Tony Spring has spent more than 30 years turning Bloomingdale’s into a formidable, global luxury department store chain. And now that Macy’s Inc. (M) has named him its next CEO, the question is how Spring can sprinkle Bloomingdale’s fairy dust over the rest of its parent company.
Here’s one way Spring can do this, according to Burt Flickinger, a top retail analyst: Open more off-price formats for Bloomingdale’s, which would allow middle- to lower-upper income shoppers to buy discounted luxury merchandise.
Of course, Macy’s can’t go too crazy with this concept: You don’t want to dilute your upper echelon brand. The whole point of luxury is exclusivity and scarcity. Most people can’t afford the stuff in a Bloomingdale’s.
Still, off-price retailing is booming right now, lead by chains like Ross, (ROST) TJX (TJX) and Burlington Stores (BURL). Macy’s would be remiss not to take a larger piece of that market, said Flickinger, managing director of the Strategic Resources Group consulting firm.
Threading the needle
If anyone can thread the needle, it’s Spring, a veteran executive who’s worked at Bloomingdale’s for 36 years. The company named him to succeed current CEO Jeff Gennette.
Naming Spring as Macy’s next CEO “was a smart, strategic move,” Flickinger said. “He’s one of the best merchants and operators out there. He’s done a great job in recruiting and retaining the best talent in retail finance.”
A savvy merchandiser and brand builder, Spring has built Bloomingdale’s into a top-notch global brand at a time when other luxury chains, including Barneys New York, which filed for bankruptcy in 2019, Galeries Lafayette in Paris, and Nordstrom (JWN) have struggled, especially during the global pandemic. (For example, China, a top luxury market, completely shut down its cities to combat covid.) Nordstrom recently announced that it would exit Canada.
Thanks to Bloomingdale’s, Macy’s finished 2022, a challenging time for retailers, strong. Comparable-store sales rose 0.3% compared with 2021 and increased 3.5% from 2019. Bloomingdale’s comparable sales for the fourth quarter rose 1.2% compared with the same period in 2021.
“So luxury just continues to have strength,” Gennette recently told analysts. “When you look at the loyalty program at Bloomingdale’s, that spend was up 7% in the fourth quarter.”
Luxury, at a Discount
So how much should Macy’s pursue an off-price strategy with Bloomingdale’s?
Off-price luxury is not a new concept. Nordstrom boasts 240 Nordstrom Racks stores across the country. By contrast, Macy’s operates just 20 Bloomingdale’s The Outlet Stores.
Top Macy’s executives have said they are willing to expand its entire portfolio of stores into off-mall/off-price locations.
“The second (growth opportunity) is really off-price or off-mall expansion,” Gennette said. “And we’re just really focused on unlocking the full potential of our off-mall fleet, knowing that (stores) does to our overall omnichannel business.”
“Thus far, we are most successful in centers that include high-traffic concepts like off-price or grocery, where our unique products and brands provide a differentiated option,” he said.
The big challenge, Gennette said, is correctly reading the consumer in today’s volatile economy wracked by inflation.
“Turning to 2023, there is conflicting data regarding the U.S. consumer. As a modern department store operating from off-price to luxury, we have a full view of income tiers,” he said.
“On the surface, the consumer is in better shape than 2019. Jobs and wages are strong and savings levels are elevated relative to historic levels. But prices for services and goods are higher. Inflation has surpassed wage growth and revolving credit is rising.”
On the one hand, consumers are cutting their spending on discretionary items like clothes and accessories. But the success of off-price retailers has shown consumers are willing to show up if they feel they are getting a special deal on a luxury brand.
“We remain bullish on the off-price space amid elevated inventory availability and consumers shifting to value-seeking mode,” Credit Suisse analysts led by Michael Binetti said in a recent client note.
How or whether to further expand the Bloomingdale’s brand into the off-price market is no doubt on Spring’s mind as he prepares to take the helm at the country’s largest department store chain.
