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Sears And Macy's Need New Thinking -- And One Of Them Is Getting It

Bryce Hoffman

Macy's flagship store in New York. (AP Photo/Mark Lennihan)

It was a busy week for those who follow the retail sector: Sears warned it may not be long for this world, while the CEO of Macy’s — which also is struggling — offered a new vision for his company’s future.

Both of these developments speak to the increasingly insecure position traditional department store chains, or at least the few that remain, now find themselves in. More consumers are making more of their purchases online. Those that aren’t are increasingly making theirs at discount stores or higher-end chains and boutiques, a symptom of the great divide that is splitting America in two.

Sears, once the most middle of middle-class retailers, finds itself lost in this new world order and seems to have no strategy to cope with it beyond selling off its brands.

Macy’s strategy has been one of constant sales, but those full-page ads and red tags have become ubiquitous and stopped raising eyebrows a long time ago. The last time I went into Macy’s, the item I wanted to purchase was not on sale, but the sale tag was stuffed haphazardly behind the regular one in the tag holder. I pulled it out, saw that the duvet in question would be $150 cheaper in two days, and headed for the nearest Pottery Barn.

Neither of these strategies (and I’m being generous in calling them that) has worked. So it’s clearly time to try something different. Common sense dictates that.

So does red teaming.

Red teaming is a system developed by the military and intelligence agencies to help organizations stress-test their strategies by breaking them down into the assumptions they are based on, then challenging those assumptions.

Red teaming is all about overcoming the biases we all fall victim to — particularly when we try to tackle complex problems, like how to keep your struggling department store chain afloat. Two of the most dangerous of these biases are the sunk-cost fallacy and the status quo bias.

The sunk-cost fallacy refers to our tendency to continue to pursue a misguided course of action for the simple reason that we have already invested so much time and money in it. It is why companies keep failing factories running. The status quo bias refers to our innate preference for not rocking the boat, even if the boat desperately needs to be rocked. It’s why failing CEOs are allowed to stay at the helm long after their plans have proven worthless.

Red teaming counters the status quo bias by forcing organizations to review their strategies to make sure they are still the right ones. Red teaming counters the sunk-cost fallacy by objectively analyzing the future risks of a failing strategy without regard to the costs already incurred in pursuing it.

Both Sears and Macy’s could benefit from a rigorous red teaming exercise right about now. Fortunately for Macy’s, its new CEO, Jeff Gennette, already seems to be thinking like a red teamer.

“We need a new playbook if we’re going to win again,” he recently told a Bank of America Merrill Lynch investor conference, assuring the audience the management team at Macy’s no longer has “our heads in the sand.”

To prove it, Gennette has outlined a new strategy that is a major departure from the twentieth-century department store model. He says Macy’s will cut back the amount of floor space devoted to what he has described as “fashion basics” — commodity products people can buy anywhere — and devote more space to trendier offerings and the sort of heavily discounted name-brand merchandise that consumers have been buying at discount stores such as T.J. Maxx and Ross Stores. He also plans to devote more space to store-within-a-store boutiques, making Macy’s a landlord for more successful retailers such as LensCrafters, Best Buy and even Apple.

There are still some head-scratchers in Gennette’s new strategy, most notably his plan to further reduce sales floor staffing (the second-to-last time I was in a Macy’s, I left because — after roaming the sales floor for ten minutes, I could not find anyone to answer my question), but at least he is committed to trying something different. And when “the way we do things around here” no longer works, that is a step in the right direction.