Harnessing the Might of Macy's

Chief executive officer Terry J. Lundgren is out to prove that bigger really does mean better.

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Inside Macy's

Photo By Kent Miller

Appeared In
Special Issue
Beauty Inc issue 04/22/2011

The beauty category’s performance has been driven by several stalwart introductions, in which Macy’s linked promotional efforts with key brands.

Case in point: The Estée Lauder Cos. Inc.’s Clinique brand was a powerful sales locomotive last year, as Macy’s got behind the spring launch of Even Better Clinical Dark Spot Corrector in a big way, including participating in the TV campaign.

“Even Better Clinical was a clear example of what we were able to accomplish as one Macy’s because we were able to make a decision and get behind it in a faster, more nimble time period than all the operating divisions could have done,” says Gonzalez. “We were able to decide the week [of the launch], we were able to decide the visual and the marketing support, and we were able to get our stores all behind it. The results were that we got more than our fair share of that business and that really showed us how we can make big things bigger.”

Lynne Greene, global brand president of Lauder’s Clinique, Origins and Ojon brands, nodded to the effort and to Lundgren’s vision and “unbelievable patience” in laying the building blocks over five years to build the merchandising machine by opting for one retail nameplate; creating the My Macy’s program, which she describes as a “brilliant” exercise in tapping localization to build relevance, and following with the “I Believe” holiday campaign to get the heart pumping. Greene says Lundgren is a retailer who is unafraid to make hard decisions, like slapping the Macy’s name over longtime local favorites—“not always to applause”—and knows when and how to put initiatives together into a coherent train of thoughts. “He is the master of timing and knows how to pulse a strategy,” she says, adding Lundgren is “terribly inspirational. He encourages people to step out of the box.” Greene goes on to say that he then supports those who take a chance and get it right.

Gonzalez says Macy’s has always carried “blockbuster” skin care products—Origins Plantscription and Lancôme Génifi que included—but adds, “We now have the machine to really maximize them.”

Fragrance is another area where Macy’s is flexing its national marketing muscle.

“We have the strongest fragrance business in the country, and an enormous share of the market,” says Gonzalez. She allows that the life cycle of celebrity scents continues to shorten, saying, “They might be good for three or six months and then that customer is onto the next thing.” But, she says when the celebrity does something as simple as send a tweet to her fans about an upcoming public appearance at the store—as Rihanna did for the launch of her women’s fragrance Reb’l Fleur—“it’s unbelievable what can happen.”

Lundgren sees Macy’s prowess at trumpeting blockbuster products as a powerful marketing tool, one that in certain instances serves as an alternative to department stores’ long-held practice of gift-withpurchase. Referring to Clinique’s Even Better, he says, “We’re all trying to find something more creative than gift-with-purchase. And 2010 was a clear example of that.…[There’s] much more to come.”

That’s not to suggest that Macy’s is abandoning gwp, rather, it’s simply augmenting it with a new approach. “I see it as a way the customers get involved in a brand,” says Gonzalez. “Gift-with-purchase is a good thing.”

Lundgren adds, “[Gwp] has clearly been a big part of the business, no question, for us and for others.” He recalls, however, that last year Macy’s executives were particularly excited when the organization began working with vendors to invest in touting their latest innovations. “That has to become more a part of our growth in the future,” says Lundgren. “The large majority of our vendors agree with that [approach] and they are anxious to make a move in that direction.”

In addition to retooling its promotional strategy, Macy’s also broke from its established brandedbeauty- counter merchandising philosophy to make room for Impulse Beauty, an effort that spotlights smaller-size, niche brands. The concept borrows from the gondola-fi xtured environment made ubiquitous by specialty chains like Sephora and Ulta, plus drugstore forays into the prestige market, namely CVS Pharmacy’s Beauty 360 and Duane Reade’s Look Boutique.

“The opportunity that we had was to add to the mixture that we had with emerging brands,” says Gonzalez.

Impulse Beauty’s brand mix—housed in an at least 1,000-square-foot area— includes Benefi t Cosmetics, Bare Escentuals, Philosophy, Smashbox Cosmetics, Laura Geller, Laura Mercier, Dior, Stila, H2O Plus, MD Skincare, Bliss and the Frédéric Fekkai hair care brand.

It’s that mix of established department store brands and emerging lines that gives Macy’s an edge over competitors, says Gonzalez.

“The Impulse assortment of brands are carried in other venues. That is the same for our traditional assortment,” she acknowledges. “What is unique is the ability to shop all of these brands under one roof—from Estée Lauder, Clinique, MAC and Chanel to Urban Decay, Sue Devitt and Bare Escentuals. No other retailer has that complete of an assortment to service the customer’s every need.”

The concept has helped Macy’s break a longstanding impasse. In past generations, ceo’s have tried to recruit edgy, small brands, but with little success.

“The beauty of Impulse is that it allows us to bring in these smaller niche vendors that the former [business] model wouldn’t allow for because you needed to do enough volume to afford a staff full time,” says Lundgren. “So, you might be missing these relatively small-volume businesses that would do $50,000 to $100,000 in a store on an annual basis, which is great, but it isn’t enough to afford a staff.”

He continues, “The best part of [Impulse Beauty] is that we can bring in a number of these niche brands and, collectively, they fund a staff to service the entire space. That creates more opportunities for us to bring in some of these smaller, unique brands.”

Impulse Beauty has clearly taken root, leaping from testing in a few pilot stores on the West Coast in 2009 to a projected 100 stores across the country by year’s end.

“It brings a lot,” says Gonzalez. “We have such strength in our big brands, but lots of customers like the ability to touch and play on their own without somebody bothering them. There are people who just want to rush in and replenish a product, there are people who want to browse on their own, and sometimes they are the same people who want a full makeover and consultation.”

As Lundgren points out, the typical Impulse Beauty shopper is “younger and more contemporary, similar to the Impulse apparel customer.”

The youth market is what all retailers are chasing. “The challenge for Macy’s and every department store is it has to get a younger customer base than they’ve had,” says Walter Loeb, former retail analyst and president of the consulting fi rm Loeb Associates Inc. “For awhile, Macy’s customers were aging gently. This is not something that’s tolerable at this point.”

Leslie Blodgett, executive chairman of Bare Escentuals, says Impulse Beauty zeros in on younger shoppers who are already shopping for clothing and accessories at Macy’s. “First and foremost, it’s targeting those who are already shopping at Macy’s. It’s less about taking them away from another format,” she says. Bare Escentuals has counter displays in 91 Macy’s doors, and by year’s end, the brand will be featured in 49 Impulse Beauty shops (all in Macy’s stores where it does not have a counter). “It was a smart idea on Macy’s part,” says Blodgett. “Macy’s already had a younger consumer who was buying apparel, but they weren’t necessarily buying beauty.”

Aurelian Lis, general manager of North America for Benefit Cosmetics, generally gives good marks for the Impulse initiative, so far. “Overall, it’s a good new approach,” he says. “The customer is in a different mindset than in the traditional department. They want to play and experiment.” He adds that the Impulse concept has to reach three plateaus. The store has done well with the first two—letting the customer get to the product and communicating vital information like price and product function. The third step is more subtle. “The beauty staff has to create an environment that gives the customer permission to play,” Lis says. “It takes more time to perfect that.”

Benefit has Brow Bars built into its brand presentation in the store and the company has 100 service locations throughout the Macy’s chain. The brand is in the process of launching a skin care line, B.Right Radiant Skincare by Benefit, a move that has raised expectations. Lis also notes that Macy’s has been at work upgrading the staff. “People are better trained than they were a couple of years ago,” he adds.

Karen Grant, vice president and global beauty industry analyst for The NPD Group, sees the overall use of space as more innovative, inviting and compelling with a sense of home being created among the different floor formats and a more democratic feeling among the European, American and niche brands. She also applauds the reorganization into pairings of a merchant with a vision and an executive in charge of execution, which makes for better alignments. The trick, she says, is to have a certain homogeneity, but also the ability to differentiate from the competition. “The service element has to be different,” she observes, noting that there has been more education given to the sales associates and a little less gift mania to drive volume. Although the gwp promotions remain a big traffic driver.

As for luring new customers into the store, Grant sees the role of Impulse Beauty as a magnet to lure those already shopping in the store to make another purchase— “How to drive or create an environment where you get the most out of your consumers. It’s getting all of the juice out of the orange.”

Grant points out that Macy’s has been willing to try new formats in general. A small example is a merchandise standout on the cosmetics fl oor displaying hot items from different brands. It all adds up to one objective—“let’s keep our consumer in our store with us.”

Of course, some observers don’t see a dramatic change in the level of service working its way down to the selling fl oor yet. “I don’t think we can say the customer experience in beauty is so much different from what it was years ago,” says one vendor, speaking not for attribution. He quickly adds, however, that the chain is “doing really well” in beauty, now that the distraction of the merger has been put to rest, with brands like Clinique providing a big boost last year and Impulse Beauty coming on strong.

Gonzalez says the concept’s mix offers a nice complement to the service-intensive skin treatment business at the beauty counters. “We do have some treatment product in there, but really the home run is the color,” she says, later adding, “Our research has shown us that a good amount of the customers who are buying at Impulse Beauty are Macy’s customers who were not buying color and treatment. So, it’s been additive.”

In the past, she has said that 40 percent of Impulse Beauty shoppers are Macy’s customers who previously purchased in the store’s beauty department. For those who did shop beauty at Macy’s, Gonzalez says they are now simply buying more.

“It’s not, ‘I’m buying this instead of that.’ It’s allowing them to explore and find products that they might not have seen before because they were hidden behind a counter,” she says.

“Part of what we need to do is to make the beauty departments more exciting by constantly injecting new ideas,” which, in her view, energizes the entire offering.

“Customers really respond to variety. That’s why they come to Macy’s.” That point was driven home when Gonzalez was asked if the store is considering doing an Impulse Beauty private label brand, like Sephora’s namesake line. “I’ve thought about it and decided not to do it,” she quickly replies. “In beauty, people really do respond to brands. That’s what my focus is right now—acquiring the right kind of brands for Impulse Beauty.”

Two brands slated for a spring launch are Essie and Living Proof, as Macy’s seeks to add nail polish and expand its hair care offering.

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