Macy's Will House Off-Price Outlets Within Its Stores in 2016

Chain Reported a Series of Retail Initiatives Following Third-Quarter Sales Decline

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Macy's holiday campaign
Macy's holiday campaign Credit: Macy's

Customers will soon be able to shop Macy's discount outlets from the comfort of the brand's own full-priced stores. Next year, the retailer will begin testing a "hybrid" model where store space in its existing fleet of retail locations will be dedicated to its new Backstage outlets. About 10 of the hybrid stores will debut next year in a pilot program.

"We believe these stores can help bring new vendors and new categories which will appeal to existing customers and also attract new customers to the full store," said Chairman and CEO Terry Lundgren during a Wednesday conference call to announce the company's third-quarter earnings, noting that the Backstage initiative has already attracted younger consumers. Macy's opened six Backstage outlets in the New York City metro area earlier this year, and plans to open an additional 53 next year. Such outlets have not cannibalized sales from existing full-priced Macy's located nearby, Mr. Lundgren said. He expects that 20,000 to 30,000 square feet of Macy's stores could be devoted to Backstage and include new categories such as home.

It's the latest play for dollars at a time when sales are faltering. For the quarter ending Oct. 31, the 900-unit chain reported sales of $5.87 billion, a 5.2% decline over the year-earlier period. Same-store sales of owned and licensed ventures fell 3.6% for the quarter.

In addition to focusing on outlets, Macy's is also ramping up its in-store shop-in-shops. The company already hosts cosmetic shops from Bluemercury, which it bought earlier this year, and electronics sites from Best Buy. On Wednesday, the chain also announced it will feature LensCrafters shops in 500 stores over the next three years in a deal with Luxottica Group S.p.A. In addition, it recently debuted a new technology-laden shop for brand Perry Ellis in its Herald Square men's department. Macy's collaborated with agency The Science Project on the section, which features floating, interactive mirrors for customers.

Like other retailers, Macy's is battling unseasonably warm weather this fall and may be overstocked on cold-weather and other inventory, analysts said. They expect department stores, including the Cincinnati-based chain, to suffer a loss in margin if they're forced to discount such goods.

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