Macy's has a problem: It's not a laser-tag center or a Cheesecake Factory.
Millennials prefer to spend their money on experiences, not the apparel that is Macy's bread and butter.
The younger generation does buy clothes, but when they do, it's often in the form of something quick, cheap, and fast.
And as Jason Dorsey, cofounder and millennials expert at The Center for Generational Kinetics, told Business Insider, they're so prone to spending money on experiences that they often rent clothes and jewelry, which is a death knell to apparel retailers.
And experiences can run the gamut: Fitness classes, for instance, are huge money suck for many young people. A SoulCycle class can run you $37, plus water and shoe rental. Going to Starbucks regularly can break the bank, as can going out to eat with friends (and Instagramming your food, of course). They also spend money on technology — after all, how else will they document said experiences?
Since experiences take a great share of young people's finite wallets, someone has to lose out. As The Wall Street Journal recently reported, many malls are tearing down department-store anchors to make room for stores they think will fare better at bringing in foot traffic, from restaurants to fast-fashion stores to flat-out "experiences," like, specifically, The Crayola Experience.
"The definition of an anchor has changed," Stephen Lebovitz, CEO of mall owner CBL & Associates Properties Inc., said to The Wall Street Journal. "Cheesecake Factory does as much business as Sears used to do."
And don't forget straight-up fun times.
"I saw a laser tag [center] open in one of the malls," Gabriella Santaniello, analyst and founder of consulting firm A Line Partners, told Business Insider.
A cursory Google search shows that laser tag is very prevalent in malls across America. America, meet your new department stores.
Millennials don't like malls at it stands, so it's a wise move for malls to overhaul their department-store anchors.
"Department stores are at a disadvantage because they’re often in traditional enclosed malls, which millennials don’t particularly like if they have other options, such as outdoor malls filled with boutiques, restaurants, and diverse ground-level retail," Dorsey said to Business Insider.
And given the rise of online shopping (something millennials love, too), and the imminent threat of Amazon, it also makes sense that malls as a whole have been rethinking the way they go about bringing in foot traffic by focusing on selling things that cannot possibly compete with e-commerce. After all, you cannot consume a delicious meal online — only vicariously.
While this new tactic is marginally good news for the mall industry — the future of which otherwise looks incredibly bleak — it telegraphs a sad message to department stores like Macy's, which, if they don't figure out how to bring in foot traffic, will be the ones who potentially die out.
And Macy's knows it has a foot-traffic problem. CFO Karen Hoguet alluded to that on a recent earnings call. But that's not singular to Macy's — many retailers, in fact, do.
Barbara Thau recently wrote in Forbes that it's retail's "dirty open secret." It's pretty obvious why: If people can shop online, why bother going into the store? If it's an unpleasant experience — and shopping at Macy's can be — why even try to sort through the mess?
(Mallory Schlossberg/Business Insider)
Macy's, though, has really felt the burn; it's seen sales decline for five straight quarters, and in its most recent quarter, sales plummet ted 7.4%. It announces second-quarter results for fiscal 2016 in August.
So naturally, the answer to save Macy's — or at least, to lure in millennials — would be to connect itself to experiences.
"From a retailer perspective, the entire shopping experience literally needs to be an experience, not a commodity," Dorsey said. "This may seem obvious, but in practice it’s much harder to do, especially for department stores. For retailers integrating things like live music, exclusive events, digital gaming, and the unexpected — such as an impromptu fashion show — is what transforms retail shopping into an experience."
Macy's has tried to do that. For starters, Macy's has its Sip and Scan events for wedding registrants, wherein registrants drink the pointless "mocktails" and register at Macy's. (If it were real booze, would it change the game?) In the Herald Square location in New York City, interestingly, its home section with a registry department remain one of the few pleasant, pristine sections to shop.
But what about finding away to cash in the experiences that it's not selling — like, say, fitness?
Morningstar analyst Bridget Weishaar recently wrote that consumers will pay premiums for apparel that connects to their inherently active lives — since in order to experience those activities, they need the clothes. This explains why brands like Lululemon are thriving.
So Macy's is trying to truly build wellness hubs — places where they sell athletic apparel in tandem with wellness products.
That's what it's doing with a current store it's testing out in Ohio. This new store format has an entire section centered on a wellness lifestyle.
"I have a checker in Columbus and Macy's recently opened a new concept store there," Santaniello told Business Insider. She explained that was a more pleasant place to shop — not just with apparel, but also "water bottles and yoga mats" and what not. "I can go to that department and I can get everything I need for the experience I want to have." The store also will have a spa within the location.
"Unfortunately, it's one store and they certainly have their work cut out for them," she said.
One thing, though, that has made wellness brands like Lululemon and Nike successful is that they've sold community and experiences — like yoga clubs and run clubs — in addition to their products; it's up for grabs if that's something as vast as Macy's can do. However, that's exactly the thing that the company needs, Dorsey said.
"Macy’s needs to think about experiences as if it is something that the shoppers, particularly, millennial shoppers, can’t get somewhere else, such as online. These experiences could be gourmet-food tastings on Saturday, film a YouTube TV show on-site and invite shoppers to participate, and even bring samples of brands or designs that they’re considering bringing in and let customers vote," Dorsey said.
"The key is to be unexpected and involve millennial shoppers — and the best part is it doesn’t even have to do with clothes, jewelry, cosmetics, housewares, or perfume. You could literally have a day where you’re showcasing local artisans in a common area and asking them to invite all their friends and vote for the winner. Getting department stores integrated into the community is what makes experiences take root and become something people look forward to and want to visit."
In New York City, Macy's has begun to try to foster this sort of experience. In its millennial-targeted department, called One Below (it's one floor below the ground level), there's a bevy of millennial-friendly brands, like Benefit, Mac, and Kate Spade. There's an Etsy shop, as though telegraphing to its customers that yes, it is connected to the digital era.
The section appears to capitalize on making Macy's a destination. There's a hangout area, albeit a sad and dismal one, with couches and phone chargers. There's a Levi's custom laser denim bar. There's an arcade. The effort is noble, but it resembles a millennial theme park, really.
The store also appears to try to capitalize on the food-truck craze in New York City — it has its own mini Smorgasborg, called Chef Street.
There's also a bar and grill called Rowland's, named after Macy's inimitable founder, R.H. Macy — which might be its smartest move. (Macy's already has the upscale Stella Trattoria 34, which has four stars on Yelp.)
Those two gastronomical efforts, though, are actually extremely old — and smart — moves from the retail playbook.
In February, retail expert Warren Shoulberg posited that putting restaurants in stores — a strategy that's older than 100 years — could potentially save the ailing American retail industry.
"Those first merchants of retailing knew what today’s generation is having to relearn: that retail stores are more than a place to buy stuff," he wrote on blog The Robin Report. "They are the centerpieces of communities, focal points where people gathered for special occasions, to mark moments in their lives and to celebrate. And oh, while they were doing all of that, maybe they bought a new shirt or a frying pan."
"And all of this focus on food wasn’t just about snaring the customer into the store. They were often profit centers onto themselves, another way to wring a few more bucks out of the investment that was the giant downtown flagship store."
After all, in the days of yore, going to a department store was a pleasant event, not something people dreaded.
"Department stores used to be a real experience, especially in their early days," Neil Saunders, CEO of consulting firm Conlumino, wrote in an email to Business Insider. "However, they did not evolve and so have lost out. Some are better than others: Nordstrom, for example, has some good restaurants and wine bar concepts in its stores. On the other hand: Macy’s and Sears provide a negative experience, they are places many people now actively avoid."
"There is no reason, however, they could not integrate more experience like beauty services, dining, fashion shows, etc. John Lewis department stores in the UK are model for this: they’ve teamed up with third party dining brands, invested in new in-store services and experiences and have thrived as a result," Saunders wrote. "What’s lacking from mainstream US department stores is any sense of imagination – and it shows on the shop floor!"
Indeed, it does. Macy's, as it stands, has been losing its premiere positioning, with haphazard, unsightly, sloppy sections. This leads to the question: Would people want to dine in a place they think isn't very nice? And would you get a beauty service — like a blowout you could get at Drybar — a few floors away from Macy's heavily discounted Last Act Section?
The key is that department stores, like Macy's, have to update the old strategy. Simply throwing restaurants in tired stores likely won't do the trick.
"This new generation of in-store restaurants and food offerings from retailers are part of this plan. On their own, they may not be enough to get the job done. But as part of a bigger strategy they may just be one more piece of the pie," Shoulberg wrote.
"I think the issue is that department stores haven't changed since their inception," Santaniello said. "[It's the] same model, same format, and I just think that they get stuck in this rut."
And if department stores, like Macy's, want to cater to a newer, younger generation, they'll have to mix up their strategies. A good way to start might be by looking at retailers that have successfully figured out how to capture millennial's attention spans.
Dorsey pointed to Apple's lineless experience as millennial-friendly, and Costco's mix of high-quality brands with the element of surprise as to what you'll find as a millennial-friendly store as well. And then there's one store that's figured it out that's particularly surprising.
"One example would be Ikea, where it is an experience from beginning to end," Dorsey said. "You show up and work your way through the maze, literally, get offered food along the experience, and then leave to build it yourself!"
Ikea, traditionally, has some unpleasant components to it, like the warehouse hell at the end of the maze. But perhaps Swedish meatballs are enough to detract from the pain points, suggesting that if the majority of the experience can be executed properly, millennials can potentially be swayed — which may be something worth noting for Macy's.
If you work at Macy’s and have a story to share, please email us at email@example.com.
More From Business Insider