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Bloomingdale's Outlets Emerge as Reality Providing Macy's Flexibility

By opening up Bloomingdale's outlet stores, Macy's (M) is providing itself with the flexibility to satisfy the changing luxury consumer.

Macy's interest in opening Bloomingdale outlet stores was noted by our Bnet colleague Ian Ritter in a post last week. He pointed out that rumors of a new outlet operation aligned with the luxury chain had swirled in the aftermath of success enjoyed by its competitors. Both Saks (SKS) and Nordstrom (JWN) said in their last reported quarterly results that outlets did better than their department stores. Nordstrom, for example, reported that comparable store sales, those at locations open for at least a year, declined by more than four percent at department stores but gained three percent at its Nordstrom Rack outlets. Nordstrom has made expansion of outlets a priority, opening six in the third quarter. The company has announced plans for three more Nordstrom Racks, its first in North Carolina, a 33,000 square foot store, and one each in Peoria, Ariz., and Chicago, both of which are planned as 36,000 square foot stores. Nordstrom operates about 70 Rack outlets.

Macy's plans summer openings for its first Bloomingdale's Outlets, each in about 25,000 square feet of space, with one each in:

  • Bergen Town Center, Paramus, N.J.
  • Dolphin Mall, Miami, Fla.
  • Potomac Mills, Woodbridge, Va.
  • Sawgrass Mills, Sunrise, Fla.
Macy's isn't just sticking its toe into the water with its first four outlets. The company noted that it expects to open more Bloomingdale's Outlet locations in 2011 "and beyond," suggesting it envisions a major initiative.

Those stores will offer a range of apparel and accessories, including women's ready-to-wear, men's, children's, women's shoes, fashion accessories, jewelry, handbags and intimate apparel.

On the most basic level, the outlets provide Macy's an option it can use to shed excess inventory, something that can be particularly useful in the Bloomingdale's case as its product selection is on the front end of the fashion cycle. The styles it stocks are closer to introduction, which means they're a riskier proposition than those that trail fashion trends further. As consumer purchasing establishes which fashion trends shoppers favor, retailers can accumulate goods based on preferences expressed. Retailers that focus on better established fashion - and in comparison with Bloomingdale's, that includes Macy's stores - have less risk of getting stuck with looks that might have excited designers but left consumers cold. On the other hand, Macy's doesn't get as many of those truly dedicated fashionistas who are willing -- and still are, in many cases -- to shell out top dollar to be on the forefront of style.

Beyond that consideration is the fact that not everything in an outlet is diverted from the inventory of its parent store. Some merchandise is made especially for those outlets in a deliberately less costly manner. Therefore, Macy's has the chance to extend successful styles through an outlet operation and get the more out of its investment in fashion.

"Bloomingdale's Outlet stores are an opportunity to expand our presence in new and existing markets, as well as to remove clearance from full-line Bloomingdale's stores in a timely manner," Michael Gould, Bloomingdale's chairman and CEO, said in announcing the outlet initiative. "The customer experience in these stores will reflect the Bloomingdale's brand with a strong value message."

Interestingly, in the holiday season, competitor Nordstrom turned in a comparable store sales performance at its department stores, up five percent, that just about equaled that at its outlets, which gained a tenth of a percent more. While expensive advertising and promotions would have enhanced the department store performance, the holiday season demonstrates that luxury consumers aren't just abandoning their traditional haunts but will respond to options offered them. By launching Bloomingdale's outlets, Macys is acknowledging that consumer frugality is likely to remain a trend even among luxury customers and that the company needs to be flexible to pursue fashion-minded shoppers who are more reluctant to part with a buck and may remain so indefinitely.

"We have been studying the opportunities for entering the off-the-mall outlet business for some time, and the timing now is right given the consumer's particular focus on value in addition to fashion and quality," said Terry Lundgren, Macy's chairman and CEO.