Kohl's, Macy's turn to pop-up shops and Instagram-worthy displays to try to win the holidays

Key Points
  • Kohl's will have a holiday pop-up shop in New York this weekend, while Macy's Story spaces have a fresh holiday theme.
  • Retailers, in a bid to win the season, are trying to offer consumers something they can't find on the internet.
  • Both Macy's and Kohl's shares have plummeted this year.
Macy's at the end of 2019 turned all of its Story locations to have a holiday-focused theme, selling knick-knacks and giftable items.
Source: STORY, Macy's

This weekend you can visit Kohl's first pop-up shop in New York and snap a virtual photo with fashion designer Vera Wang on the runway.

Or you can pop into Macy's at Herald Square and stroll through Story – a space the department store chain has transformed to make shoppers feel like they're in some sort of mashup between a winter wonderland and cozy ski lodge.

Both of these retailers know the 2019 holiday season won't be an easy one to win. Especially given there are six fewer days in between Thanksgiving and Christmas this year compared with 2018. And more and more shoppers are turning to the internet to buy things like apparel. The pressure is on, and mounting.

More will shop online than in-store this holiday season: Retail analyst
More will shop online than in-store this holiday season: Retail analyst

And so Kohl's and Macy's, among other retailers, hope to offer consumers something in their bricks-and-mortar stores they can't find online.

"We have a lot of experimentation [going on]," Kohl's CEO Michelle Gass said during an interview on Wednesday at a press event held at Kohl's new pop-up shop.

The temporary space in SoHo will be open to the public from Thursday through Sunday, and will highlight recent brand launches with fashion icons Mary-Kate and Ashley Olsen and celebrity designer Jason Wu, among others. Kohl's also started its pre-Black Friday deals rollout last Friday.

"Because it's a shorter holiday, we had to come right out of the gates," Gass said, echoing what executives at Target and Walmart have already said about the time crunch this year.

This also marks the first holiday season where Kohl's will be accepting Amazon returns at all of its more than 1,150 U.S. shops. The two companies started working together in 2017. A smaller test turned into a nationwide rollout this summer. Kohl's hopes it will be a major traffic driver.

"We are very pleased with how this has launched," Gass told reporters. She called the tie-up with Amazon "economically accretive," but didn't quantify how the initiative has performed. "[I'm] excited to see the traffic we are getting. ... We are getting new customers."

Macy's is also hoping to find new customers, thanks to a business known as Story.

In 2018, Macy's bought what at the time was one store in New York, which curated merchandise around rotating themes. Then, in April, Macy's announced it would be adding 1,500-square-foot Story shops to 36 of its stores.

"It's not just about [making] sales," Story founder Rachel Shechtman said, at the unveiling of its new holiday theme. "It's a combination of customer acquisition ... how can we increase visits, and other things."

Shechtman said Story has gathered "tens and tens of thousands" of email addresses since the nationwide rollout. And 80% of those people are new to Macy's, according to Shechtman. "Now think about how qualified they are," to go on and buy something from Macy's, she said.

Both Cincinnati-based Macy's and Menomonee Falls, Wisconsin-based Kohl's are crawling out of tough quarters, too, making this holiday season an important one for them to prove they can right the ship.

In August, Macy's reported fiscal second-quarter earnings way below analysts' expectations, as heavy markdowns used during the spring season to clear unsold merchandise weighed on profits. The company also at the time trimmed its annual outlook.

Kohl's latest quarterly sales also missed the mark, and sales at stores open for at least 12 months dropped more than analysts were anticipating. However, Gass had said trends started to improve as the quarter went on.

The perception of department store operators has increasingly been tainted, with Sears and Barneys New York going bankrupt, Hudson's Bay selling Lord & Taylor to clothing rental business Le Tote, and embattled J.C. Penney trying to improve its capital structure and get back to sales growth.

One New York pop-up shop likely won't move the needle for Kohl's. And Macy's has hundreds of stores without Story locations inside. But executives say these initiatives are part of bigger strategies to stay fresh and reach younger customers.

Kohl's, which has a market cap of about $8.7 billion, has watched its stock fall more than 18% this year. Macy's shares have tumbled more than 46%, bringing Macy's market cap to roughly $5 billion. The S&P 500 Retail ETF (XRT) is up a little more than 9% this year.

More will shop online than in-store this holiday season: Retail analyst
More will shop online than in-store this holiday season: Retail analyst