Macy's Thinks Outlets as Rivals Reap Their Benefits

Macy's may try its hand at the outlet business, CEO Terry Lundgren said in a news conference after Friday's corporate annual meeting, The Cincinnati Enquirer reported, which could give it access to a whole new crop of consumers at a relatively low cost and help it manage inventory more effectively.

Besides, its competition is enjoying the benefits outlets provide.

Macy's may have an advantage as it explores outlets. Recently, Macy's launched a new prototype in Gilbert, Ariz., a single-level store designed for lifestyle malls, the sort that have open-air walkways and courtyards between retail structures. Lifestyle malls mix retail with entertainment, offering movie theaters and restaurants as other malls do, but spicing up the mix with kiddy rides, concerts and other elements that encourage consumers to relax, linger and consider additional purchases. The interesting thing is, lifestyle malls borrow their design from outlet malls, which also are arranged in individual stores and multi-store blocks.

When Macy's designed its new lifestyle mall store, it divided the floor plan into individual departments around street-side window space and adjacent entrances set to tempt passersby in for a closer look at the merchandise. So, Macy's has been examining the kind of merchandising it would need in an outlet store.

In the first quarter, Nordstrom and Saks announced that their department store sales were off but their outlet sales were better, part of a repeating pattern. In the period, ended May 2, same-store sales at Nordstrom department stores slipped 16.5 percent while those at its Nordstrom Rack outlets gained 1.2 percent. Saks doesn't break out comps for its Off Fifth units but said in announcing its April sales that the outlets "showed relative strength" compared to department stores. Saks releases its first quarter earnings on May 19.

Outlet malls have a large and somewhat unique base of customers, many quite dedicated to their preferred form of shopping. Not having outlets, Macy's won't reach a defined consumer segment. Beyond that, in acquiring regional supermarket chains, it took on a much bigger inventory management challenge. To the ensure that its highly touted My Macy's initiative does what's intended, providing local markets around the country with specialized product and presentations meant to address regional tastes, the inventory challenge becomes even more difficult and having a well-run outlet system in place could make the task more manageable. After all, dumping excess inventory on the off-price market, where it finds its way to retailers such as T.J. Maxx and Ross, is a chancy proposition, and Macy's couldn't have had a happy experience as it, like other retailers, shed merchandise this holiday season.

Memories of the recent holiday experiences along with the success its rivals are enjoying are the kind of factors that might motivate Macy's to pull the trigger on an outlet initiative. And opening outlet stores is less expensive than developing department stores, something attractive during an economic period when retailers are restraining capital investment.