Macy's is turning its back on the mall and focusing on off-price stores and trendy lifestyle concepts to win over millennial shoppers

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Courtesy of Macy's

Macy's is opening a new concept store in Texas.

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Macy's is retreating from the mall.

The department store chain on Tuesday revealed its three-year turnaround plan to cut costs and boost growth, called "Polaris." To do so, Macy's said it would close 125 underperforming stores, streamline its offices, and slash hundreds of corporate jobs.
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During Macy's investor day on Wednesday, CEO Jeff Gennette updated investors on the company's plans for the future and stressed that mall-based retail is not where it is headed.

"We are going to optimize the value of our existing store fleet by investing in the best malls and we are going to be proactive in addressing stores in unhealthy malls, but we also want to let you know that our strategy will not be limited to mall-based retail and we won't be constrained by our current store footprint and format," Gennette said to an audience at the New York Stock Exchange on Wednesday morning.

Instead, the company will be taking its brand to the areas of retail that are growing, he said, piloting new store concepts that can be "scaled profitably under the Macy's brand."
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These are its off-price Macy's Backstage stores and a brand new store concept, Market by Macy's, that opens its first store near Dallas on Thursday.

Gennette sees more potential for growth outside of malls."Mall-based stores were once the primary channel for where our consumers purchased their apparel and home goods, but today mall-based retail only holds about 4% to 45% [market share] depending on the categories in which we play," he said, adding that housewares sit at the lower end of this range and handbags at the top end.
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He continued: "The reality is we have a large base of customers who are no longer shopping regularly in malls, but we know they have shopped Macy's in the past."

Gennette added that Macy's research reveals that these consumers would shop at Macy's if it had a store in the places where they are shopping regularly - out of the mall and closer to their own neighborhoods.

"Our research and initial tests suggest that we can win with these customers by leveraging our brand combined with omni, non-mall-based retail experience," he said.
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Macy's backstage

Sandy Huffaker/AP Images for Macy's

A Macy's Backstage store-within-store.

Off-price has recently been one of the brightest spots of the retail sector in general. Macy's described its Backstage stores in the turnaround plan update on Tuesday as "a highlight of the company's performance."

Because of this, Backstage is a key area of growth.
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Speaking in a video shown at the investor day on Wednesday, Michelle Israel - head of off-price for Macy's and Bloomingdales - said that same-store sales at Backstage stores open at least a year grew by 5% in 2019.

The concept launched in 2015 with six standalone stores and has since grown to have 211 store-within-store locations in Macy's full-line department stores. In 2020, Macy's plans to bring the number of store-within-stores up to 261 locations.

"It's a win for the building," Israel said, referring to the goal to bring the Backstage concept to regular Macy's stores.
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In addition, Macy's plans to open seven new standalone Backstage stores in off-mall locations, she said.

As well as focusing on the booming off-price segment, Gennette discussed the company's plan to pilot a new type of smaller concept store, known as Market by Macy's, that is also located off-mall. The first store of this kind will open in Southlake, Texas, on Thursday and feature a curated selection of products along with a space for community events and a trendy in-store café. "That is what a department store can look like through a lifestyle lens," Gennette said.
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