy's unveiled its Polaris turnaround plan, then-chief merchant Patti Ongman said the goal was for its INC International Concepts, Alfani, Style & Co and Charter Club apparel lines — all four already "well on their way" to each becoming a billion-dollar brand — to account for 25% of sales by 2025. 

Since then, with its turnaround resumed after getting interrupted by the pandemic, Macy's has introduced new labels, including And Now This women's apparel, and Oake bedding. But there's more to be done. 

"We are prioritizing our private brand portfolio to grow our overall business and capture market share by offering assortments that build style credibility at compelling prices," Macy's Chief Merchandising Officer Nata Dvir said by email.

That's where Target's former employees come in. The department store recently contracted with Brand Love Lab, run by Nadine Steklenski and Noria Morales, two executives instrumental in Target's past brand design efforts. Last week a third, Emily Erusha-Hilleque, was hired to join Macy's own ranks.

"We are prioritizing our private brand portfolio to grow our overall business and capture market share by offering assortments that build style credibility at compelling prices."

Nata Dvir

Chief merchant, Macy's

"Emily will be leading our existing team of highly talented designers that create product across apparel, home and accessories," Dvir said. "This team manages our already strong private brand portfolio and in partnership with Brand Love Labs, we are spending time reviewing our portfolio, ensuring it continues to build loyalty with our customers through outstanding design, quality and value."

Their Target experience has conferred private-label bona fides onto Steklenski, Morales and Erusha-Hilleque. But there, they participated in a push to recapture an established "cheap chic" reputation. At Macy's, their challenges will be different, observers say.

"Good talent is important, but for Target the underlying culture of creativity is their secret sauce," Retail Speak Founder Sanford Stein said by email. "Which is to say they are a machine built on innovation and deep engagement with their customers, which differentiates them from virtually everyone else, and certainly Macy's."

To achieve success, Macy's merchandising, operating and marketing teams must be in sync, with belief in the brand coming from the chief executive, according to retail consultant Brian Kelly. Macy's declined to make Erusha-Hilleque available for an interview. In a joint statement sent by email, Steklenski and Morales said that they are aligned, at least with Macy's merchandising team, "on vision and values."

"Having worked in retail, knowing how complex and ever-changing it is, we have tremendous respect for what the Macy's teams do every day," they said. "We all know Macy's is on a transformation journey and working through how to operate differently to support today's customer. This isn't about one agency coming in to save the day. This is about a likeminded, super-focused group of talented people who've come together to write a new playbook for success. We're psyched to be a part of the ride."

What's in a name?

While Target customers can buy name brands across categories, including Apple, Levi's and Lego (and all manner of groceries, beauty and household essentials), its apparel and home goods are dominated by its private labels. By contrast, Macy's is in the business of being an exceptional distributor of third-party brands.

"Target simply evolved faster and further than any anybody else in converting their business from branded to brands owned and operated [by itself]," Jeffrey Sward, founding partner and CEO at Merchandising Metrics, said by phone. "Macy's has to be home for the big national brands. That's their reason for being in a box that big. That's the whole point of a department store."

These days, private label is brand management, he also said. "It's a lot more complicated than buyers shopping the market and editing assortments from already developed branded product lines."

"Macy's has to be home for the big national brands. That's their reason for being in a box that big. That's the whole point of a department store."

Jeffrey Sward

CEO, Merchandising Metrics

With some brands pulling back from department stores, Macy's may have an opportunity to fill the market niche (and literal store space) left behind, Stein said. But it would be a mistake to mimic what many call "Tar-zhay" too closely, he said.

"Their attempt at tying to emulate everyone else is what got them in trouble in the first place," he said. "I think they need to tuck under Nordstrom rather than trying to compete with Kohl's, JCP, Target and Walmart. But therein lies the rub. Slick new brands won't matter in a sea of clutter, with no sign of intelligent life. They still have to up their game in basic retail blocking and tackling to have anything matter."

The execution

When Macy's announced its turnaround just before the pandemic hit, the company reiterated a store remodel strategy centered on 150 locations prioritized for growth, plus flagships in major cities. What the retailer calls "neighborhood stores" are being largely left alone, as it focuses on those growth stores, an expansion of its Backstage off-price business (in stores and at stand-alone locations) and experimentation with smaller, off-mall locations.

This leads to a fractured customer experience, with neglect evident at some stores, analysts warn.

"Macy's, with their shop-in-shops, is kind of where brands go to die," Kristin Bentz, president of KB Advisory Group, said by phone. "The consumer experience there is terrible. You can never find a sales associate, they're always back in a corner somewhere hating their life. It's a miserable experience, unfortunately. So bringing in someone who did Target's private label will be a huge win for them — if they can execute."

This already difficult task has been complicated by the pandemic, which taught people to shop even more easily online, including via social media. "You can have the best brands in the world, but if they're not reaching the proper customer through the proper channels — Instagram, TikTok, all of these new ways to reach customers to get them in the door or to see the product — at Macy's that's yet to be seen," Bentz said. "You've got to get people to the store."

The responsibility doesn't just lie with the newly fortified merchandising team, either, but, again, also with Macy's CEO Jeff Gennette, according to Kelly. Otherwise, their work could be overshadowed by the plight of Macy's stores, he said, pointing to the frequent criticism from the likes of GlobalData Managing Director Neil Saunders.

"Macy's has to execute and that is a major concern, as Neil's Saturday shopping trip photos prove," Kelly said by email. "[CEO Brian] Cornell had to get out of the way, and be a great manager, for Target to return to 'Tar-Zhay.' Target's private label identities might not have the power some think — it's really the power of the Target brand. Macy's has to find its soul, its raison d'etre, its purpose. Macy's has to answer the question, 'Why should Macy's exist?'"

A sad Story

Every analyst interviewed for this story, unprompted, brought up Macy's acquisition of retail concept Story, and its hire of founder Rachel Shechtman, as a cautionary tale.

Founded in 2011, Story was a boutique retailer in New York City's Chelsea neighborhood that employed theme-based merchandising, akin to a monthly magazine. The retailer collaborated with brands large and small and partnered with various chains, including Target. In 2018, Macy's bought Story, hired Shechtman as brand experience officer and brought the concept into some of its stores.

"There's a lesson to be learned from Macy's attempt to install Rachel Shechtman's Story into their stores," Sward said. "Great idea with really difficult execution at scale."

The concept never made much of an impact, and Shechtman left Macy's in 2020. The ex-Target executives could be walking into a similar situation, observers said.

"Macy's has brought in other 'change agents' such as Story's Rachel Shechtman, only to (apparently) marginalize her into oblivion," Stein said. "It's anyone's guess as to how much ultimate impact a 'great talent' can have in a corporate culture like Macy's when so many other factors impacting customer experience are missing."

Macy's approach with Story serves as a case study because those shops "came into the store and were relegated to inferior locations off the beaten path," Kelly said, adding that the private label project will need time to prove itself.

 "It's anyone's guess as to how much ultimate impact a 'great talent' can have in a corporate culture like Macy's when so many other factors impacting customer experience are missing."

Sanford Stein

Founder, Retail Speak

When asked about this widespread notion among analysts — that Story represents Macy's inability to capitalize on its investments or creative hires — Dvir said that the retailer is dedicated to its private label project, and that it isn't wholly dependent on the Target players.

"Our partnership with Brand Love Lab is one part of the work we are doing to evolve and update our private brand portfolio," she said. "Brand Love Lab will be an extension of our merchandising team while Emily will help build on our design capabilities. We are committed to our private brands playing an important role in our merchandising strategy."

But another cautionary tale, namely the unwieldy attempt to become a national retailer around the turn of the century, also looms over Macy's turnaround, including any emerging in-house brands, according to Kelly.

"Macy's is screwed because their institutional view of the customer is out of date," he said. "It never bought into [Terry] Lundgren's expansion play. It never saw itself as having a national identity. It was always 34th Street first, and then the rest."


Daphne Howland, Khareem Sudlow