Macy's

Recasting Retail as a Relationship: Designing the Future of Department Stores for Macy’s

Introduction

In the ever-evolving landscape of retail, few names carry the weight and history of Macy's. For over a century, the iconic department store has been a cornerstone of American shopping culture. But as the digital revolution swept through the industry, even this retail giant found itself at a crossroads. The challenges were stark: UBS reports that the number of U.S. department stores has declined by 60% since 2000, from 8,600 to around 3,440 in 2022. Facing this industry-wide contraction, along with challenges from e-commerce disruptors, changing consumer behaviors, and the burden of an extensive physical footprint, Macy's needed more than incremental change—it needed a complete reimagining of its future.

In a partnership that would span nearly two years, we embarked on an ambitious journey to help Macy's bridge the gap between its storied past and a digital-first future.

The Challenge: A Retail Giant at a Crossroads

As Kei partner Paul Cloutier recalls, "Macy's was facing the obvious stuff. They had been this dominant force in retail for over 100 years. They had an incredible retail footprint, physical retail footprint, and a huge amount of physical real estate that they sort of owned or managed, and the cost of that was ballooning at a time when suddenly more and more people were shopping online."

The challenges were multifaceted:

Despite these challenges, Macy's leadership recognized a unique opportunity. As Cloutier explains, "There was this belief that as a department store, they still had something special, some relevance, that they could provide value to you at different points in your life."

The opportunity lay in reimagining Macy's role in customers' lives—from being a place to buy things to becoming a trusted partner throughout various life stages and experiences.

A Hybrid Inside/Outside Approach

Recognizing the complexity of the challenge, this project required a new type of approach that got us past the traditional consultancy model of external experts. Rather than parachuting in with pre-baked solutions, We were embedded as a team within Macy's, creating a hybrid internal-external team that could navigate the organization's complexities while maintaining an outsider's perspective.

The project unfolded in several key phases:

Immersive Discovery and Innovation Lab

We began by establishing a nimble, cross-functional team that would serve as an innovation hub within Macy's. This team, initially consisting of just two team members, set up shop in an empty Macy's-owned building in downtown San Francisco.

The first six months were dedicated to intensive collaboration with various Macy's teams. As Cloutier describes, "We would build teams. So we're like, alright, let's go get people from the loyalty team. And we're going to spend basically a week to two weeks with four people from the loyalty team, and we're going to hole up in this conference room, and we're going to talk about all the challenges that you're facing, what you've done in the past, what failed in the past. And then we're going to spend some of that time just thinking, like, what if? What could it be?"

This process was repeated across departments, including fashion, cosmetics, menswear, housewares, wedding registry, and more. The Kei team also engaged with operational teams like e-commerce, wayfinding, and corporate strategy.

Key elements of this phase included:

Concept Development and Visualization (6-9 months)

With the strategy in place, Kei shifted focus to bringing ideas to life. This phase involved:

Throughout this process, we maintained a delicate balance between pushing for innovation and respecting the expertise of Macy's internal teams. As Cloutier notes, "It was a constant effort to build these relationships because we were effectively operating as consultants, but we were operating internally."

Key Insights

A core focus of the project was creating a seamless experience across all channels. As Doug Stephens, retail industry futurist, stated:

Lessons Learned

The Macy's project offered several valuable insights that continue to inform our approach:

Looking Ahead

While Macy's has faced significant challenges in the years since this project, including financial pressures and market disruptions, the work done with Kei continues to influence the company's approach to innovation and customer experience.

As retail continues to evolve, the lessons from this collaboration remain relevant. The need for holistic, customer-centric thinking, rapid innovation, and seamless integration of digital and physical experiences has only grown more acute in the intervening years.

The Macy's project stands as a testament to the power of Kei's approach—com-bining deep strategic thinking with hands-on execution, all while navigating the complex realities of a large, established organization. As retail and other industries continue to face disruptive change, the ability to reimagine entire systems while delivering tangible results will only become more valuable.

In reflection, Cloutier encapsulates the project's lasting impact: "It was a very interesting project. Obviously, tons of wildly useful lessons learned about how you engage with internal teams, how you build something where you're not just dropping some agency's bullshit on top of an internal team that's been working hard on something for a long time... The idea of rapid validation was incredibly core to this. And really meaningful to, like, come up with an idea and go talk to actual customers downstairs was incredible."

As Macy's and the retail industry at large continue to evolve, the innovative spirit and systems-level thinking exemplified in this project serve as a blueprint for how established companies can reimagine themselves for a rapidly changing future.