Macy's transformation

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Martine Reardon, CMO of Macy's
Martine Reardon, CMO of Macy's

This spring, Macy's will begin a $400 million renovation of its flagship Herald Square store in New York City. Touted as the largest store renovation in U.S. history, the transformation reflects where Macy's marketing is headed as a whole, with the company eagerly embracing the possibilities of new technology, while carefully preserving the elements that made it an icon in the first place.

In just the past three years, Macy's has made major changes in how it approaches its marketing, reorganizing its marketing department, putting a greater emphasis on local targeting, while aggressively incorporating mobile, social and e-commerce into its  channel mix.

“There's a famous quote from Mayor Michael Bloomberg that, ‘If you have not been to Macy's, you have not been to New York,'” says Martine Reardon, CMO of Macy's. “There is a halo effect on this building that permeates out to all of our other locations.”

The retailer has also recently made a number of executive moves, with Reardon taking over as CMO at the beginning of February. She assumes the role from Peter Sachse, who moved into the position of chief stores officer after Ron Klein retired from that position. Prior to her new role, Reardon had served as EVP of marketing and advertising, having risen through the ranks at Federated Department Stores and Macy's Inc.

Macy's many bold choices seem to have paid off. The company's revenue has increased for four straight quarters, with a 5.5% increase in its most recent earnings report, and with consistently strong monthly same-store sales numbers.

The Herald Square makeover is the latest in the company's ambitious plans and the most tangible demonstration of how the brand will balance fast-changing technology, while showcasing its 154-year history.

Among the innovations underway are interactive store directories that allow visitors to find what it is they are seeking, an enhanced signage system and digital product information. Live video feeds of Macy's events throughout the country will be broadcast in-store. Customers will be able to download a mobile app, which they can use to guide them through the landmark.

“Technology is a big focus for us,” Macy's CEO Terry Lundgren said during a press preview of the renovation plans last November. These updates are partly a play to get younger shoppers into the store, with Lundgren adding that, “We're focusing on millennials because they're huge.”

Indeed, a new Impulse apparel and accessories department, targeted toward 13- to 30-year-old shoppers, will also be part of the transformation. The upgrades, which will continue in phases through the fall of 2015, will also include a 100,000-square-foot expansion of the store's selling space, a new hall of luxury brands and the creation of the world's largest women's shoe department, which will feature as many as 300,000 pairs of shoes on any given day. The new shoe department will be accompanied by a special shoe locator system.

While the renovation marks an ambitious effort to bring mobile and location-based marketing into the Macy's experience, the company has already been innovative in its use of the new technology in recent years. Macy's was one of the first stores to partner with the Shopkick app, offering rewards and offers to its customers for walking into the store. Last September it became an early adopter of the Google Wallet payment system.

Last spring, the retailer introduced Backstage Pass, which integrated Quick Response (QR) codes into in-store promotions as well as print and online. A store guest can snap a code and get a 30-second video of Tommy Hilfiger talking about spring fashion trends, or Carlos Santana playing guitar (while also promoting his new line of shoes and handbags). Sean “Diddy” Combs, Martha Stewart, Kenneth Cole and Rachel Roy are other style mavens that visitors can access.

“We were like, how do we bring celebrity inspiration and tips and advice to customers at the point of purchase in the store? Well, we could use mobile,” says Claire Capeci, global business director of JWT New York, which developed the Backstage Pass program with the retailer. “That's where Martine and Macy's said, ‘Let's just do it.' Even if it's not something that a million people interact with out of the gate, we know they will [over time].”

With the rapid adoption of smartphones, Reardon says the access that visitors have to download the QR codes has doubled since the company began the program. However, while smartphone use has exploded, Macy's sees perhaps even greater potential in the surging e-commerce potential of tablets.

“What we're finding is that as much as people are using the mobile device to research and gain information about certain things, more purchasing is happening on the tablet, and it's simply because the canvas is so much better. You can see it and it's easier to use,” Reardon says. “It absolutely is where the future is going.”

Digital inspiration

Macy's continues to be a leader in its use of technology and the innovative ways it has used it to get its marketing message out to consumers.

“They have the absolute right mentality about how to think about all these new channels. It's an attitude of ‘Let's experiment, let's rapidly improve and/or fix,” says W. Sean Ford, COO and CMO of Zmags, which develops interactive mobile content and catalogs for retailers. “That attitude is almost unique among retailers. They seem to be fearless.”

Zmags released a study in February that found many retailers have yet to take full advantage of the potential of tablets and smartphones.

With a tablet site that sticks closely with its standard website, Macy's still has work to do in maximizing mobile offerings, Ford says. However, he points to the company's Believe-o-Magic app, launched during the holidays last year, which uses augmented reality to allow shoppers to take photos of themselves with the characters from the Macy's “Yes Virginia” Christmas special, as an effective customer engagement tool.

“It is specifically tied to something their customers would readily identify with — Christmas — and has the interactive camera piece to it that connects them back to the in-store experience, along with the touch elements, creating a really full experience,” Ford says. “They recognize that this is a circular system that we live in — all the offline activity is starting to connect back to the digital environment.”

He adds that consumer research conducted by Zmags about incorporating digital into the in-store experience revealed that consumers most often responded to “a sense of inspiration.” Macy's has used digital marketing to create this sense of inspiration better than perhaps any other retailer, Ford argues.

This deeper brand message has allowed the company to avoid having to resort to bombarding customers with promotions and special offers to pull them into the store.

“They have a limited amount of promotions, just enough to keep the consumer engaged,” says Jharonne Martis-Olivo, a retail analyst at Thomson Reuters. “Some would be Saturday-only or they send an email, if you are a subscriber. They will send you an email offering a 40% discount just for the day.”

She contrasts Macy's limited approach to promotions with JCPenney, which until recently would send out email blasts often more than once a day. JCPenney's recent overhaul of its marketing and promotion plan, simplifying it and cutting down significantly on the volume of offers, is something of a validation of Macy's more targeted messaging.

This “inspiration” message can be seen in how Macy's utilizes celebrity partners, such as Kelly Osbourne and Madonna's daughter Lourdes, who have helped draw pre-teen and teenage customers into the stores.

Last year, it began “designer collaborations” with well-known or up-and-coming designers, launching exclusive fashion lines at Macy's price points. This message is emphasized through digital channels, connecting the message to the specific department through which the offer is being run. The latest collaboration, doo.ri, launched with designer Doo-Ri Chung, was rolled out under Macy's Impulse sub-brand.

The company's embrace of digital channels has streamlined nicely with this fashion and entertainment focus. This spring, Macy's will be launching a tribute to Brazil, creating several in-store shops to showcase the style, music, art and design of the country, including a major party to launch the event, featuring Brazilian stars and live streaming across the country.

The retailer is also using the events as a way to attract domestic and international tourists, encouraging visitors to go to the company's visitmacysusa.com site to plan a customized personal trip, and download a Savings Pass Voucher good for a 10% discount for out-of- state or out-of-country visitors.

Online, Macy's mstylelab site offers an online destination specifically for teens. The microsite features fashion trend videos and online shopping. It also includes m.mix, where visitors can find information about new bands, music downloads, events and the Web series Wendy, which ran last year.

The live streaming effort, allowing in-store events to be seen online as well as in other Macy's stores, was launched in September of last year for New York's Fashion's Night Out with 14 different cameras filming the Herald Square flagship, compiling roughly an hour-and-a-half performance of music and entertainment.

Data-driven

At the center of all of these marketing efforts, Macy's puts particular focus on gathering data and learning about its customers. Macy's boasts a customer database of more than 30 million households, many of which have been shopping with Macy's for years.

This allows for an exceptional level of tailoring of the company's messages. During the National Retail Federation's Big Show in mid-January of this year, Macy's Sachse described how the company personalized its materials to the point that it might send out 500,000 unique versions of a single direct mail catalog.

“If you think about a 32-page or a 64-page book, my book might look very different from [someone else's],” Reardon says. “I'm not such a great homemaker, but I am a cosmetic, shoe and jewelry person, so what you might see in my book would be all of those categories,” she explains.

This data mining is aided by the analytics company dunnhumbyUSA, which Macy's has worked with for the past three years, particularly on the My Macy's localizing efforts.

“With a business this size, the data they have on their customers is mind-boggling,” Capeci says. “They're one-to-one marketing.”

While Macy's had been doing this with direct mail, it has now launched it in the digital space as well, under “Intelligent Display.” Macy's can track what customers browse on the company website, what categories they are most interested in, then have a display ad in that category appear as they are browsing on another site.

“We know she looked at something. There was a category she loved. She wanted to look at a watch, maybe she didn't buy it that minute because she had to go and do something else, so we'll remind her, ‘You know you liked this watch,'” Reardon says. “The more that we can learn about her, the better off she is, because now we're giving her the things that are important to her.”

Reardon emphasizes that Macy's approach to marketing is “integrated” and “holistic,” touching on every channel in Macy's marketing approach. This can often mean reaching customers with marketing messages on several channels simultaneously.

She points to the tendency of consumers today who may be sitting on the couch watching television, while holding a tablet or smartphone in hand. An ad on television, or before a streamed show on Hulu, may lead the consumer to do further research about a sale or product on one of her devices.

“They are leaning more toward a customer-centric view with their user data, working with dunnhumby and getting away from that one-size-fits-all approach,” says Margie Chiu, SVP at Merkle. “Everybody talks about customer-centric marketing, so it's really exciting to see that they really are taking on that approach and kind of living that.”

Local approach

More than perhaps any other retailer, this customer-centricity puts a particular emphasis on geography for Macy's, which completely revamped its merchandising and marketing approach in early 2009 to focus more on local and regional targeting — a program it dubbed My Macy's.

Dividing its more than 800 stores into 69 districts, the marketing department empowered individuals in each area to make key purchasing decisions. While national marketing decisions came from Reardon's New York team, choices were shaped by specific input from the local level.

Reardon sums up the My Macy's approach as “think nationally but act locally.” The special event team has locations throughout the country, which tailor programs to appeal to regional interests. Just as merchants and planners customize the product offerings for local stores, the marketing team will send out geo-targeted marketing messages.

“The Kentucky Derby, although it's a national Photography by Bill Bernstein event, it's really important for Kentucky and may not be so important for Miami,” Reardon says. “We try to make sure we sort some merchandise around that and then do lots of events around that as well.”

This goes for the channel mix as well. Some markets respond strongly to newspaper advertisements, others are “all about digital,” Reardon says. Macy's may shoot a campaign, but format it differently depending on what communication method makes sense for that region. Reardon says the company is investing more now in customizing events and marketing channels than they were a year ago.

“They have to deal with things at several different levels to be able to maintain national branding and marketing, and do things on the more local basis,” says Jack Plunkett, CEO of retail consultancy Plunkett Research. “Tailoring local newspaper ads or tailoring direct mail to the local region or market is something they have really taken seriously.”

Plunkett says he believes that the big challenge going forward for department stores in general will be trying to remain relevant to the consumer when they can browse and buy online. That means carrying more exclusive items, offering better expertise in the store, and building relationships with customers at the local level, Plunkett says.

“I think we'll see more of that monitoring in store, on the Internet and in every channel you can communicate with people on,” says Tom Redd, VP of strategic communications in the retail industry business unit of software company SAP. “It's taking a different approach to how the store's run. The people at the store, we need to listen to [them], because they are the ones closest to the shopper, and have more input than we have seen at any point in the past.”

Redd is on the board of the Terry Lundgren Center for Retailing at the University of Arizona. He describes visiting the Macy's store in Tucson and seeing how the company has totally redone it to cater to people coming in from Mexico to visit, shop and go home at the end of the day. He says the store offers a very different mix of merchandise and level of presentation than would be seen in another region.

“I was just on Macys.com and they asked for my birth date, so I'm probably going to get a birthday offer. They mapped my store location. They've got click behavior because I just clicked on a coupon that I can use for President's Day,” says Arthur Sweetser, CMO at marketing agency 89 Degrees. “All of that is feeding into far more behavior-based customization than just ‘Let's take the circular we published and send it to 10 million households.”

Keeping the past alive

As Macy's moves aggressively to incorporate new technology into its stores and marketing, it has also gone to great lengths to preserve and even resurrect elements of the brand's history and legacy.

For the Herald Square store renovation, this has meant protecting the wooden escalators that have been serving customers since the store opened in 1902. The windows along Broadway, 34th Street and Seventh Avenue that have been covered for decades will be opened, while awnings and canopies reminiscent of the original building will be reinstated.

“With the awnings out there, and to blend that together with the technologies of today, you're creating a shopping environment for a broader range of people,” Redd says. “You have the Gen Y group that can shop there, and you've got another group that you can slowly push forward.”

Redd says he sees this as indicative of a broader strategy to showcase the nostalgic assets of the brand, particularly with the older generations, while moving them into the use of mobile, video and other new technologies. He describes this as an approach that other retailers are likely to imitate, even those that may not have a 110-year-old store with which to do it.

More broadly, this is the strategy that can be seen at play in the company's prominent “Believe” holiday campaign. Since 2008, when Macy's pledged to donate a dollar to the Make-A-Wish Foundation for every letter to Santa Claus that it received (eventually raising $1 million in its first year), the retailer has reprised this campaign, inspired by the legendary “Yes Virginia, there is a Santa Claus” editorial that ran in The New York Sun in 1897.

Even for a campaign that emphasizes the brand's nostalgic connection to Christmas, the movie Miracle on 34th Street, and its long-running Thanksgiving Day Parade, each year the company's holiday marketing has charted new territory. In 2009, Reardon and her team built on the original idea with an animated special on CBS and sent Macy's Santa Claus to events across the country as part of a national “Santa Tour.”

In 2011, it made mobile a more central part of the campaign with the Believe-o-Magic app, and also allowed customers to upload their photos with the “Yes, Virginia” characters to the company's Facebook page.

This strategy of taking a campaign or brand message that works and building on it, or getting more targeted in applying it, epitomizes what Capeci calls Macy's “smart experimentation,” qualifying the experimental spirit many attribute to the brand.

The campaign has proven to be enduringly potent, with the company reporting that same-store sales increased 4.8% in November and 6.2% in December. It was also strong on the cause marketing side, raising $1.7 million for the Make-A-Wish Foundation.

My Macy's follows a similar trajectory, building on what has always been an effective marketing and customer service strategy, while enhancing it with all the technical tools at the company's disposal. While much about retail is changing, Macy's prides itself on continuing to also do what's worked for more than a century and a half.

“The ultimate delivery is what it was like in early retailing, where you walk in and they know your name, your favorite shirt,” Sweetser says. “That's the ultimate, and that's great if you can use digital technology to deliver that.”

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