Macy’s recently announced it will be opening four off-price Macy’s Backstage retail locations in the New York City area this fall. Ranked second and fourth in L2’s Department Stores and Big Box studies respectively, Macy’s has earned its Genius title with strategic omni-channel investments. Backstage will be the retailer’s first foray into discount retail, where it will join fellow department stores Nordstrom (Nordstrom Rack), Saks (Saks Off Fifth), Barneys (Barneys Warehouse), and sister brand Bloomingdale’s (The Outlet).

The discount shopper is an attractive customer segment for retailers: Sixty-five percent of female shoppers have shopped at an off-price store within the last year. Retailers such as T.J. Maxx and Burlington Coat Factory have managed to keep their heads above the water while the rest of retail struggles with sluggish sales.

However, these same retailers struggle when it comes to digital competence. The TJX Companies earned the lowest enterprise Digital IQ in L2’s Big Box report, averaging just 68 across its T.J. Maxx, Marshalls, and HomeGoods brands. Other off-price retailers fared similarly poorly, with the Burlington Coat Factory falling into the Feeble category (Digital IQ: 79) and Ross Stores ranked second to last among Big Box retailers.

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When high or mid-priced department stores play the discount game, they often leverage e-commerce and omnichannel capabilities that are rare among discount-only brands. For example, Nordstrom Rack and Saks Off Fifth offers in-store returns, and Nordstrom enables a multi-store inventory search with scanning an item’s QR code. Macy’s has funneled an estimated $2 billion over the last five years into tech and e-commerce investments, resulting in one of the most sophisticated omni-channel strategies in retail. Macy’s began offering click-and-collect in July 2014, while just 35 percent of U.S. Department Stores and 42 percent of Big Box retailers offered the service (note: percentages are not mutually exclusive due to brand list overlap). It offers a mobile wallet that integrates with its store loyalty program and a sophisticated mobile app.

The expansion to outlet stores is an opportunity for Macy’s to further leverage its e-commerce savvy and omni-channel investments, and perhaps raise the bar in digital for the off-price category.

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