Last May, Macy's (NYSE: M) acquired STORY, a concept store based in Manhattan's Chelsea neighborhood -- a little more than a mile from Macy's Herald Square flagship store. At the time, Macy's described its new acquisition like this:
The deal was primarily an "acquihire" move. Macy's immediately installed STORY's founder, Rachel Shechtman, as its brand experience officer, with responsibilities focused around enhancing the in-store experience.
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Last week, Macy's made its first major move to cash in on the acquisition, opening STORY boutiques in 36 of its full-line stores. However, Nordstrom's (NYSE: JWN) recent experience shows that even innovative ideas like this probably won't be able to reinvigorate traffic to most mall-based Macy's stores.
The STORY concept expands
Macy's announced last Wednesday that it had opened STORY boutiques in 36 locations. These include many of its best stores, including its flagships in Manhattan, Chicago, and San Francisco; downtown stores in Brooklyn, Philadelphia, and Washington, D.C.; and outposts in some of the top malls around the country. The boutiques average 1,500 square feet, but the STORY section at Macy's iconic Manhattan flagship store is about five times that size and has a bigger merchandise assortment.
Shechtman describes the STORY customer experience as "a real life version of scrolling through Instagram." The goal is to inspire people and get them excited about products that they hadn't even thought about buying prior to visiting the store.
"Color" is the first theme to be featured at Macy's in-store STORY boutiques. Key vendors include MAC Cosmetics -- with a make-your-own palette offering -- and Crayola, which will run various workshops covering everything from new art project ideas to customizing apparel. There will also be hundreds of products from dozens of small businesses, with a focus on gifting.
The "color" installation will continue at Macy's STORY boutiques through late June, after which it will be replaced by a new theme.
One of several traffic-driving initiatives
The STORY concept has a very clear goal: driving traffic to Macy's stores through a focus on experiences and a rotating theme. This is just one of several initiatives that Macy's has cooked up in recent years in a bid to reverse store traffic declines, which have weighed on sales.
The most notable of these has been the introduction of Macy's Backstage off-price shops inside hundreds of Macy's stores. Like other off-price stores, Macy's Backstage cultivates a "treasure hunt" experience with frequent deliveries of new merchandise and deep discounts off list prices. That encourages customers to come back repeatedly.
Additionally, as my Fool.com colleague Leo Sun recently noted, Macy's has already experimented with pop-up boutiques featuring a rotating assortment of merchandise, via a concept called The Market @ Macy's that was introduced in certain stores last year.
The store locations are the real problem
The rollout of STORY to dozens of Macy's locations shows that the company is starting to move faster to shore up its business. And adding unique experiences to its stores can only help sales. However, Macy's mall-based store locations are a major impediment to engineering an in-store sales revival.
Indeed, Nordstrom has a similar rotating-theme concept shop in nine full-line stores, called Pop-In@Nordstrom, curated by Olivia Kim, the retailer's VP of creative projects. (The Pop-In shops' merchandise is also available through Nordstrom.com.)
The Pop-In shops were created more than five years ago and have generated plenty of buzz in recent years. Still, Nordstrom domestic full-line stores delivered comp sales declines of 1.1%, 6.4%, and 4.2% in the 2015, 2016, and 2017 fiscal years, respectively. By fiscal 2017, sales per square foot in domestic full-line stores had fallen to $337, compared to $385 five years earlier. (Nordstrom stopped reporting these metrics in fiscal 2018.) These declines are particularly notable because Nordstrom stores tend to be in the best malls.
The original STORY boutique in Chelsea is about one block from the popular "High Line" linear park and a few blocks from the Chelsea Piers sports/entertainment complex. It's also just blocks from the busy Chelsea Market food hall. In short, it sits in the middle of a vibrant neighborhood with lots of "walk-by" traffic. It's telling that Shechtman did not choose to launch STORY in a traditional mall.
Thus, while the innovative STORY retail concept drives lots of traffic at its original location, it is much less likely to do so in a mall context. How many people will make an extra trip to the mall just to see what's being offered at STORY that month? The best-case scenario may be that STORY draws additional traffic to Macy's from people who were already going to the mall.
Macy's CEO Jeff Gennette hopes that STORY will induce customers "to come back again and again throughout the year." Perhaps that will be true at a handful of the company's best stores in naturally high-traffic locations. But even if Macy's were to roll out STORY to much more of its store base in the future, it's unlikely that this would drive a meaningful rebound in traffic and sales trends.
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