M Macys Inc

By Suzanne Kapner 

Macy's Inc. executives have lamented for months that consumers are spending money on things the department store chain doesn't sell such as food, travel and electronic gadgets. Now, Macy's is attempting to strike back.

The retailer announced Tuesday that Best Buy Co. will open 10 shops in Macy's stores in November. The 300-square-foot shops will be staffed by Best Buy employees and will sell Samsung Electronics Co. smartphones, tablets and smartwatches as well as speakers, headphones and accessories from Samsung and other brands. Apple Inc. products such as the iPhone or iPad aren't part of the agreement.

The arrangement brings together two brands that are struggling to stay relevant amid changing shopper behavior. After growing strongly for years, Macy's sales have slipped as consumers have come to favor gadgets and experiences over the typical department store fare of apparel and home furnishings.

"We are seeing customers gravitating to restaurants, recreational services, health care and electronics, rather than to traditional general merchandise, apparel and furnishing categories," Karen Hoguet, Macy's chief financial officer, told analysts last month on a conference call to discuss the retailer's quarterly results, when sales dropped 2.6% from a year ago.

Best Buy, meanwhile, has been faced with an onslaught of competition and pricing pressure from online retailers that has resulted in consumers browsing its stores but buying elsewhere, often for a lower price. Jeffrey Shelman, a Best Buy spokesman, said the Macy's test would give Best Buy additional ways to reach shoppers.

Jeff Gennette, Macy's president, said in a news release that customers had expressed an interest in electronics, but that it was too soon discuss next steps.

"Apparel has been losing out to consumer electronics in terms of consumer spending for a decade," said Craig Johnson, the president of Customer Growth Partners, a market research firm. "If you can't beat 'em, join 'em."

The partnership with Best Buy will mark the first time Macy's has sold consumer electronics on a regular basis in several years. Macy's Herald Square flagship store in New York City had a J&R electronics store located inside until remodeling on the property began in 2012. While some Macy's stores have carried electronic items around the holidays, they were stocked as seasonal products and in limited quantities, according to spokesman Jim Sluzewski.

The Best Buy deal mirrors other partnerships Macy's has struck in recent years with Sunglass Hut and Finish Line. The arrangements allow Macy's to broaden its offerings while bearing minimal expense because the brands pay a fee for the space and shoulder the cost of maintaining and staffing the shops. This so-called concession model is widely used in Europe, but has been slower to catch on among U.S. department stores.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

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(END) Dow Jones Newswires

September 08, 2015 17:22 ET (21:22 GMT)

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