How Macy’s new CEO plans to take on TJ Maxx
Posted by Krystina Gustafson on 21st April 2017
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This post was originally published on CNBC NEWS

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Less than one month into the job, Macy’s new CEO Jeff Gennette has an ambitious goal.

As the department store looks for ways to compete with off-price chains — and end a two-year streak of negative same-store sales — Gennette wants to bring the TJX model into the traditional mall.

Macy’s has slowly been rolling out its off-price brand, called Macy’s Backstage, over the past two years. But what started as a standalone shop has now evolved into a dedicated section of discounted name-brand goods in its less productive stores.

The retailer started with this approach last year, opening about 15 Backstage shops in its full-price stores. It will add another 30 of these types of locations this year, Gennette said.

“We hope that by the end of 2017, what we’re going to exit with is a viable off-price concept that is on-mall, not off-mall like our ferocious competitors,” Gennette told CNBC’s “Power Lunch.”

Unlike department stores, most off-pricers’ stores are located in open-air shopping centers.

While many are quick to blame bricks-and-mortar retailers’ woes on Amazon, off-price chains like TJ Maxx and Ross have stolen a chunk of consumer spending from traditional department stores. At the UBS Consumer & Retail Conference last month, Macy’s CFO Karen Hoguet said those types of chains are a bigger threat to Macy’s than the Internet.

With roughly two-thirds of Macy’s shoppers also spending money at off-price chains, opening Backstage shops in its full-price stores gives customers a new reason to come inside, Gennette said. In the malls where the company has tested this strategy, performance at the overall Macy’s store improved, he said.

“It wins if we get an extra purchase. It definitely wins if we get another visit. And it is a home run when you get a new customer,” Gennette said.

Critics argue that positioning off-price goods just steps away from full-price merchandise could end up cannibalizing Macy’s more expensive items. But Gennette says the retailer has addressed this concern by making sure the items pertain to new categories or brands.

In addition to its off-price aspirations, Gennette’s plans for Macy’s include finding ways to make money off its vast real estate portfolio, bringing in more exclusive brands, and upping the in-store experience through new dining options.

“These stores are being reengineered for the new century and the new generation,” Dana Telsey, CEO of the Telsey Advisory Group, told CNBC.

Gennette’s tenure comes at a difficult juncture for Macy’s, whose shares are down nearly 30 percent over the past year.

Speaking to CNBC in a separate interview Friday, former CEO Terry Lundgren said the company is always on the lookout for potential mergers or acquisitions. Though the executive chairman said nothing is on the table right now, there are “some great valuations in stock prices of companies that are well funded and that look like they have a runway for success in the future.”