The Marketplace Boom   //   February 9, 2024

After rejecting buyout offer, Macy’s is rolling out more private brands to boost its business

Nearly three weeks after rejecting a $5.8 billion buyout offer, Macy’s is putting faith in its private brands to boost its bottom line.

On Thursday, the department store rolled out State of Day, its second of four private brands it plans to launch by the end of 2025. It debuted the first — an accessory, clothing and shoe brand called On 34th — last summer. State of Day has fewer items than On 34th, with 165 SKUs instead of 750, and includes loungewear and sleepwear like robes, tanks, tees, pajamas, bralettes, pants and nightgowns.

Macy’s has spent years building up its private brands portfolio, which boasts more than 25 brands including I.N.C. and Charter Club. Before the pandemic, private brands accounted for as much as 20% of Macy’s fiscal year sales, according to Macy’s. However, that number dipped to 16% in 2022, alongside other shaky financial results. While Macy’s most recent earnings beat expectations, Macy’s, like other department stores, has dealt with slipping sales for multiple quarters in a row as customers pulled back on discretionary purchases. Macy’s second-quarter losses totaled $22 million, and its net sales for the third quarter dropped 7% year-over-year.

Still, Macy’s turned down an offer to take the company private in January, signaling that it remains confident in its ability to turn the business around. Investing in private brands, which allows Macy’s to keep production in-house and hold onto more profits, is key to this strategy, executives have said. Macy’s now-former CEO Jeff Gennette was a big champion of private brands — in 2020, he said he wanted them to account for 25% of Macy’s sales by 2025 — and Macy’s new CEO Tony Spring is similarly bullish. Speaking on an earnings call in November, he said he was a “huge believer in private brands.”

Macy’s private-brand plan

Macy’s private-brand strategy involves three components: bringing on new private brands, reworking old ones or sunsetting ones that no longer resonate with customers. It has already relaunched the brands I.N.C. and Bar III, with Style and Co and Charter Club to make their re-debut shortly.

Already, Macy’s is seeing “a lot of positive green shoots in the brands that we’ve touched so far,” Emily Erusha-Hilleque, svp of private brands at Macy’s, told Modern Retail. “Our customer is voting for special pieces and is taking those pieces and pairing them with core basics,” she explained. “That’s kind of the magic sauce that we intended to build into the strategy, and we’re starting to see that in the results. So, that gives us a lot of confidence as we go forward.”

Macy’s plans to roll out more private brands in the coming months, including one in the men’s space and one in the kids’ space, as well as “a lot of newness in the home space starting in 2025,” Erusha-Hilleque teased. “We are effectively building a world for this adulting and primetime consumer,” she said.

Macy’s newest private brand, State of Day, includes what Macy’s refers to as restwear, innerwear and sleepwear and targets shoppers between the ages of 30 and 50. The collection retails for $8.50 to $79.50 and can be purchased online, in Macy’s U.S. stores and on Macy’s mobile app.

Two years ago, Macy’s met with shoppers and conducted more than 100,000 online surveys to get a better idea of what people wanted out of a private brand. Many customers that Macy’s spoke with mentioned their at-home routines, Erusha-Hilleque said. “That was not what we were trying to address with On 34th, but it was the impetus for us to start to go, ‘Okay, we actually need to learn more about what the modern woman is doing in her home,'” she added.

To build State of Day, Macy’s thus surveyed an additional 25,000 women about their sleepwear and loungewear needs. It concluded that customers wanted comfortable, breathable items they could wear at home, but also in the car or while running errands. State of Day clothes are designed to mix and match, with the same colors offered across different fabric choices and silhouettes. What’s more, since nearly every person told Macy’s they wanted pockets, the majority of items have pockets.

With basics like tanks, lounge pants and bodysuits, State of Day’s lineup aims to complement people’s most-loved pieces, Erusha-Hilleque explained. “We learned a lot in On 34th about this idea of versatility, something that has that kind of innate familiarity, but has that modern twist that makes it feel fresh and new,” she said. “One of the things that we’ve talked to customers about is, this product needs to pair back to something that they love… but, it needs to be paired with some new kind of luxe item that takes her from sunup to sundown.”

The payoff of private brands

Macy’s isn’t alone in betting on private brands. Many retailers are putting more money towards private brands to woo shoppers interested in trading down for items like groceries and home goods. Private brands tend to have a lower price point than national CPG brands, many of which have hiked prices to keep pace with inflation.

Still, private label has had ups and downs. Target has more than 45 private labels, 10 of which were worth $1 billion in 2021, a spokesperson told Retail Dive. At the same time, Amazon started cutting back its private-label business in 2022 due to poor sales, per the Wall Street Journal. Whether a private label succeeds can depend on many factors, including timing, quantity and quality of goods and supply chain, Carol Spieckerman, president of Spieckerman Retail, told Modern Retail.

Yet, many retailers — and customers — continue to put faith in private labels. In the U.S., private-label sales rose 8.2% to $108 billion during the first half of 2023, according to Circana data. In 2019, some 9% of department stores’ total sales, on average, came from private labels, but that jumped to 16% in 2022, according to a study by the International Association of Department Stores.

When it comes to Macy’s, “rebalancing its brand offerings is a big step in the right direction,” Spieckerman said. “National brands have become ubiquitous,” she said, but private brands can help a retailer “mitigate dips in discretionary spending, plump up profits and differentiate in the market.”

Ultimately, while Macy’s has “confidence” in its private brands, it is also being careful in its approach, Spring shared in November. “We love the exclusivity and the natural margin that comes from private brands, but we want to make sure we’re always buying the best brands that are available, and we want to leave ourselves that flexibility to make sure that we’re adding the appropriate market brands, as well,” he said.