As consumers pull back on discretionary purchases, Macy’s leans into higher-margin private labels

The news: Macy’s plans to launch its On 34th private label brand this Thursday.

• The new women’s apparel and accessories collection, which will feature what the retailer calls “classics made for modern life,” is the first of four private label brands that the retailer aims to launch by the end of next year.

The context: Boosting private labels' share of overall sales is a key priority for Macy’s. The retailer is in the midst of a three-year process that involves adding new brands, refreshing some existing ones, and replacing others to ensure they appeal to consumers across different life stages, style preferences, and price points.

• Macy’s is “looking at our portfolio to identify gaps that we were not serving, whether it be from a customer profile standpoint or from an aesthetic standpoint,” Emily Erusha-Hilleque, senior vice president of private brands at Macy’s, told Modern Retail.
• At the end of fiscal 2022, Macy’s had a stable of two dozen private label brands that accounted for about 16% of its sales. It aims to grow that share to at least 20%—if not the 25% that CEO Jeff Gennette said he wanted to reach by 2025 back in 2020.

The private-label push is part of the company’s long-term growth plan. However, it has taken on increased importance as consumers (and Macy’s customers in particular) have pulled back on discretionary spending.

• The retailer expects comparable-owned and licensed sales to drop 6% to 7.5% this year.

The landscape: Given Macy’s softening sales, higher-margin private labels can help bolster the retailer’s bottom line, drive customer loyalty, and differentiate its inventory from its competition.

• It’s opportune timing for the push, given that consumers are pinching pennies. Thirty-seven percent of shoppers purchase private-label products to save money, per Numerator.
• Consumers’ expectations have changed. People no longer think of private label products as inexpensive knockoffs but as hip, trendy products thanks to the efforts of retailers like Target, which has more than 45 private label brands that generated more than $30 billion in sales last year and grew faster than overall sales, per The Seattle Times.

While Amazon recently announced it was shuttering dozens of its house brands, that reflects its own unique circumstances. The retail giant is in the midst of a massive cost-cutting push as a means of responding to the US Federal Trade Commission’s investigation of the company’s business practices.

The big takeaway: While there’s a clear opportunity for Macy’s to lean into private labels, execution is critical.

• It needs to deliver on-point designs, or else it can be left with a glut of goods that can be difficult to clear.