' Education Case Study collection. except Esir uses permitted under U.S. or applicable toppriqh 1. Hey not be reproduced in any form lithaut permission from the publisher, Macy' s Reinvents its Millennial Business In 2011, Molly Langenstein. then Macy's executive vice president for fashion and new business development and other members of Macy' s senior management team began to rethink the company' s approach to serving millennial customers. that is, customers born roughly between the years of 1930 and 2000. This was an important and growing demographic with some differentiating characteristics. To tackle this challenge, a dedicated Millennial team was created. The team began by researching the market. looking at the habits and preferences of millennial consumers and at the way in which those consumers were being served by existing retailers. Based on this analysis. the team came up with a new market strategy and accompanying market share and sales goals. As part of this strategy, apparel was organized into four "lifestyles," with separate olferings for younger millennial customers [iuniors or mstylelab as this business was called at Macy's) and older millennial customers {known at Macy's as Impulse). The team's goal was to utilize these lifestyles to generate incremental annual sales in female millennial apparel, increasing market shares in casual, wear to work. dressy, and active segments.a Macy's planned to focus particularly on older millennials with a goal of becoming \"the #1 Retailer for older millennials ages 22-30 at better and best price points."2 By 2016. the Millennial team could point to improvements in sales and market share in Macy's millennial apparel business, and they believed that there was additional opportunity going forward. The question the Millennial team asked themselves was: was it enough? Was this strategy change reinvigorating Macy's millennial business? And, what should they do next? In light of their experiences to date, what should be the action plan going forward? Macy's, Inc. Established in 1853, Macy's Inc. was the largest department store in the United States. [See Exhibit la for a list of leading U.S. department stores.) The company operated under the \"Macy's\" and "Bloomingdale's\" brands, selling a wide range of apparel, accessories, cosmetics, home goods, and home furnishings. [See Exhibit II) for a breakdown of Macy' s sales by category.) The Macy's operation was comprised of 775 department stores focused on middle-market customers located throughout the United States and an online sales business at macys.com. Bloomingdale's was an upscale department store with 37 stores. an online business [bloomingdalescom], and 13 Bloomingdale's Dutletlocations. 416-020 Macy's Reinvents its Millennial Business In recent years, Macy's had invested significantly in "omnichannel,"its approach to integrating store and online sales. A 2015 study published by Forfune estimated that Macy's online sales totaled $4.7 billion over the prior 12 months, making it the fourth largest online retailer in the United States (behind Amazon, Wal-Mart, and Apple.)3 Macy's, Inc. was headquartered in New York, NY, and Cincinnati, OH, and was publicly traded (NYSE:M). The company generated $27 billion in sales in 2015 and as of January 2016 had a market value of $12.5 billion. (See Exhibit 2 for summary financial data.) Macy's competed with a variety of retailers including: other department stores (including Lord & Taylor), discount department stores (J.C. Penney and Sears), upscale department stores (Nordstrom, Saks Fifth Avenue, and Neiman Marcus), discount stores (Target and Walmart), specialty stores (Gap and J. Crew), and online retailers (Amazon)- According to the U.S. Commerce Department, department stores and discount department stores in the United States generated an estimated $170.4 billion in sales in 2014.* Women's clothing and footwear represented the largest product category sold at department stores, generating 23.5% of 2015 sales.$ Home goods and appliances contributed 16.4% of department store sales, drugs and cosmetics 14.1%, men's clothing and footwear 12.1%, and children's clothing and footwear 7.2%." Department store revenues were estimated to have declined 2.6% per annum over 2004-20147 and were projected to decline by 1.8% per annum through 2021. The decline in department store sales was driven by a number of key factors. First, online retailers were gaining market share at the expense of their bricks and mortar counterparts. For example, John Blackledge, a retail industry analyst at Cowen & Co, projected that apparel sales by Amazon, which totaled $15 billion in 2015, would grow to $52 billion by 2020, with Amazon surpassing Macy's market share by 2017." Second, consumer spending was shifting with an increase in spending on eating out at restaurants, travel, and other "experiences" at the expense of spending on "things" such as home goods and apparel." Third, specialty stores had been growing in popularity. Kevin Graff, a retail consultant, argued, "Let's be honest: department stores for the most part are being 'out-retailed' by the specialty retailers..You can typically find better selection, better prices (both higher and lower), better merchandising, better in-store experiences and much better service everywhere else. The concept of the middle of the road, 'middling' retailer just isn't viable anymore."11 The Challenge Macy's millennial business had a number of strengths: most notably, Macy's maintained a leading position with this group of consumers at higher price points (above $40) and in special occasion clothing, shoes, and beauty. 12 However a survey of millennial shoppers revealed that Macy's was not among their favorite places to shop that and Macy's was viewed as "formal" with complicated pricing and as somewhere their parents liked to shop.13 Macy's saw its market share among females aged 15-22 decline between 2009 and 2011, with even larger share declines among key demographic groups, notably female Hispanics. 14 Langenstein described Macy's issue as being a lack of focus, stating, "Our core customer was traditionally older, and that had really been our point of focus." Macy's CEO Terry Lundgren concurred, telling investors, "We have been remiss on the product side of the equation. .We haven't had the focus we've needed on this Millennial consumer product."15 Some believed that Macy's products were not keeping up with apparel fashion trends among millennial customers. Cassandra Jones, then group vice president for Macy's Impulse line, argued that Macy's clothes for customers in their 20s and 30s were dated, with a larger, boxier fit that was not in favor with that age group. And Dustin Jones, a senior vice president at Macy's, added, "There used to be a very large business in the 2Macy's Reinvents its Millennial Business 416-020 W millennia segment related to urban street wear and surf so we carried a tremendous amount of volume in those brands. And that business had deteriorated dramatically." Competition in the millennial apparel market had increased in recent years, and the way in which some millennial consumers shopped and thought about fashion had also changed. In particular, a trend referred to as "fast fashion" had become increasingly popular. Fast fashion involved taking high-end designs, seen in designer fashion shows and on celebrities, and reproducing them quickly and cheaply for sale to the mass market. A number of specialty retailers in the millennial space were focused on this trend. Macy's managers believed that its lack of resonance with the millennial customer presented not only a near- term challenge but also a serious long-term problem for the retailer. As Cassandra Jones explained, "You have to start identifying with a brand or store at an early age. You don't just start shopping there when you are 50 years old." We came up with a mission statement to make sure that the team was very focused on what had to be done. We said our mission is to bring the magic back to Macy's mstylelab and Impulse, both in stores and online, by offering a great mix of relevant fashion, compelling value, and an enticing mix of brands. We will do this by focusing on big ideas, and driving those ideas with great value and marketing while leveraging our space. Millennial Characteristics and Preferences The research performed by the Millennial team yielded a number of key findings. Dustin Jones explained, In many ways millennials are the same. They have the same occasions that we've always had. They go to school, they go to work, they work out, they get their first job, they get married. But the span of time between graduation and marriage is longer, which means their disposable income is greater. They're delaying having children and so that affects how you plan your children's business. The moments are still all the same, but the timing of all of them is different and the use of time within those moments is different. And understanding those differences is really important in terms of how you plan your business model. The team believed that millennial shoppers related differently to brands than older shoppers did. Dustin Jones summarized, "Basically millennials are more agnostic about brands, especially millennial females." Lefebvre elaborated, Second, millennials were very aware of current fashion trends. Josh Saterman, then VP and Millennial Fashion Director, described, "We established that the millennial consumer was less brand loyal, and more trend loyal, so they were more likely to say, "I want to buy a red t-shirt,' versus, "I want to buy a brand X t-shirt.' They were really looking for the trend and the newness." Third, millennials were heavily focused on perceived value. Apparel with a ticket price of over $50 was a tough sell, and coupons and promotions were important to this customer segment. George Minakakis, a retail industry consultant, explained, "A lot of millennials don't have full-time jobs-a lot of them are working two jobs and part time. They tend to be a little more frugal. It's driving a lot of change in the marketplace."23 Although as Langenstein explained, value was not always synonymous with low price. "We talk a lot now about how things have to have dual purpose. If something has a singular purpose, more than likely the customer won't find value in it. So it may not necessarily be about the actual ticket price, but about the relationship between the number of wearing occasions and that ticket price." Fourth, active wear/sports-related apparel was a more important category for millennial shoppers. The enactment of Title IX in 1972, which prohibited "discrimination on the basis of sex in any federally funded education program or activity,"24 resulted in a dramatic increase in participation in girls' sports in schools. As these women left school and entered the workplace, many continued to enjoy sports related activities such as yoga and running, and continued to favor active apparel. The trend of wearing active wear for non-sports related activities, referred to as "athleisure", had also grown in popularity and was a key driver of growth in spending in the apparel business. A 2015 Morgan Stanley report estimated that the global sports apparel and footwear market416-020 Macy's Reinvents its Millennial Business had grown 42% to $270 billion over the prior seven years. Fifth, many millennials were interested in promoting social causes, and saw shopping and fashion as ways to do this. A study by Nielsen showed that millennials were more responsive to "sustainability actions" than other generations, more likely to pay more for sustainable products and to check package labels.26 Brands such as TOMS, which donated one pair of shoes for every pair it sold, resonated with the millennial generation. Analysts referred to this practice of combining purchasing with social action as "cause-sumption." One survey showed that 81% of millennials expected companies to practice good citizenship.27 Finally, social media had an impact on millennial shopping habits, influencing their style preferences but also the way in which they shopped. Dustin Jones provided an example of this influence, Developing an Action Plan Based on its analysis of the market, the team believed that Macy's could improve its share among female millennium customers by: focusing more heavily on older millennials and building on its strengths in dressy and career wear and in better-quality products. Langenstein explained, "Macy's does well with weddings and formal wear. We are very good with career wear as a company. We thought this would be an opportunity for us to be able to continue showcase that." The team also believed there was opportunity for market share gains in the active wear segment. Overall, the team estimated that there was an opportunity for several hundred million dollars in incremental annual sales in female millennial apparel. Macy's goals were to become the #1 retailer for older millennials at better (ie., higher] price points and to stabilize and grow its business among younger millennials at higher price points. To achieve these objectives Macy's planned to segment its millennial apparel offerings into Impulse and mstylelab and within these two groupings to organize apparel around newly created "lifestyles."34 The Millennial team had explored various ways of segmenting the customer groups. Previous thinking on segmenting this population based on classifications such as geography had not been successful. The team began thinking about how to segment the group based on their lifestyles, Le., how they spent their time and their preferences, specifically in the areas of fashion and culture.35 Dustin Jones explained, Langenstein explained that this research led to the creation of four "lifestyles"-the Girl Next Door, the Free Style, the VIP, and the Style Setter. She added, "We looked at these different types and put activities with them: how they worked out and their music and so on and so forth. We did a series of photographs. And then we used some celebrities, because we felt it was easier to associate with names of people that they knew." (See Exhibit 6 for an overview of the four lifestyles.) To validate and size these style segmentations, the team conducted an online survey of 5,443 millennials (3,113 of whom were female). They presented survey participants with descriptions and photos of each style segment and asked for customer feedback. The Girl Next Door lifestyle was estimated to appeal to the largest market segment, 33% of the female millennial market. Active wear and casual/weekend wear would be the focus of the product in this lifestyle. About 25% of the female millennial population was believed to fall primarily in the Freestyle lifestyle; school and casual clothes were the focus of this segment. VIP was the smallest of the lifestyles, estimated to appeal to 21% of millennial shoppers, with a focus in dressy and going out clothes. Lefebvre explained that the VIP girl "wears heels and she's going to a club or to a dinner. She's very dressy." And Style Setter included a mix of dressy evening wear and casual weekend looks. This lifestyle was estimated to appeal to 22% of customers. The Millennial team noted that while some consumers were likely to shop primarily within a single lifestyle, others might be drawn to multiple lifestyles. For example, a customer may shop one lifestyle for work clothes but another for evening wear. The next step was to build out products around these lifestyles. Each lifestyle was paired with an "anchor brand."37 Additional brands were added around the anchor to bolster the product offering for each lifestyle.Macy's Reinventa its Millennial Business 416-020 Some of these brands already existed; others were found or created in-house. 5 Executing the Plan On October 18, 2012, Macy's management announced the roll-out of the first phase of its new strategy. Jeff Gennette stated, We have identified Millennials as a priority customer for Macy's, and we know that growing our relevance for this customer will start with product. Over this season and spring 2013, we will be introducing 13 new brands targeted to a cross-section of lifestyles, as well as growing those within our current portfolio that are already passion brands for this customer. This product investment and repositioning is the first phase of our Millennial strategy and will help strengthen Macy's credentials and credibility with this customer by offering them newness, fashion and innovation across product categories and lifestyles.38 This initial rollout was to occur over the next 15 months. In executing this strategy the team believed that speed was critical; speed in identifying trends, making product-based decisions; manufacturing and delivering products; and communicating with customers. Communication and collaboration between teams within Macy's were also viewed as key to the strategy's success. To ensure that collaboration took place the team put together a weekly calendar with time booked for regular team meetings and decision-making sessions. (See Exhibit 7 for this detailed schedule.) Marketing Research revealed that millennials were less impacted by traditional marketing tools and channels. Langenstein explained, Langenstein added that this generation was focused on messages and voices that were "authentic" and "straightforward." The millennial marketing strategy was broad, focusing on a range of marketing channels including print ads in fashion magazines, in-store events, outdoor marketing and social media advertising campaigns. Langenstein pointed out that social media offered a new opportunity for Macy's to gain valuable feedback from its customers. She explained, "The customer would tell us if she didn't like what we were doing. That's the other piece of it. She now had a platform to actually tell us what she was thinking. So it became an interesting two-way conversation, where once upon a time she didn't have that latitude." Different marketing strategies were utilized in different parts of the millennial business. For example, for a period of time Macy's was launching a new designer collaboration every three months. These were heavily supported with both traditional and digital marketing. Moffatt explained, "We did a lot of print media. We did a lot of outdoor marketing, subway takeovers and billboards. And we did some digital media marketing." (See Exhibit 11 for a millennial-focused Macy's advertisement.)