This paper is about the significant trends that are Macy’s strategy to stay competitive in the retailing industry. The technology advancement gave way to one of its marketing strategy which is omnichannel selling. It describes the state of the company and the challenges it is facing with its strong competitors. It also talks about the job cuttings and store closing and how it affects their creditors and the competition to the other retailing industries.
The start of the year 2016 is not looking so good for Macy’s. There are series of announcement of store closures and job cuts. It is part of the cost cutting initiative the retailer is implementing in the middle of their disappointing sales. Their CEO Terry Lundgren stated, “In light of our disappointing 2015 sales and earnings performance, we are making adjustments to become more efficient and productive in our operations. In some cases, there will be short-term pain as we tighten our belt and realign our resources.” The decrease in their sales is caused by many factors. The warm weather contributed to the decline in the sales of their cold weather gear. The strong U.S. dollar did not also help as it meant that international tourists were spending less (Gensler). As the retailer company struggles, their financial objectives and strategies still stand.
The financial objectives of Macy’s Incorporated are: to maintain a profitability rate that is among best-in-class retailers, as measured by Adjusted EBITDA (Earnings before interest, tax depreciation and amortization) as a net sales percentage; to grow profitable sales; to maximize total shareholder return and to improve return on invested capital (Macy’s Inc). With cost-cutting program, Macy’s announced that it will save 400 million dollars a year (Wahba).
At present, the company’s weighted average cost of capital is 6.53 percent. Its invested capital returns is 11.81 percent (calculated with the use of TTM or “trailing twelve months” income statement data). The company produces higher investment returns than the costs needed by the company to increase the capital needed for that same investment. Excess returns are earned. A firm will see the increase in value and growth when it continues to generate positive excess returns on its new investments. The measure on how well a company generates cash flow relative to the capital it has invested in its business is called the Return on Invested Capital or Return on Capital. (Guru Focus).
One of the strategies that Macy’s is implementing is the omnichannel selling. This is because company also recognizes that the customer is paramount. And all actions and Omnichannel strategies must be directed toward providing localized merchandise offering and shopping experience to targeted consumers through dynamic online sites. The retailing company Macy’s is widely commended by many analysts as a leader in omnichannel selling. This strategy enables retailers to integrate online, in-store shopping and mobile. (DiChristopher)”. Regardless of the sad news about store closing and job cuttings announced on the 6th of January, their CEO stated that its investment in omnichannel is paying off. In the previous months, November and December, the company set a new record in filling almost 17 million orders at macys.com and Bloomindales.com. It increased about 25% compared to last year. It was done on the basis of aggressive digital marketing, site functionality and significant new fulfillment capacity (MCM).
Another strategy that could help Macy’s is their assortment of products and sales by climate zone. And one of the key factors in Macy’s success has been the consistent and disciplined execution of the core strategies of My Macy’s localization, and as mentioned before, Omnichannel integration and Magic Selling customer engagement, which are known by the acronym of “M.O.M.” The company increased its dedication on attending to enhance sales performance and assortment by climate zone. They increased the level of detail and focus on serving multicultural customers. They also focus their target on flowing merchandise receipts into each door. They intend to do this at the precise proper moment in the shopping cycle (Macy’s Inc.).
The crisis that Macy’s is facing may not only be because of the warm weather and the strong rate of the U.S dollar. There may be a change in priority in the mindsets of the consumers that prefers a much more practical shopping. This is a threat because the products offered by Macy’s are deemed inferior to practicality. In Wahba’s article it is stated that in Manhattan and San Francisco which draws a lot of tourist are shied away by international shoppers. The company is suffering as consumers choose to shift spending away from fashion and apparel to things like home improvement. And discount chains like T.J. Maxx is also a competitor that steal away market share. Competition is strong in this industry and it is a big factor to its profits. Its ability to be relevant and essential to consumers depends on the products they offer and how they advertise it.
The competition in the retailing industry is intensely high. The Macy’s company operations compete with many retailing formats. This includes mail order catalogs, manufacturers’ outlets, television shopping, online retailers, general merchandise stores, specialty stores, off-price and discount stores, and department stores among others.
The top retailers which the Company competes with includes Wal-Mart, TJ Maxx, Target, Sears, Saks, Ross Stores, Nordstrom, Neiman Marcus, Lord & Taylor, L Brands, Kohl’s, J.C. Penney, Gap, Dillard’s, Burlington Coat Factory, Dillard’s, Bon Ton, Belk, Bed Bath & Beyond, and Amazon.
Offering distinctive marketing in stores that are located in premier locations, providing an exciting shopping environment with superior service with the help of the omnichannel experience, superior selections and obvious value is one of the goals pursued by the Macy’s company to attract customers. With these goals the customers may perceive the difference of the company to other retailer stores. And these bases may be perceived by potential customers as being well suited with their preferences compared to other stores (CSI Market).
The company’s creditors and other highly-indebted retailers may be affected negatively by Macy’s decision in closing its 40 stores. It is stated by Barclays Plc analysts that traffic can fall for the remaining retailers when the department store shuts its doors. The company identified the stores that were not gathering enough sales and decided to close 35 to 40 locations. A credit analyst at Barclays in New York, Hale Holden stated that there will be a negative impact on other retailers when a store as big as Macy’s closes and traffic to that mall will drop significantly. Trouble experienced by mall-based retailers highlights that even if United Stated consumers continues to spend at high levels the group are not shelling out everywhere equally. A lot of Americans continue to increase their expenditures online and places like restaurants but while this occurs they also reduce purchases at department stores (Klein).
The series of job cuts may help Macy’s save money but may greatly affect their creditors and other retailers. According to SWOT analysis Macy’s strength is its high growth rate and barriers of market entry. The large number of its stores contributes greatly to its capacity to profit. And its weaknesses are future debt rating, productivity, investments in research and development and tax structure. One of the mentioned causes of its low sales was the decrease of sales on cold gears. The sales decline because of the drastic changes in climate which should be expected by its research and development. Also the increase in labor costs, rising cost of raw materials, financial capacity external business risks and tax changes are one of the many threats Macy’s is facing. The increase in labor costs caused the cutting of jobs in Macy’s. As mentioned before it could save the company millions of dollars. Though there are many challenges there are still opportunities that the company can take advantage of. Opportunities like growth rates and profitability, global markets, venture capital, income levels at a constant increase and the growing economy.
Macy’s is not the only retail store experiencing crisis. Many traditional American retailers have several problems, many of their own making. Many stores have tried to beckon shoppers with steady discounts since the financial crisis. Margins have suffered accordingly and one company, namely JC Penney, has tried to limit discounts in the year 2012. But this action only caused the shoppers to revolt. Additionally, the operations in department stores like the stores’ model in buying clothes from vendors months before the clothes arrive in shops have become increasingly slow. The weather patterns have become less predictable and the trends seem to change or move more quickly. In example, last year’s autumn, the warm weather prevented the shoppers from buying the usual coats and scarves that Macy’s and other department stores have stocked. Off-price retailers are zipping ahead as traditional retailers falter. The way they operate is as follows: shops will sell at full price when designers make more clothes than normal. The company TJX and Ross buy them at a deep discount, and then they resell them. There are many factors that make it hard for shops to anticipate which clothes will sell and its price. Factors like global warming, stingy customers and most especially fast-moving trends add difficulty on what to expect in the market. There is an increase on the availability of clothes at TJX and Ross on discount as forecasts are becoming less accurate. The revenue of TJX surpassed Macy’s in the year 2014 (C.H.).
A stronger competitive strategy could pose as an alternative strategy for Macy’s because of its many competitors. Advertising or promoting their products just to increase their sales can be a part of their solution. Or investing more in their research and development could improve their performance as that sector researches the possible business risks and marketing solutions to save the company. The careful study and analysis of the possible business risks could help prepare the company to what it may or not expect in their profit and sales. They can also theorize solutions as to not experience the crisis again.
Another strategy proposed is to continue investing in its omnichannel selling. There is a lineup of initiatives announced by Macy’s to evolve the business model and to invest in its continued growth based on how the consumers also evolve with the manner by which they shop. This includes the restructure of their marketing and merchandise functions at both Bloomingdale’s and Macy’s. They also employ a retailing approach that is consistent with omnichannel selling. To increase its productivity and efficiency there are also adjustments made to its store and field operations. Reconstructing their respective central merchandising and marketing functions are one of the goals of both Bloomingdale’s and Macy’s. It is proposed so that every brand can present and develop its assortments smoothly across channels and provide a single omnichannel view in all product categories. Encouraging the hybrid of online and store buying and pushing through a single unified marketing and merchandising organization is going to support the digital and store growth of Macy’s. The same philosophy is true at Bloomingdale’s. Online and store assortments were bought and marketed by separate organizations formerly. The changes supported an improved shopping experience and continued growth via mobile and online and the same can be said in stores (Business Wire). Innovating the way people shop online can be strong attractions to shoppers because of its convenience, availability and practicality. The online market may be competitive in its own way, but it greatly increases sales with much lower cost from the company as transactions are done with technology. Being technologically advanced with marketing can also be contributed by investing in the company’s research and development.
A recommendation to overcome the crisis in Macy’s has been presented by many analysts. Buying and holding the stocks is one of those. As The Streets analyze Macy’s they stated that they rate MACY'S INC (M) a HOLD. “The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks” (qtd. in The Street). The company's strengths are evident in various areas, such as its notable return on equity, growing profit margins, and attractive valuation levels. However, to balance these strengths, the weaknesses must also be considered. These include deteriorating net income, weak operating cash flow, and generally higher debt management risk (The Street).
Macy’s had a bad holiday season and because of this sale at existing stores in November and December dropped by 4%, below its own forecasts. The need to cut costs resulted in the company closing its stores and laying off thousands of people from their jobs. Ostensibly one factor is the unusually warm weather. Although the decline in Macy’s sales began even before the warm weather started in the year. This shows that factors other than climate affected their sales. The strict competition from other online retailers namely, Amazon is a factor. Amazon’s sales growth over the holidays was reported very high for the season. But this was not the problem because other traditional retailers faced the same dilemma but they managed to raise their sales particularly the TJX Companies. This shows that Macy’s misfortune is traced to something else. For example the dilemma may be in their business model in which it has complicated shopping with its scores of coupons and special deals. For those who are amateurs in business, there are two roles played by promotion programs like special deals, store coupons and sales in retailing. The first one is helping ring up merchandise sales, bringing in traffic and hyping the shoppers. And the second one is they allow retailers to charge different consumer groups different prices, based on the sensitivity of each group to merchandise price. To put it simply Macy’s marketing strategy has complicated shopping. And they did it at a time when shoppers are looking for simplicity (Mourdoukoutas).
Works Cited
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