How does a department store company grow when department stores, as a category, are not doing so well? They have to go where customers are, and in general where customers are headed is “downmarket.” Looking at the success that its competitors have had with stores aimed at “aspirational shoppers” with thinner wallets, Macy’s is expanding into the discount brand-name model that you can find at chains like Nordstrom Rack and Off Fifth.

Sure, you can boost profitability by cutting costs, which Macy’s has tried to do in recent years, but it also makes sense for them to go where consumers are. Where we are is “not shopping at department stores.” Instead, we’re combing racks at stores like the department store-affiliated outlets, as well as closeout fashion chains like TJ Maxx, Marshalls, Burlington Coat Factory, and other regional discounters.

Macy’s has announced that it’s spending $1.2 billion on expanding in two directions: internationally and down the price scale. While most off-price retailers have items manufactured just for them, Macy’s hasn’t said yet that’s their plan for this new venture: right now, their plans are to sell past season fashions as well as store returns and merchandise with slight defects.

For Macy’s, going downmarket looks like the way ahead [Reuters]

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