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Macy's has a secret weapon this holiday season

Brian Sozzi
Editor-at-Large

Santa has already given Macy’s a big gift this holiday season in the form of a successful off-price store format dubbed Backstage.

Macy’s (M) has quietly opened 121 new Backstage locations this year, including nearly 60 in the third quarter. The company now has the Backstage format inside 166 Macy’s stores, or 25% of its fleet. Macy’s told analysts on a third-quarter earnings call they are “dialing up” the marketing for a brand that takes direct aim at off-price king TJX Companies’ (TJX) TJ Maxx and Marshall’s concepts.

The marketing push for the holidays makes sense as Macy’s is seeing stores with a Backstage on one of the floors notch solid high single-digit, same-store sales gains. By comparison, Macy’s overall delivered a 3.3% same-store sales increase in the third quarter.

Backstage is being opened inside often less productive areas of a vast Macy’s store. The concept features heavily discounted full-price merchandise from other departments within Macy’s and offerings specifically made for the brand.

By putting Backstage inside of a Macy’s store not only are executives improving store productivity, but setting the company apart from other department stores like ailing JCPenney (JCP) in the mall. Moreover, off-price stores such as Marshall’s are often found in strip centers, leaving Macy’s Backstage something highly unique to shoppers within the confines of a mall.

Macy’s debuted the Backstage format in late 2015 via six free-standing stores. And more are likely on the way in 2019.

“We eventually hope to have one [a Backstage outlet] in every store,” Macy’s CEO Jeff Gennette told me at a conference earlier this year. 

Macy’s is aggressively opening off-price stores called Backstage.

To be fair, it’s unlikely Backstage will pose any near-term threat to TJ Maxx or Marshall’s as both operate more than 2,300 stores in the U.S. But the growing number of Backstage stores could prove to be a legitimate longer term threat if Macy’s can maintain the brand’s momentum and explore opening free-standing stores (as it did in the brand’s early days in 2015).

Sleep with one eye open this holiday season, TJ Maxx.

Views from Instagram

Since most have never seen a Backstage, we hopped onto Instagram to see what people are saying. The common thread that ties the numerous posts together is shoppers being surprised by the prices and selection.

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Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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