December 5, 2023

The launch of Macy’s new private label On 34th also marked Tony Spring (left)’s first public appearance since being named new chief executive. Spring is chief executive of the company’s high-end department store chain, Bloomingdale’s. He will replace Jeff Gennette (right) in February.

Melissa Repko | CNBC Money

New York – Macy’sThe 165-year-old department store chain is looking for ways to keep up with what’s new on the block.

The retailer is facing declining sales and its shares have underperformed in what has been a good year for the market.Now, the company is counting on a new wave of fresh, refreshed private labels to entice shoppers, especially as some turn to popular direct-to-consumer brands, Shein and amazonand big box players like Target.

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On Wednesday, it unveiled its newest private label, On 34th, at Macy’s Herald Square flagship store. Named after the old Manhattan store, the label specializes in womenswear and accessories. The brand is designed for women in their 30s to 50s looking for a modern, versatile and easy-to-wear look.

The new brands hit store shelves and websites during a challenging time for Macy’s and much of retail. Consumers cut back on discretionary spending at stores amid rising grocery bills and rent, while spending money on experiences like concerts and summer vacations. The department store operator cut its full-year forecast last month after seeing shoppers cut back on clothing and other purchases.

On 34th is the first of four new private labels Macy’s plans to launch by the end of 2025. The company also plans to refresh some existing brands and phase out others.

Nata Dvir, Macy’s chief merchandising officer, said On 34th’s debut follows more than two years of customer research.

“They care about fit, quality and value, and are passionate about what they wear every day,” she says. “They deserve better.”

The launch event also foreshadowed another part of Macy’s future: It was Tony Spring’s first public appearance since he was named the next CEO. Spring, currently in charge of parent company Bloomingdale’s, upscale department store, will succeed Jeff Gennette in February.

Consumers’ financial pressures continue to show up in the company’s sales trends, Gennette said Wednesday.

Macy’s slashed its financial forecast for June. The department store operator, which includes Bloomingdale’s and beauty chain Bluemercury, said it expects own-operated plus licensed sales to fall between 6% and 7.5% this year. Earnings per share are expected to be $2.70 to $3.20 this year.

Shares of Macy’s reflect investor concerns. As of Wednesday, Macy’s stock was down more than 20% year-to-date. By comparison, the S&P 500 has risen 19% this year.

Some of Wall Street’s concerns were directed at the company, as investors questioned whether traditional department stores could keep up with shoppers’ changing tastes.

In recent years, Macy’s has tried to stabilize while being buffeted by other rapidly changing dynamics. Under Gennette’s leadership, the department store launched a three-year turnaround plan in February 2020, about a month before the pandemic began. It called for closing lagging stores, investing in higher-performing stores and accelerating online growth.

Macy’s is leaning on its private labels to drive growth. Its latest label, On 34th, has designs that are stylish and easy to wear. Prices range from $19.50 for a vest to $299.50 for a leather jacket.

Melissa Repko | CNBC Money

Private labels are a common way for retailers to offer customers low prices and exclusive items. These brands tend to be more profitable because the company has direct control, fewer middlemen and scale when making the product. Plus, since these items can’t be found elsewhere, retailers won’t be able to go head-to-head with competitors on price.

Macy’s sells a variety of private label and national brands, including Ralph Lauren, Calvin Klein and Levi Strauss. It has about 25 private labels in categories ranging from apparel to home furnishings, including On 34th.

Private labels accounted for about 16% of sales in the most recent fiscal year. Macy’s, however, hopes to increase that to about 20%, a level it has achieved in the past.

But the strategy also comes with risks. Target is a poster child for private-label success, having incubated and grown billion-dollar brands, including children’s apparel brand Cat & Jack and activewear brand All in Motion. Some investors, on the other hand, partly blame the now-bankrupt Bed Bath & Beyond’s decline on its expensive and aggressive push to launch private labels that customers didn’t want.

Gennett said Macy’s thought through the move. The company took input from customers as it developed the garments, and even made tweaks while testing the brand with customers at two New Jersey stores in recent weeks. In addition, he added, Macy’s has years of experience selling its own brands that have gained followings, such as women’s clothing line INC and home furnishings brand Hotel Collection.

The company has also poached talent from retailers known for strong brands, including Emily Erusha-Hilleque, a 23-year Target veteran, as senior vice president of private labels. It also hired Bryan Riviere, who previously worked at Gap’s Banana Republic, Levi Strauss, Lululemon and Nike, as senior vice president of private label sourcing, product development and manufacturing.

In addition to offering a new look, Macy’s wanted to improve the quality and fit of its clothing.Over the past three years, it has reduced the number of factories and plants it works with About half, Riviere said. By working with fewer partners, it has enough scale to negotiate better prices, save investment in better fabrics and knitwear, and get more support from the factories it cooperates with.

It’s also partnering with a technology company to standardize sizing for all of Macy’s private label brands. Erusha-Hilleque said universal sizing makes shopping less of a guessing game for customers and less likely to return items.

On 34th will officially debut in mid-August with about 750 items, ranging from a basic vest for $19.50 to a leather jacket for $299.50. Its footwear collection will launch in spring 2024.

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