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Macy's reinvents its loyalty program to win more shoppers

  • Macy's is changing its Star Rewards program.
  • Categories once known as Premier Elite, Elite and Preferred will become Platinum, Gold and Silver beginning next month.
  • The department store chain is hoping to return to same-store sales growth, with new CEO Jeff Gennette at the helm.

Macy's is betting that a fresh loyalty program will lure more shoppers to its stores.

The department store chain is rolling out a reinvented Star Rewards program, where shoppers can accumulate discounts and offers like free shipping and priority customer service based on how much they spend at Macy's every year.

Categories once known as Premier Elite, Elite and Preferred will become Platinum, Gold and Silver — a change Macy's hopes will simplify its offering as it's been ditching complicated promotions. The revamped program will be available to Macy's credit card holders beginning next month.

"It is positive that a confusing program with a never-ending array of deals and offers has been simplified," Neil Saunders, managing director at GlobalData Retail, said in an interview.

"As part of a bigger program of changes, it has a chance to help Macy's gain some ground," Saunders added.

This marks one of Macy's Chief Executive Jeff Gennette's first orders of business since he assumed the position from Terry Lundgren in May. Gennette has told analysts and investors he aims to do less discounting and focus on Macy's private-label lines, among other initiates.

When Macy's reported fiscal second-quarter earnings in August, Gennette said in prepared remarks: "We are excited about plans for fall, including the launch of a new loyalty program and the new marketing strategy, which we anticipate will further improve our sales trend in the back half of the year. ... There is still work ahead of us."

Loyal customers' purchases feed directly into Macy's bottom line. The retailer makes nearly 50 percent of its $25 billion in annual sales from the top 10 percent of its customers, or those who have been considered "Platinum."

Outlining Star Rewards on Wednesday marks Macy's latest step in attempting to return to same-store sales growth, using its top customers to start.

Here's what the updated program will look like:

  • Platinum – Customers who spend $1,200 or more annually with their Macy's credit card will receive 25 percent off any day they choose, through Star Pass coupons, also receiving free shipping on any purchase with no minimum spend. Customers will earn 5 percent back in rewards on every purchase. Once shoppers spend $200, they'll be issued $10 in Star Money that can be used immediately. Platinum members will also receive an exclusive, platinum-colored Macy's credit card.
  • Gold – Customers who spend between $500 to $1,199 annually with their Macy's credit card will receive 25 percent off any day they choose, through Star Pass coupons, also receiving free shipping on any purchase with no minimum spend.
  • Silver – Customers who spend up to $499 annually with their Macy's credit card will receive 25 percent off any day they choose, through Star Pass coupons.

Macy's said it will continue to add to its Star Rewards program through 2018. The retailer plans to offer "experiential benefits," where shoppers have a chance to win access to Macy's-exclusive experiences.

GlobalData Retail's Saunders said that unless Macy's continues to innovate with Star Rewards, the offering "will work for a short time but will eventually fall flat."

Having an attractive loyalty program as a retailer today is becoming more of a necessity, but few companies appear to have mastered the strategy.

"Macy's customers have high expectations for their shopping experience, and earning and keeping their loyalty is now more important than ever," Gennette said in a statement.

Amazon with its Prime membership, beauty retailers Ulta and Sephora with their loyal followings, and Target with a recently updated Cartwheel Perks app offer a few examples of companies staying ahead of their peers.

A loyalty program goes wrong when it's generic, and when everyone in the program is treated the same, Patrick Reynolds, chief marketing officer at customer engagement platform SessionM, told CNBC.

"People don't want it to be transactional, they want to have a relationship," Reynolds said. "There's a lot of room for growth. ... People are doing an increasingly better job, as two years ago loyalty was just a tactic."

WATCH: Macy's CEO talks about the retailer's turnaround plans