Macy's Department Repositioning - Essay Example

Macys Department Store Repositioning MACYS DEPARTMENT STORE REPOSITIONING Macy’s Departmental Store has a rich and long history, which dates back to the year 1858 with its first store opened on 6th and 14th avenue in New York. Following a succession of unsuccessful ventures into the retail business, Rowland Macy launched Macy’s departmental stores brand to much success. The store grew from what was a meager beginning into what America’s premier departmental store. The departmental store is now ingrained into the American retail industry and, since 1924, has held an annual thanksgiving parade that shows its level of success. Macy’s has for some period has been one of the most influential and innovative players in departmental store sector, contributing to adoption of numerous managerial and technological innovations that include data processing, store merchandising, inventory control, among others. By the 50s, almost every state, in America, had its own departmental store. However, fifty years later, this had changed drastically with a decline in sales. Macy’s decided on converting regional departmental stores into one brand while also repositioning the store in order to differentiate it from its competitors. While the move was derided in some quarters as futile due to the demise of the departmental store as a whole, some analysts were of the idea that the store’s strategy was vital in revitalizing the declining industry. Which factors in the external environment could affect (positively and negatively) the success of Macy’s new strategy? Which internal factors could affect the success of the company’s strategy? Departmental stores are currently in danger of extinction. While there were thirty-five major chains of departmental stores in the 80s, there are only thirteen left in operation today. Conventional departmental stores in the 90s accounted for two and a half percent of total income for American households, which have dropped to 1.6%, forcing departmental stores to reinvent their business strategies or suffer the risk of being run out of business. This results in the emergence of two models in for the departmental store sector in search for a profitable return. One has been the strong retail brand. The approach has been successful for departmental stores in the promotion and creation of in-house merchandise brands. Departmental stores are, therefore, able to promote their brands and name, assuming that the brands will reach a significant level of popularity, as opposed to relying on individual third party brands. Another model involves the showcase approach that involves leveraging vendors of brands that are accountable for a substantial share of the retail process. The key, in this model, is the promotion of the shopping experience attraction, although this model leads to lower margins of profit. One factor that affects retail sales is the economic environment that dictates the consumer’s expendable income. At Macy’s 2005 consolidation, the retail business operated under positive economic conditions. This changed in 2008 with the advent of the economic recession that stretched throughout 2010. Some improvement was noted in 2011, although this was tempered by the increased oil prices and an increase in cotton prices. Another factor was industry products and services with the new departmental store model of the 90s utilizing decreased space and coming to resemble specialty-clothing stores. Women’s products, such as cosmetics and apparel wear accounted for sixty percent of floor space, men, and children accessories accounted for 20%, and household goods accounted for 20%. The new model did away with traditional departmental store wares. Departmental stores placed increased emphasis on fashion, differentiating them from low-end competitors and responding to complaints of blandness from customers. Departmental stores also began attempts at developing unique positions from a selection of five categories including low end, lower middle, upper-middle, high-end general and high-end luxury. In addition, the departmental store industry was driven to increased competition as fewer consumers visited these stores. The biggest competitive threat came from specialty stores and discounters. This caused many to fold, especially due to declining sales. Internet shopping also increased in popularity and provided competition to the traditional departmental stores, forcing most to offer online shopping. Finally, departmental stores mainly cater for women customers as is reflected by the merchandise they deal. These are women’s accessories, clothes, and household goods. The target group is women aged between 25 and 55 with the other customer segments preferring specialty shops. The customers that frequent these stores seem to be attracted by the traditional styles that they offer with the extended buying cycle they used resulting in relatively conservative fashions. Evaluate Macy’s 2005 consolidation and repositioning strategy: what are its strength and weaknesses? Strengths One of Macy’s strongest assets is its brand. The brand, in the retail departmental store sector, is one of the most recognizable. Macy has integrated itself into America’s cultural fabric through its Thanksgiving Day parade and the Miracle on 34th street movie. Macy’s other strength is in its economies of scale. Through converting its regional chains into Macy’s brand singularly, they expect to realize increased economies of scale by reducing redundancies and streamlining everyday functions. Their purchasing power is strength as it may rival Wal-Mart because of its ability to utilize its volume in securing better prices. In addition, they possess great leverage in ensuring they secure the best merchandise. Macy’s also has marketing efficiencies as strength. Since it is a single entity, Federated will be allowed to focus better on core assets, as well as implement these efficiencies via national campaigns in marketing. Instead of splitting its resources to be used in regional campaigns, Macy’s can buy increased national coverage. Macy’s has also been able to mix new and old channels as strength. In order to compete with internet retailers, they are in a position of strength in leveraging the internet and the storefront. Storefronts will allow them to cross promote with the internet and its physical presence. Clients can use Macy’s.com to research online and then buy items at the store. This allows Macy’s to have a greater advantage as compared to retailers who rely solely on the internet. Weaknesses The first weakness associated with Macy is its transition period. In changing to the Macy’s brand from its regional brands, the transition period will be inevitable and will provide the business with both challenges and opportunities. How they handle the period initially will be very important with regards to overall failure or success of the rollout. They must learn from every rollout and improve continually, for instance, by attempting to evaluate their experience in Ohio. The number of clients that walked into their Columbus stores fell by 4.5% after its name was changed from Lazarus. The customers will be resistant to the change initially, and the period will influence the first impressions on the customers. If the initial impression is negative, then the customers will have a negative experience that may be difficult to erase. Another weakness involves the loss of brand value regionally. Most clients have a relationship with regional stores that have spent years and resources cultivating their brand image into the customers psyche. Through consolidating it into a single brand, they will be negating the brand values already established. National brand impersonality could also be another weakness that Macy will have to overcome. Macy will have to come to the realization that Manhattan is not an American small town with one of the regional store’s benefits being that they could serve different markets with experiences and products, which were appropriate to the region. They must also do the same and seek to appeal to various regional markets. Repositioning is yet another weakness that they have to deal. Their new strategy incorporating affordable luxury is set to feature new brands like Liz Claiborne, Calvin Klein, Jones New York, in conjunction with Ralph Lauren. This strategy places them midway in the food chain of departmental stores. Retailers like Nordstrom and Neiman Marcus have been successful in catering to high-end customers with Wal-Mart catering to low end clients. Macy’s, therefore, has to find a middle ground. Finally, Macy possesses a weakness in the evolving nature of its customers. The majority of its clients has undergone a change in their shopping habits and is today more inclined to do a search online, compare prices of different shops online, before visiting a store. It is imperative that Macy’s appeals to the new generation of shoppers and meet demand throughout their lifecycle. In your opinion, has Macy’s found a unique and valuable position in the retail landscape through its new strategy? The decision by federated to make Macy’s Departmental Store a national brand was made because it was necessary for the continued existence of the business. They had to shake up the industry in order for them to stand a chance in what today, is an ever-evolving environment for retail businesses. They faced a challenge in returning Macy’s to its previous retailing position. Its name has helped the departmental store in peaking interest from potential consumers and inducing them to visit the store. The problem that they must face up to is making Macy’s as relevant a department store as it initially was. In my opinion, they have not gotten there, but they are on their way. Their entry into e-commerce with online shopping has helped them to attract the new breed of consumer who shops on the internet, although, there is room available for Macy’s to expand their business using mergers and geographical expansions to areas where online shopping is the sole method of purchase. Macy’s has also succeeded in expanding its portfolio as far as products are concerned. The introduction of private label brands in jewelry and apparel has helped them to retain their female customer base while, also attracting a higher-end client base in the same segment. Finally, through aggressive marketing and maintaining their engagement in the community and social related initiatives like the Thanksgiving Day parade, they have managed to keep themselves ingrained in the American psyche and improved their market position, as well as goodwill. While all this has helped them on their way to profitability, Macy’s weaknesses, especially due to their re-construction of strategy has slowed down their establishment of a valuable and unique position in the retail industry. Reference Johnson, Homer. (2011). Macys Department Store Repositioning. Richmond st., London: University of Western Ontario. Read More