Situational Analysis Reaching its 150th birthday in 2008, Macy’s Inc. has emerged as an American household icon over the past few decades. Macy’s sells a range of merchandise, including men’s, women’s, and children’s apparel, accessories, cosmetics, home furnishings, and other consumer goods. Since its merger with Federated Department Stores in 1994 and May Department stores in 1995, Macy’s has been pursuing ways to be more creative and distinctive in meeting customer needs and in delivering exceptional values.
In order to maintain its share of the department store market, Macy’s has been aggressively investing in a distinguished shopping experience with unique merchandise, exclusive fashion brands, online sites, and breakthrough marketing. However, the ‘Credit Crunch’ in 2007 and 2008 has led to a tremendous decline in consumer confidence, causing decreases in store sales and profits. Macy’s 2008 fourth quarter earnings showed a profit of $750 million. Demographics, consumer spending, and fashion trends drive demand in the department store industry.
Macy’s has always faced tough competition in its geographical areas, including discounters, luxury stores, and mail order retailers. Macy’s is distinct from warehouse stores in that it does not sell goods in bulk and operates at a higher price point. The company has launched localization initiative in division consolidation, aiming to accelerate its sales growth and increase profitability. This localization strategy is a locally driven merchandising project to put more region specific products in the local Macy’s stores they shop. The My Macy’s program was launched in February 2008. Market Needs and Trends
Fifty years ago, most department stores were independent retail stores that offered one stop shopping for the average consumer. Over time, these stores would be slowly transformed into today’s shopping mall. Department stores have served as ‘anchors’ in over 1,200 shopping malls. It has been estimated that monthly mall visits have dropped 50% between the early 1990’s and the mid-2000’s, according to the US Department of Commerce. This drop-off has coincided with an elusive increase in the overall pace of life. Hectic, hurried trips to the mall serve to increase the appeal of shopping formats that can cater to multiple needs, i. . department stores. Department stores, once the beacon of shopping convenience, have become a cumbersome and sometimes frustrating experience for their traditional customers. Many companies are looking to off-mall locations to expand. Off-mall locations can be more convenient than regular malls, expand store locations, and allow companies to enter smaller markets. Department stores’ main category, retail prices, has been decreasing due to the increasing competitiveness of discount stores. Discount stores are gradually offering more and more inexpensive, quality apparel that have resulted in lower retail prices for clothing.
Consequently, department stores are increasingly relying on sales and promotions to remain competitive. Many larger retailers are looking to consolidate or reduce their sub-departments and focus more on apparel. Growing competition from other large specialty retailers, such as Best Buy, Wal-Mart, and Target, has whittled away at department store sales in their respective secondary categories. Focus needs to remain on apparel and fashion-related merchandise as department stores are more susceptible to fashion trends. Department stores have looked more to store consolidation due to harsh competition and economic conditions.
Consolidation will aid to the development of better marketing and operational synergies. Mergers and acquisitions can expand Macy’s brand name industry-wide. Some companies have shifted their marketing focus to focus around its consumer’s lifestyle classifications, such as traditional, active, or career, and have implemented plans specific to each market. Categorizing consumer’s lifestyles department stores can market to key segments more effectively. Macy’s format has a built-in flexibility that allows for the reallocation of resources and merchandising emphasis to meet customer’s erratic preferences.
In a fast-paced retail environment, Macy’s can offer the latest “needs” that everyone has to own, while simultaneously providing goods that very few can Immense changes in consumer spending will remain subdued for the next few quarters, and that will lead to retailers’ earnings estimates declining for the next several months. Several retail chains will be forced out of business in 2009 by their own debt structure and the global credit crunch. There are also many retail stores that will close storefronts in 2009 because a recessed economy demands a recessed retail industry.
There were 200,000 store closings that have occurred in the first quarter of 2009. The post-holiday season fallout was substantial for retailing, but not completely devastating. Retailers have become forced to tighten their budgets and cut down on expenses until the economy improves. In 2008, Macy’s enlisted Dunnhumby, the consumer insight company, to analyze its sales data with a view to increasing turnover and customer loyalty, develop customer segmentation models to accelerate future sales growth at the department store chain.
The tie-up could enhance the existing loyalty scheme at Macy’s. Targeted Segments Demographic. Macy’s initial target market consisted of middle to upper class working women and men aged 25 to 54. This segment is consumption oriented, meaning that they are driven to fulfillment through consuming the goods and services that Macy’s has to offer, but they are also those individuals who do not really have time to shop. In addition, these are consumers who do not have loyalty to a particular retailer, but have established shopping patterns that can be met by most retailers.
Psychographic. Currently, Macy’s ads have been targeting younger shoppers by turning some of its locations into more contemporary, hipper stores that offer superior private labels at lower prices. It’s currently promoting the “This is It” brand for teenagers and has also launched an interactive website where visitors can download music, view hot fashion trends and get the latest scoop on celebrities. Socio-demographic. Multi-cultural marketing has been a key element of Macy’s current business strategy.
Macy’s believes that this marketing initiative is a way to tailor their product offerings to their diverse customer segments. Macy’s goal is to connect emotionally by being able to communicate to their customers in ways that appeal to them. Media Segmentation. National brand advertising includes network and cable television, fashion magazines and an increasing amount of digital and online media. Behavioral Segmentation. Macy’s provides a balanced level of promotional advertising and direct marketing, often including specific items and prices, which drive traffic and sales. Market Growth
Macy’s acquired its rival, May’s Department Stores Company, in mid-2005 in order to bolster its flagging same-store sales growth (growth in sales in stores open for at least one year). The $11. 7 billion transaction involved 500 May’s stores and 800 bridal and formalwear stores. The stores operated under brands of Lord , Marshall Field’s, Filene’s, Kaufmann’s, Meier & Frank, After Hours Formalwear, and David’s Bridal. Along with the acquisition, Macy acquired an assumption of $6 billion in debt. Since the acquisition, Macy’s has disposed of May’s bridal and formalwear operations.
By the end of 2006, Macy’s converted over 400 May’s stores to the Macy’s or Bloomingdale’s nameplates. In the 4th quarter of Fiscal 2009, Macy’s had a 59% drop in sales from the same period in Fiscal 2008, Overall sales fell by 7. 7% while same-store sales decreased by 7% . Included in the overall profit decrease were one-time costs related to store closings. Excluding those costs, Macy’s earned $1. 06 per share, which exceeds analysis and the company’s own estimates of $1. 01 per share. Although performing in a declining retail environment, Macy’s has managed to maintain its growth despite closing some of its own stores.
The recession has made it increasingly difficult for consumers to justify spending money on nonessential goods such as clothing and accessories. In addition to incentivizing consumers through promotions and discounts, Macy’s has made cost-cutting measures. In spite of eliminating 7,000 jobs, reducing capital spending, contributions to employee retirement funds and cutting its dividend, Macy’s total sales and in February 2009 were down by 9. 3 percent and same-store sales for the month decreased by 8. 5%. Online sales, however, increased by 16. 2%. SWOT Analysis Strengths High Visibility. Macy’s is recognized as a retail industry leader internationally. • Exclusive Private Brands. Merchandise for each private brand, available “Only at Macy’s,” is developed to appeal to a certain customer lifestyles and supported with marketing programs that create a precisely defined image. Also, Macy’s has developed private label goods to meet specific customer needs and fill gaps in the assortment. The private brands include Alfani, American Rag, Charter Club, Club Room, First Impressions, Greendog, Hotel Collection and INC International Concepts. Range of Products. Macy’s offers a wide range of products and services, such as men’s, women’s and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods. • Marketing and Promotions. Weekly promotional ads and online coupon and shopping availability have increased sales despite the current slowing economy due to the economic recession. • Accessibility. Macy’s is positioned in around the US, Guam, the District of Columbia and Puerto Rico. Operating over 853 retail stores and macys. com. • Macys. com.
Online sales have remained competitive while in store sales have decreased. Weaknesses • Customer Behavior. Customer’s resistance to change is a weakness that Macy’s will have to overcome. • In-house Merchandising. The recognition of Macy’s in-house brands may be weak among many consumers. • Loss of Major Brands. Due to the recent loss of major brands such as Polo, Tommy Hilfiger, and Jones New York, Macy’s may lose some of its strict brand loyal customers • Large chain of over 853 department stores. Customers may feel that there is no exclusivity of products being sold.
Opportunities • Demographics Trends. Macy’s must stay abreast of the demographic trends in order to stay competitive with other department stores, specialty stores and discount retailers. • Differentiation. Macy’s must begin initiatives to set them apart and gain the distinction in quality in order to be successful , such as product assortment. • Going Green. By going green with the new 100% cotton shopping bags and carrying more green products, Macy’s will attract consumers that are supporters of companies that voluntarily help the environment. My Macy’s. My Macy’s program will ensure customers find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs. • Private Labels. Exclusive private labels such as Donald Trump, Jessica Simpson, Martha Stewart, etc. will attract new brand-focused departments. Threats • Economic Downturn. The recession has made it increasingly difficult for consumers to justify spending money on nonessential goods such as clothing and accessories, which have has caused a slow in Macy’s sales. Competition. Macy’s continues to face increased competition by other department stores, luxury department stores, discount stores and other online discount shopping companies, such as eBay, Overstock. com, Shopzilla, and Amazon. com. Competition Demographics, consumer spending, and fashion trends drive demand. The profitability of individual stores depends on the ability to generate store traffic and effective merchandising. Large companies can offer a wide selection of products, and have advantages in purchasing, distribution, and marketing.
Small companies can compete effectively by selling specialty products, providing superior customer service, or serving a local market. Macy’s faces strong competition in the retail industry from all types of which includes other traditional, moderate or luxury department stores, specialty stores, general merchandise stores, off-price and discount stores and other forms of shopping including the internet, mail order catalogs and television. Retailers competing with Macy’s include: • Other traditional department stores: Dillard’s and Sak’s Department Store Group • Moderately priced department : J.
C. Penney, Kohl’s, and Sears Holdings • Luxury department stores : Neiman Marcus, Nordstrom, and Saks • Discount stores: Target and Wal-Mart Stores • Warehouse stores: BJ’s Wholesale Club, Costco Wholesale and Wal-Mart’s Sam’s Club • Off-Price stores: Ross Stores and TJX Companies, which include TJMaxx and Marshalls In terms of price point, Macy’s faces stiffest competition from J. C. Penney and Sears. Luxury department stores operate at a higher price point, attracting a clientele with more disposable income. Discount stores operate at a much lower price point, attracting less affluent consumers.
By not selling goods in bulk and operating at a higher price point, Macy’s is distinct from warehouse stores. Critical Issues and Environmental Factors Brand Nationalization. Macy’s has begun a process of extending the Macy’s name to all stores that fall the Macy’s Inc. umbrella. This is a different from the approach that the May’s and Federated conglomerate’s took by naming there stores with a regional approach. For example, in the Texas area, Foley’s was a major department store that had been around for years that had a local feel.
When Foley’s was purchased under the Federated merger, the name of all Foley’s stores changed to Macy’s. By taking this approach brand names that Foley’s carried are not all carried at Macy’s stores pushing consumers to other department stores in the area. In doing this Macy’s does not have established and local brand equity. In the current US economy, there is also a greater chance that customers will prefer to support their local market rather than spending nationally. By nationalizing, Macy’s took away the personal value customers received when shopping at their local department stores.
Localization. Upon implementing Macy’s national branding campaign, Macy’s executives realized they were losing a loyal customer base. In an attempt to correct or soften the nationalization process, Macy’s introduced the concept of localization through a process called “My Macy’s”. The “My Macy’s” campaign is a process its goal is to maximize sales growth in existing locations by ensuring that core customers surrounding each Macy’s store find merchandise assortments, size ranges, marketing programs and shopping experiences that are personalized to their needs.
By giving the Macy’s stores a more local appeal, they will have the opportunity to still operate under one established and trusted national brand and also provide consumers the feel that they are shopping in a customized clothing store local to their area. “My Macy’s” also opens up the opportunity to bring back a lost customer base due to the nationalization. The initial downside to implementing “My Macy’s” are the extra costs that have not been budgeted along with the added burden each region will go through when updating their store so it appeals to the local public. Technology.
As technology has advanced, it was a must for Macy’s to exploit technology. Macy’s has acknowledged that the need of including technology in their shopping experience is a keeps them competitive. They have gone to great lengths to improve their customer’s online shopping experience. With “My Macy’s” customers will have the opportunity to shop online and locate stores in other regions that may fit their demographic. This will also enhance Macy’s persona as a more custom and unique store that can provide popular and fashionable clothing in all regions of the United States. Recession.
Due to the recent recession, department stores are seeing a significant decrease in sales. Consumers view Macy’s products as non-essential items that are not for an immediate need. These consumers are willing to splurge on these items once the recession has passed. It has become increasingly critical that Macy’s further distinguish itself during this economic crisis. With customers being tightly budgeted, they are more conscious of how their money is spent. This is the perfect opportunity for Macy’s to market their national brand and let customers know that can offer inexpensive products that meet their consumer’s needs.
Smaller retailers will have difficulties withstanding harsh economic environments while continuing to supply their customers like a larger retailer. If successful, Macy’s maintain their position as the nation’s department store industry leader. Marketing Strategy Macy’s marketing strategy should focus on three core objectives: national brand recognition, “My Macy’s, and private brands. National Brand Recognition. Macy’s will market their brand as a strong national brand with local roots that can be trusted and relied upon when needed.
With Macy’s taking over many department stores across the United States they have many locations in most major cities and are able to provide convenient and reliable service to customers nationwide. Given this, Macy’s has one of the largest amounts of store space and will be able to provide customers with more choices to choose from through their online shopping and “My Macy’s” campaign initiative. “My Macy’s” Campaign. Macy’s premier focus in differentiating themselves from the competitors will be the “My Macy’s” campaign.
Successful execution of the “My Macy’s” campaign, Macy’s will be able to individualize each regional or local store to fit the local demographic. For example, Macy’s will not to advertise nationally in magazines the first half of 2009 and mainly focus their advertising on television and online. Macy’s has taken the initial step to embrace the changes in technology by trying to reduce costs and reach more customers through online shopping. Putting more resources towards an online focus needs to be approached delicately because it is much easier to lose customers to a competitor. Private Brands.
There is a growing popularity of shopping at individual stores to maintain exclusivity Macy’s has taken on several private brands such as “Donald Trump” and “Martha Stewart” collections that are “only available” at Macy’s. It is important to know that these and other private brands will be exclusive to Macy’s and no other department store. In 2008, Macy’s celebrated their 150 year celebration. Their current marketing campaign featured several celebrities advertising their individual private brands only available at Macy’s. This approach reaches today’s growing popular culture market. Mission and Direction
Macy’s mission is to provide quality mid-to-upscale clothing and household products to customers across the United States. They continue to put the customer at the forefront of their business by providing great customer service and targeting more consumers through their “My Macy’s” objective and individualized store approach. This has been undertaken by merging with local department stores and picking up new online markets that they previously have not had access to. Macy’s will continue to grow and be the industry leader by nationalizing their brand and continuing to go after new and emerging markets.
Product Strategy Macy’s is currently in the maturity phase of the product life cycle. The Macy’s brand is one of its greatest strengths. It is one of the most recognizable names in the retail department store industry. In order to remain competitive in its industry, Macy’s must build on its current name and reputation. Macy’s continues to develop on its “strong retail brand” approach because it has had success in creating and promoting its own in-house merchandise brands. Some examples of these private labels include: Charter Club, Giani Bernini, Holiday Lane and John Ashford.
These brands represent a reflection of what they believe their customers desire; therefore, Macy’s continues to promote them in order to produce higher margins. Striving to offer the latest ‘must have’ products and exclusive merchandise, Macy’s continues to portray quality and excellence in terms of its product design and features. This approach will continue to excite consumers, especially those who have not been avid and loyal department store shoppers. It would be in the best interest beneficial for Macy’s to pursue this approach rather than to spend more time and money in promoting its private label collections.
Macy’s should also continue to build on packaging and labeling by the extensive use of brand image and exclusivity. Macy’s was once successful by being the only department store to sell the Tommy Hilfiger collection. This had enticed consumers driven by this brand to shop at Macy’s when a Tommy Hilfiger store was not within their proximity. In an effort to create brand awareness and build on its market share, Macy’s will need to try to obtain more deals with well-known brands like the Hilfiger collection. Macy’s currently promotes many lines of brand exclusivity, as the Martha Stewart Collection.
The fall 2007 launch of this collection represented the largest brand rollout in Macy’s history. Macy’s must continue to support and seek similar exclusive brands to utilize in its marketing campaigns. Macy’s currently promoting its brand image through the use of several celebrity spokespeople. One of its recent TV campaign ads included such celebrities as Martha Stewart, Sean Combs and Jessica Simpson. This is one unique way to build on its brand image and illustrate to consumers the kind of merchandise Macy’s carries. Most importantly, Macy’s has created the “My Macy’s” program that seeks to grow and achieve success through localization.
Macy’s understands that localization is a key component in achieving long-term success; therefore, it is investing its resources to ensure that every store is perfectly customized with merchandise for the customer who shops in that area. This local decision-making approach will make certain each store will be tailored with specific merchandise, space allocations, service levels and special events according to the needs of the customers in the specified region. Pricing Strategy Given the current economic situation, Macy’s must strive to find a viable middle ground.
In other words, Macy’s will need to reposition itself in order to appeal to the consumers that have yet to find their niche in the retail industry. Neiman Marcus continues to be successful targeting the affluent consumers while discounters like Wal-Mart have concentrated on the more price sensitive consumers. Macy’s will need to separate itself from the competition, which means distinguishing its brand from discounters as well as luxury and specialty stores in order to appeal to the kind of behavioral demographics its customers possess. To implement this successfully, Macy’s new pricing strategy will be to combine affordability with luxury.
Macy’s can execute this by featuring new private labeled brands and further supporting brand names such as Ralph Lauren and Calvin Klein. These well-known brands exemplify to the consumers that Macy’s is the one place to depend on when looking for quality and affordable brand name clothing and items. This strategy can place Macy’s in the middle of the department store industry. Promotion Strategy In order to please the evolving consumer, Macy’s will need to be more conscious of its consumer’s shopping behavior. Today’s consumers are more inclined to comparison shop by visiting stores or shopping online.
Consumer trends show that consumers today like to be well informed about the items they wish to purchase. Macy’s seeks to satisfy this need by offering online shopping with an in-store pick-up option. This allows customers to view clothing items online and select the ones they wish to purchase. After selecting those items, customers can see whether or not the item(s) is available in a store near them. Macy’s is focusing on obtaining more online shoppers and will lure customers to do so by advertising more online versus in traditional TV and print ads. Currently, Macy’s holds many in-store celebrity appearances that draw in many customers.
For instance, Jessica Simpson visited a Dallas Macy’s store to promote and sign autographs for her exclusive brand. This not only promotes her brand but also builds on the Macy’s brand image. Macy’s should continue to host events like these in addition to its traditional events. These well-known national events include: Thanksgiving Day Parade, Passport, Glamorama, Flower Show, 4th of July Fireworks, Santaland and New York’s Annual Tree Lighting. Channel Strategy Macy’s has insistently focused on improving its connection with customers through three types of channel: catalog, online, and in-store.
Through catalog channel, Macy’s sends direct-to-customer mail catalog to customers, especially its most valuable customers. Through web online channel, Macy’s aims to offer customers a unique online shopping experience. It provides features such as “Search and Send,” in which store associates can access macys. com from the POS register and have merchandise shipped directly to customers. Through in-store channel, Macy’s offers merchandise assortments based on local customer needs and preferences to differentiate the department store enough to grab market share and increase sales.
In addition, Macy’s stores apply visual merchandising that supports its merchandise and enhances the customer’s shopping experience. Recently, Macy’s has done a study in which it estimates that an average single-channel customer spends about $150 per year with the company, an average two-channel customer spends about $450 per year with the company, and an average three-channel customer spends about $900 per year with the company. Maintaining visibility is an effective way for Macy’s to retain customer loyalty. Service and Internal Marketing
Macy’s is aggressively driving to differentiate itself from competitors by providing customers with unique merchandise, fashion brands, interesting stores, engaging online sites, excellent service and breakthrough marketing and special events. Macy’s embraces its customers and offers various ways to show its appreciation of the customers. Macy’s hosts special events such as the flower shows, fashion extravaganzas, celebrity appearances, cooking demonstrations and holiday traditions. Macy’s is more focused than ever before on merchandise that is either exclusive or in-limited distribution.
In fact, more than 35 percent of its sales are in brands that are exclusive to us or in-limited distribution. Macy’s realizes the increasingly crucial role that technology has played in the market and utilizes it to enhance customer shopping experience. It believes that technology will increase convenience for customers, speed transactions, improve merchandising and operate more efficiently. To give the customers the best shopping experience possible, Macy’s places the most skilled people in every position throughout the organization.
Its workforce initiatives include talent acquisition and succession management, diversity training through workshops and computer-based training, and events sponsored by diversity councils and affinity groups Marketing Research Customer satisfaction is the sole marketing research that Macy’s really focuses on. Its marketing researchers conduct comprehensive studies and surveys to determine customer satisfaction levels. These studies cover areas such as location availability, product assortment, and service representative attitude.