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A theme that has emerged over the years in diginomica’s coverage of the retail sector is the importance of the physical store in the omni-channel balance. Too many retailers let their Amazon-envy overcome them and raced to pump vast resources into more and more digital in a bid to emulate the sector’s ‘Great Satan’.

The savvier brands realised that while digital and mobile platforms and AI et al were indeed very important in terms of future-proofing the business, it was an enormous mistake not to recognise that the real estate also had value. While online provides speed and convenience, people – including the sought-after Gen Z and Millennial spenders –  like to go into shops.

One of the many frustrations of the COVID crisis and subsequent lockdowns around the world has been the closure of what is termed non-essential retail. While grocery outlets and other categories of business are allowed to stay open, the likes of clothes shops and book stores have been deemed to be not necessary. This has led to some ridiculous double standards – magazines are essential, books are not! – and some ludicrous behavior as retailers who sell both essential and non-essential items have literally blocked off aisles to prevent customers from buying goods sitting available on the shelves.

It’s clearly been a great source of irritation to Jeff Gennette, CEO of US retail institution Macy’s, which turned in yet another dismal set of quarterly numbers yesterday, including declining digital growth in a week in which the likes of Target and Walmart – essential retailers both – have blown away Wall Street with their online performance. Little wonder then that Gennette is desperate to avoid more lockdowns and to keep his store fleet open for business: :

We definitely believe that we can operate through COVID and keep every one of our stores open…we don’t believe that designation of essential and non-essential should play in retail. We believe you need to have a safe environment or not. We should be held accountable to health and safety standards and we stand by those…Even in California, where they have laws right now that basically are talking to 25% occupancy, we have some stores in which we are adhering to strict line control. We were very aggressive about going after in-store fulfilment. We went after it, making sure that we had curbside [pick-up], that we had same-day delivery – all of that has been built. 

At present, all Macy’s stores are open or opening, but not all are performing as they need to, Gennette admits:  

The worst are the ones that are in our downtown locations. So when you look at Herald Square [New York], you look at 59th Street at Bloomingdales, State Street [Chicago], Union Square [San Francisco], they are most challenged. The two biggest factors on that are basically what has happened to the transient work population, the office workers, as well as tourists. When you look at the transient population in the tourist business, that’s been most challenged.

When you get into the suburban population, what we used to call our magnet stores, as well as our neighborhood stores, they’re pretty consistent. Depending on what part of the country it’s in, when you had the heat of the pandemic, there were certain regions of the country that were either closed or they were re-opening and the customer didn’t have confidence to return to brick-and-mortar shopping. So you saw those kinds of highs and lows. Right now, it’s pretty consistent. What we are seeing is that our neighborhood stores are great convenient locations, customers are very comfortable shopping in them and they are completing their shopping journeys.

Intent

What has changed – and may end up a challenge to the likes of Macy’s – is the question of customer intent when entering a physical store. Whereas pre-COVID, the aisles of Macy’s would be full of people browsing and exploring and making spontaneous as well as planned purchases, it’s now a case of knowing what they want, going in and getting it and basically spending as little time as possible in-store. Gennette says:

We’re seeing that when customers make the decision to come to our stores. They’re doing so with the intention to purchase rather than browse and discover…They’re very intention-based when they go into these stores. They’re not browsing – they have a mission, they know what they want.

That clearly has implications for upselling and cross-selling. If customers aren’t wandering the aisles and finding items catching their eye that they didn’t plan to buy, then there needs to be an effective way of Macy’s seeding those additional purchases prior to the store visit. In other words, set up expectations and buying intent online, then fulfil in person, in-store – aka omni-channel retail 101…and that brings us back to those declining digital numbers. Third quarter digital sales growth was 27%, down from the previous quarter’s 53%.

For his part, Gennette of course insists that Macy’s omni-channel play is on track:

As an update on the 4 million new customers that came onto Macy’s.com in the second quarter, we are seeing good retention rates, with many having made repeat online shopping visits. We’re targeting these customers with personalized messages and intend to keep them engaged throughout the Holidays season. We continue to see a good flow of new customers throughout the digital business, customers who are younger and more diverse than our typical core customer. Our Star Rewards loyalty program continues to attract new customers to the brand, while strengthening our relationship with existing customers.

He adds:

Our response to COVID-19 has heightened our focus on the omni-customer. We are re-defining the experience our customers are looking for today and are improving all legs at the omni-experience – stores, digital and fulfilment – so our customers can shop when, where and how they want safely and without friction.

As proof points, he cites the likes of a same-day delivery partnership with DoorDash – which he argues will be especially important as the Holidays season kicks off and customers want to get their purchases more quickly – and curbside pickup, rolled out over 18 days back in the Spring and which has just completed a significant upgrade to offer “improved digital check-in experience and a new colleague app to quickly process curbside orders”.

Customers are liking all this, insists Gennette, despite the quarter-on-quarter decline in online sales:

Digital continues to thrive and is a healthy component of our business. We’re pleased with the performance across all metrics, including traffic, search and conversion. Importantly, our growing digital business continues to contribute to profitability. And we’re making constant improvements to our mobile and dot.com experience. We launched our partnership with Klarna, our ‘buy now, pay later’ partner in early October, and we’re especially excited about this relationship because their customer tends to skew younger.

He concludes:

When you look at our website and our app today, it’s in far better shape and from where it was a year ago, and all those enhancements just continue into 2021. I’m very happy with the plans that we have for all the product upgrades coming up. So we expect robust double-digit growth of digital going all the way through 2021 and that’s what we’re planning for as a penetration. What you saw in the third quarter was about a 38% [digital] penetration to the total business. It’s always going to be [a percentage], I think, with either a three or four in front of it as it builds. It’s going to continue to grow as an important penetration in our overall business. We were at 25% in 2019. Obviously, with the stores closed for three months, it’s going to be higher in 2020 than I expect it’s going to be in 2021, but it’s still going to be in the mid-30s. So expect double digits continuing.

My take

On that last claim, we shall see what we shall see – empty digital promises from Macy’s have come gift-wrapped for a long time now.

I do share Gennette’s frustration at the essential/non-essential retail distinctions. Where I live in the UK, we’re currently under lockdown. A neighbour’s TV broke down and she needed to get a replacement. Entertainment is surely an essential when under effective house arrest? But when she tried to go to support a local small business supplier, the shop was shuttered. The end result? She went on Amazon and had a new TV set delivered the next day. So a local, business rates paying retailer lost the sale, while a US behemoth chalked up some more revenue that it won’t be paying as corporation tax. As Gennette says, safety first, but if it’s possible for grocery stores to remain open for physical shopping – and a lot of browsing around the aisles – then why not other categories of shop?

The point about customer intent is an interesting one. Pre-COVID, we used to go into book stores to browse the shelves, find something we liked and then went home to buy it cheaper online. That’s not going to change. But it looks like we can add to that a variant now where we’ll select goods online, then go to a shop to fulfil the transaction – in and out as fast as possible. Effective marketing outreach and that long-pursued Holy Grail of personalization become increasingly vital in that case. Stand by for some spectacular fails on that front…