With nothing more than a passing glance, it looks like a throwaway announcement, or a courtesy notification meant to be read and forgotten: Macy's (M 1.44%) is hiring a new senior vice president. But it's probably got dozens of them, so no biggie.
There's something about Monday's news release, however, that arguably means more than it seems on the surface. This new employee is charged with steering Macy's private-label effort, which was a fresh priority for the department store chain before the COVID-19 pandemic had most of the company's brick-and-mortar retailing on its heels. Now it's coming back into focus at a time when house brands are more important than ever.
Better still, Macy's newest executive was recruited away from the competitor that arguably does private label better than any other retailer.
Image source: Getty Images.
Macy's gets back to its pre-pandemic work
Macy's newest senior vice president is Emily Erusha-Hilleque. Among other things, she's charged with leading the company's private brands strategy and design team, which handles in-house apparel as well as home goods.
The retailer would have been hard-pressed to find a more relevantly experienced recruit. Erusha-Hilleque is coming from Target, which operates a few dozen of its own brands ranging from children's clothing to kitchen utensils to home decor and more. Target's private-label business accounted for $30 billion of last year's total top line of $106 billion. This much higher-margin revenue (house brands are typically more profitable for a retailer than national brands) is a big reason Target boasts an above-industry-average profit margin rate of 6.5%. For perspective, rival Walmart only clears about 2.4 cents for every dollar's worth of sales it generates.
Now Macy's is looking to cash in on the potential of its so-called owned brands.
Actually, it was looking to do so two years ago. As part of its Polaris revitalization plan unveiled in February 2020, the department store chain set a goal of building four different private labels into billion-dollar franchises. If all went as hoped, house brands would grow from around 20% of its business to 25% of the company's total revenue by 2025.
Nothing went as hoped, of course. The coronavirus contagion wrecked everything for a couple of years.
But now, with the pandemic dust settling and its business on the mend, Macy's is getting back to its pre-pandemic plans.
More than just something else to offer shoppers
It remains to be seen just how much (if any) fiscal upside the store chain will be able to glean from this shift in its mix of merchandise. But don't dismiss the potential upside.
While a 5% difference in how the same amount of revenue is produced wouldn't mean much for most companies, in the low-margin world of retail, even the smallest tweaks can make a big difference in profit margins. Again, private label is a big reason Target is more profitable than its peers even though national-brand goods still drive the majority of its sales.
There's also a chance that one of its house brands turns into more than the means of collecting higher-margin revenue that merely displaces sales of lower-margin national brands. A well-managed private label may become a draw in and of itself. Target's kids' apparel label Cat & Jack, for instance, is a value-fashion hit that many parents may not even realize they're only buying at Target stores.
Then there's the potential X factor: the prospect that unyielding inflation prods consumers into making fewer purchases of designer labels and more purchases of more affordable store-brand clothing.
Whatever Macy's has in mind for Emily Erusha-Hilleque and its private-label business, current and would-be shareholders will want to keep this initiative on their radars.
