Macy’s Inc. is best known for fashion, home furnishings and kitchen appliances. But a new partnership with Best Buy Co. Inc. unveiled Tuesday will bring the department store chain a line of consumer electronics, a category that is likely to attract a new breed of shopper.
One reason second-quarter sales were down 2.6% from the previous year is that consumers are “gravitating” to things outside of the merchandise categories that Macy’s M, -0.03% specializes in, Karen Hoguet, chief financial officer, said on the company’s earnings call last month. One of the categories of greater consumer interest is electronics.
“[W]e are trying to bring products into our assortment that fit that need and also still exploring opportunities vis-à-vis license partners,” Hoguet said in response to a question about the options for bringing in items that better draw consumer dollars.
Macy’s has quickly settled on a partner. The deal with Best Buy BBY, -0.51% will test 300-square-foot consumer electronics departments in 10 Macy’s department store locations, starting November 2015. The locations have not yet been determined. The stores will sell Samsung 005930, -1.13% smartphones and tablets, among other items. The test will continue through the holidays and into early 2016 at which point the retailers will decide their next step, according to a statement from Macy’s president Jeff Gennette.
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It has been “a number of years” since Macy’s has carried any sort of consumer electronics, said spokesman Jim Sluzewski. However, the retailer is no stranger to licensed departments. Sunglass Hut has outlets in Macy’s stores nationwide, and the department store has deals with other companies, including Finish LineFINL, +0.35% an athletic wear and accessories company. In June, Macy’s signed a deal with Men’s Wearhouse MW, +0.07% to provide tuxedo rentals in 300 stores. That service will start in the fall in New Jersey.
With Best Buy, Macy’s has a partner with an established store-within-a-store business strategy. On its second-quarter earnings call on August 25, Best Buy Chief Executive Hubert Joly talked about adding more Pacific Kitchen & Home stores-within-a-store that sell appliances, Samsung and Sony home theater stores, Magnolia Design Center stores, and Microsoft Windows and Apple stores-within-stores.
Joly credited the Pacific Kitchen & Home stores with improving results in the appliance sector, for example. Both the company’s profit and sales beat second-quarter expectations.
By signing a deal with Best Buy and any of its other licensing partners, Macy’s is bringing in companies with expertise and access to merchandise, said Sluzewski. The retailer will determine the success of the test based on sales and customer response.
“In most cases, a customer won’t recognize that it’s a licensed department,” said Sluzewski. “[But it] does give them another reason to come to our store.”
Macy’s stock is down 10.6% in the year to date, while Best Buy stock has declined 4.2%. The S&P 500 SPX, +0.21% is down about 4.6%.
Macy’s stock was trading at $59.13 in Tuesday afternoon trade, up 1.2%. And Best Buy was up almost 2.6% to $37.56 Tuesday afternoon.
Date: September 8, 2015