In February, Macy’s announced it would close 150 underperforming stores by 2026, falling in line with other major department stores that have consolidated their fleets in recent years. The closures have included the Macy’s store at the Ballston Quarter shopping center in Arlington, Virginia, where much of the merchandise was offered at a steep discount as it prepared to shutter in April. But there was one major exception: Many of the beauty products and all of the fragrances remained available at full price.
Department stores are at a transition point. After years of ups and downs in retail post-Covid, these retail giants are contending with how to succeed in the new normal. Macy’s is no exception. When Tony Spring assumed the role of CEO of Macy’s, Inc. in February, he announced that Macy’s would pursue luxury as a main pillar moving forward. And fragrance, along with beauty more broadly, is a particularly useful sector to court luxury consumers at a large scale.
“Fragrance is that attainable, end piece of luxury,” said Nicolette Bosco, vp and dmm of beauty at Macy’s. “[Fragrance] is a lot more attainable than, let’s say, a $5,000 something else from the brand.”
Department stores were once the default — or perhaps only — place to buy fragrance for many consumers. But in today’s more diversified market, consumers can purchase from numerous channels, including online or directly from the brands. “It’s rare for me to be working with brands these days and see Neiman, Saks or Macy’s be 80% of their revenue,” said Jon Tenan, a managing director in Baird’s global consumer investment banking group who focuses on beauty and wellness. “But if you see it at 5-15% [of revenue], you think, ‘OK, that’s an interesting brand halo and acquisition channel to continue to scale customers.’”
Macy’s faces especially stiff competition at the mass end of the market. Those retailers have upped their fragrance offerings in recent years, with Target introducing its private label perfume line Fine’ry in 2023, and Ulta adding new brands like Noyz and Snif to its offerings in recent months. Investing in luxury, meanwhile, allows a retailer like Macy’s to show the value in the department store experience.
“The competitive field [in mass] is higher, but the want for discovery and need for exploration is probably a little lower than it is as you move upstream,” said Tenan.
Macy’s already carries high-end fragrance lines like Creed and Tom Ford at select stores, but the retailer is investing yet more dedicated retail space to that luxury beauty buyer. In December of last year, Macy’s unveiled the first in a series of luxury beauty outposts at the Dadeland Mall outside of Miami. Perhaps learning from the success of Bluemercury, the luxury beauty chain Macy’s acquired in 2015, the new Dadeland store offers spa services and puts a spotlight on products from high-end and trending brands, including fragrances from the likes of Acqua di Parma and Cartier. According to Bosco, Macy’s plans to introduce this luxury beauty concept to 42 stores by the end of 2024.
“In probably the last three years coming out of Covid, we have been highly focused on elevating and bringing this luxury experience of beauty to our consumers,” she said.
Offering these kinds of high-quality touchpoints is key to creating an elevated shopping experience and has proven successful for Bluemercury. Comparable sales rose 4.3% at Bluemercury for the first quarter of 2024, while at Macy’s, comparable sales declined 0.4% in the same period. Macy’s has also announced plans to open new Bluemercury stores, along with new small-format Macy’s stores similar to the Bloomie’s stores operated by Bloomingdales, which is also owned by Macy’s, Inc.
Operating those stores requires more than just retail space, however. According to data from beauty retail agency Headkount, beauty shoppers spend two times more when they have a positive in-store experience. And crucial to creating that experience is knowledgeable staff.
“With retail customers’ expectations at an all-time high, and numerous platforms available, they won’t settle for mediocrity. The stakes are even higher for luxury beauty,” said Paula Floyd, CEO and founder of Headkount. “The Bureau of Labor Statistics reports a 60% retail employee turnover rate. This signals that hiring and retaining talent is costly, which will be a challenge for Macy’s.”
A higher-end store model like the one at Miami’s Dadeland can only be scaled up so much before it risks losing its exclusivity, said Tenan. But there are other avenues to create an immersive customer experience without committing to a permanent store. Taking a similar strategy to the likes of Rhode and Chanel, Macy’s has also invested in temporary pop-ups, with many focused on fragrance.
“Where we’ve evolved is in bringing collaborations, and what I like to call ‘retailtainment’ — my CEO calls it retail theater. And we have that ability because we have the space to do those different types of collaborations,” said Bosco. “I do see this as part of our forward growth of what we will be bringing to the consumer.”
One example of that retail theater was the annual Flower Show held this spring, where Macy’s installed thousands of flowers at its Herald Square location to highlight Dior’s Miss Dior perfume. The Herald Square store has also welcomed celebrities like Katy Perry and Yankees star Aaron Judge to promote fragrances from Dolce & Gabbana and Ralph Lauren, respectively.
But the department store landscape is changing once again. Earlier this month, luxury department store Saks Fifth Avenue announced it would acquire fellow department store giant Neiman Marcus in a $2.6 billion deal. That gives those entities more power to negotiate with luxury brands and puts the pressure on competitors like Macy’s to offer brands a reason to come to them. And in a more seismic shift, Amazon will also take part in the deal, likely giving Saks and Neiman access to Amazon’s top-of-the-line fulfillment services, which are a challenge for any retailer to compete with. “At the end of the day, Amazon is just the greatest logistics company around,” said Tenan. “They get things where they need to be everywhere all the time.”
But even with Amazon increasing its presence in the beauty sphere — onboarding Kiehl’s and Clinique to its storefront in recent months — that doesn’t mean retailers like department stores have nothing to offer. The tactile experience of beauty buying is still a reason to get consumers shopping in person. And even Amazon, for now, still can’t deliver a perfume spray through a screen.
