Macy’s Plans to Invest Millions to Fund Minority-Owned Businesses

https://www.nytimes.com/2022/11/06/business/macys-minority-businesses.html

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Robin Wilson has experienced plenty of success since starting her home textile business, Clean Design Home, in 2000. Her hypoallergenic products have been sold at Bed Bath & Beyond, and she has fulfilled large orders for a hotel chain. Her wares are also available at 50 Macy’s locations across the United States, which has resulted in millions of dollars worth of sales.

But Ms. Wilson is primarily self-funded, and as she looks to expand her business into other categories, like mattresses, she estimates that she will need at least $1 million in financing.

“How do you become a brand that people just walk into a store and say, I want that?” she said. “That takes a lot of pushing open doors, layering the marketing, doing public relations. And there’s a certain point when you just don’t have the money anymore to do that.”

“That’s what’s so important at this point,” she said, “because we are on the cusp of that.”

Now, Ms. Wilson and other small-business owners may have a new avenue to secure that kind of financing. Macy’s, the largest department store in the United States, plans to invest $30 million over the next five years into three financing channels meant to support businesses run by people from underrepresented groups in the retail industry. It is working with Momentus Capital, which will oversee the loan fund. The retailer, which brought in $25 billion in annual revenue in 2021, said total financing for these programs would equal $200 million.

The money will be offered in the form of loans for working capital and commercial real estate, as well as growth equity capital. Macy’s executives said they wanted both the vendors it works with now and new ones to be involved with the program. They expect the initiative to boost profits for the company, they said, in part because they believe their customer base will expand and diversify.

“With a lot of these ventures, they’re starting points in helping,” said Jessica Ramírez, a retail research analyst at Jane Hali & Associates. “We have to just see with time.”

To many businesses run by entrepreneurs who are not white and not male, it’s been clear for years that access to more financing is needed to expand their operations and fulfill the demands that come with working with major retailers. Black, Latino and women founders receive only single-digit percentages of venture capital, even though those groups make up a much larger percentage of the U.S. population. Black founders received just 1 percent of venture capital funds, and women and Latino founders received 2 percent.

Macy’s has been trying to figure out how to make its vendor base more representative of the U.S. population, and its shoppers. This spring, it began a program called Mission Every One, where it committed to spending $5 billion through 2025 on initiatives to promote diversity and sustainability. In late 2020, it signed the 15 Percent Pledge, which asks retailers to allocate 15 percent of their shelf space to items from Black-owned businesses. The company says the number of Black-owned brands on its shelves has increased eightfold since then, but still has not reached the 15 percent benchmark.

“We have emphasized a holistic approach in regard to supporting Black businesses, meaning that we work closely with retailers to identify opportunities, beyond just expanded shelf space, to break down barriers that have systematically held back Black entrepreneurs,” LaToya Williams-Belfort, the executive director of the 15 Percent Pledge, said in an email.

Ms. Wilson is one of about 200 entrepreneurs who have completed The Workshop at Macy’s, an intensive program started 12 years ago in which underrepresented suppliers learn business skills like how to reach investors and assess pricing strategies, and how to receive feedback and gain insights from the department store’s executives.

But Macy’s executives realized that instilling business lessons alone wasn’t enough. Many small businesses have thin margins and employ a dozen people or fewer. To work with a large department store, money is a necessity. To sell with major retailers that have hundreds of stores, smaller businesses often need more labor or equipment to fulfill bulk orders, and there are costs associated with widespread marketing.

“This gives them an opportunity to breathe a little bit, and that’s important in companies that have great ideas but they need to take root,” Macy’s chief executive, Jeff Gennette, said of the new fund in an interview.

A year and a half ago, while analyzing spreadsheets and data, Macy’s executives determined that something didn’t add up. They saw that some vendors from underrepresented groups were well regarded by Macy’s merchants and consistently provided quality service, but were only doing less than $10 million in business with the department store when they could have been doing more.

For example, Macy’s wanted to grant a Black female-owned trucking company more business to transport goods from its distribution centers to the stores. The company was unable to take on the extra business because it could not afford to buy the additional trucks it would need, according to Adrian Mitchell, Macy’s chief financial officer.

“It became very, very apparent that the combination of capital and support were in the way,” Mr. Mitchell said.

The mixture of financing and advice is what Wisdom Walker is looking for as she builds her home décor business Strokes of Wisdom, which she began in 2020. This year, a Macy’s buyer reached out to her and asked if she wanted to sell her crystal-studded mirror and eye-catching wine holders at a pop-up shop in one of its stores. Ms. Walker jumped at the opportunity, and she now has a goal to get her products on Macy’s shelves. But she knows she needs retail guidance — and grants or loans — to do so.

“If anyone could tell me how that could be funded, that would be the best advice for me,” Ms. Walker said. “It would be life-changing.”