Analyze a Major Retailer - Term Paper Example

?INTRODUCTION Macy’s, America’s leading departmental store retailer, has a rich history dating back to 1858 when it was started as a small, dry-goodsstore by Rowland Hussey Macy's (Macy’s, 2011). At that time, no one would have guessed that the store would grow on to become one of the largest department store retailers. However, it was not all success in the initial period and after some failed retail ventures; R H Macy’s continued hard work and grit paid off with the launch of R.H. Macy & Co. as per Fuhrmann (2011), sales at the end of first year were almost $ 90,000. Over the years, Macy’s continued success saw the company open regional stores and take over other retailers to increase its presence in the market (Macy’s, 2011) \. Way back in November 25, 1929, another revolution was being made in American retail when Abraham & Straus of Brooklyn, Filene's of Boston, F&R Lazarus & Co. of Columbus, OH, and Bloomingdale's of New York combined together to form Federated Department Stores, Inc. which was later renamed Macy's, Inc. in June 2007(Macy’s, 2011). Each of these retailers had marked and prominent presence in the market with the backing of their rich history. The company grew to be one of the biggest retailers in the company and acquired other stores and retailers in the coming years. It had its own ups and down but in the 1990’s, Federated Department Stores acquired Macys to form Macy’s Inc. Macy's, Inc. is the owner of both Macy's and Bloomingdale's department stores (Macy’s, 2011). As Fuhrmann (2011) adds, with an annual 2010 sales of $25 billion, Macy’s currently serves its customers in over 800 stores throughout the country and specializes in retail clothing, fashion accessories such as jewellery, handbags and shoes along with household items such as furniture and kitchen items. Macy’s is not just a simple retailer; from its traditional Macy’s Thanksgiving Day Parade and the 4th of July Fireworks to its Annual Flower Shows and the tree lightings and animated window displays at the time of Christmas, Macy’s has always been in the forefront in creating its own distinctive and unique identity (Macy’s, 2011). Innovation at its forefront, Macy’s is very well known as bringing many ‘firsts’ in the retail industry. Macy introduced several revolutionary business practices in the industry; it initiated the one price system, in which an item was sold across the shops to every customer at one price. It also was the first company to quote prices of different products in the newspapers. Macy also made history when it assigned Margaret Getchell, the first female executive in the retail industry. It also was the first retail store in New York to hold the license to sell liquor. With its corporate philosophy revolving around the customer, Macy’s has always recognized the importance of directing its strategies towards providing localized shopping experience to its customers. The Corporate Financial objectives of Macy’s, Inc. are: Increasing sales; Increasing profitability levels Have better return on invested capital; Shareholder return should be maximized (Macy’s, 2011). According to Fuhrmann (2011), keeping in mind the above objectives, Macy’s has seen an increase in sales in the year 2010 by 4.6 % as compared to the previous year while its operating income increased by 7.6% of sales in the year 2010. SWOT ANALYSIS A SWOT analysis critically studies a company's internal Strengths and Weaknesses in relation to the external Opportunities and Threats it faces coming from its environment. To understand the environment of Macy’s, a SWOT analysis has been conducted. STRENGTHS Diversity: With the acquisitions of small retailers at all regional levels, Macy’s has strategically aligned and integrated diversity in all aspects of its operations. For Macy’s, diversity has become the most integral and essential part of business. Macy’s caters to a much-diversified market and this has made it very beneficial to its customers, vendors, suppliers and business associates along with all the other stakeholders involved (McIntyre, 2009). Macy’s: The Brand Itself The strongest asset which Macy’s has is its image and the brand name. It has the most recognizable name in the market and a unique ideology dating back to the 19th century when it accustomed itself in the American culture by starting the Macy’s Thanksgiving Parade in New York, which is one of the most watched events in America. Customer Centricity Macys has always put its customers’ preference in the forefront. The company is driven by aggressive customer-centric strategies which provide the department store an important competitive edge. The People at Macy’s: According to Gustafson (2010), Macy’s has always been fortunate to have the most talented and hard working people in the retail industry. A rich and diverse workforce has helped the company in achieving its strategic goals. Economies of Scale: With so many regional chain stores under its umbrella brand Macy’s, the company achieves greater economies of scales by streamlining different business functions and other redundancies. My Macy’s Program: Macy’s has increased its market share through its My Macy’s program. According to Gustafson (2010), this program gives an option to the stores to choose their merchandise by regional preference and keep the items, which are more in demand, thus keeping a low inventory of the items. WEAKNESSES: Repositioning: Some of Macy’s main competitors such as Nordstrom and Neiman Marcus have been quite successful in catering to wealthy and affluent customers. On the other hand, asFuhrmann (2011) explains, Wal-Mart and Target have been successful in cornering bargain hunters. Macy’s is caught in the middle and has to reposition itself in such a way that customers are attractive towards its affordable luxurious brands such as CK, Ralph Lauren etc. Regaining The Lost Brand Value: As per Gustafson (2010) customers bond a strong relationship with their regional stores, who spend time and money inculcating their brand image into the customers’ minds. When the brand suddenly changes, this has a negative effect on the company and as in Macy’s case; it has bought plenty of stores throughout the regional level of America. OPPORTUNITIES Promoting More Private Label Brands: According to Gustafson (2010), when a retailer itself controls the designing, production and the distribution of their clothing lines, these brands of clothes are known as private label brands. Of course, this is initiated taken into consideration customers’ choices and preferences. When a retailer has total control over the labels it is putting forth to the customers, they become more attractive to the customers thus increasing the sales. Macy’s should also incorporate this strategy more into its business segment as the sales of private labels at Macys in 2009 was 19% of its total sales while the remaining 81% of the sales came from market brands (Fuhrmann, 2011). Entering Emerging Markets and Expanding Abroad With such a rich history and vast diversification experience, Macy’s should mark its presence in the global market and open up stores in countries where the purchasing power of people is on an increase. As Gustafson (2010) explains, entering emerging countries like China or India can bring a vast number of customers for Macy’s. Expending into rich spending countries like UAE, same as Bloomingdales has done, can also bring increase in the sales. Growth In Online Shopping These days the trend is on the rise for easy and convenient online shopping. People find it easy to shop from home. Macy’s should tap this market and implement such strategies that its current online sales increases, resulting in more profits for Macy’s. THREATS Transition Period: When a big company such as Macy’s buys a small regional chain of stores, there is a transitional period where the small store makes it to the big one. This vulnerable period can be very challenging and can lead to either success or failure. The company has to make its presence and importance felt to the loyal customers of the previous brand/ stores. Many customers are resistant in accepting changes and if their initial experience is not positive, it will be very difficult for Macy’s to be accepted and erase the negative perception from its customers minds. Changing Customer Trends: McIntyre (2009) explains that customers’ habits and preferences are constantly changing and they are more likely to be better aware about a product pricing, quality etc, through research. They look for the product online and compare it with the competitors and then can go to the store to buy it or buy it online. Competitors are quickly establishing themselves online opening the global market for themselves. Increase in Prices of Commodity and Other Materials Costs: For the last few years, there has been imbalance in the supply and demand of the cotton – Macy’s main raw material. According to Fuhrmann (2011), consumption of cotton has far exceeded the production that has resulted in its price increase by more than 80% from the previous year. Main reasons for this increase in prices are the natural disasters that badly damaged the cotton crops in India, Pakistan and China. More importantly, this has led these countries to import cotton from other countries rather than exporting to other nations. This resulted in limited cotton supplies to major retailers thus increasing their prices. For this, they either sell low quality clothes or pass the higher costs to its customers thus resulting in discouraging customer spending causing low sales. COMPETITORS ANALYSIS Macy’s confused positioning of being a mid to high end department store leaves it vulnerable from all the sides. This makes almost every other department store a competitor of Macy’s. Following is a list of different department stores which Macy’s can consider as its main competitors: Low Priced Department Stores: Wall Mart and Target Mid Priced Department Stores: Sears, JC Penny and Kohl’s High Priced Department Stores: Nordstrom and Saks Fifth Avenue Other than these physical department stores, the threat of Internet retailers like Amazon.com and Buy.com is also looming large over the head of Macy’s. According to McIntyre (2009), having these many competitors is extremely negative for Macy’s revenues because its market share is being eaten up from all the sides. The bottom line for Macy’s is to have a brand reposition based on one distinct price category instead of floating between various price categories. Regional Competition As per Fuhrmann (2011), with Macy’s presence virtually almost everywhere in the country, it needs to fight it out with JC Pennys and Sears of this world, instead of high end store like Saks Fifth Avenue, or on the other hand, discount stores like Wal-Mart, to dominate the national department store landscape. JC Penny Compared to Macy’s, JC Penny sells goods at a relatively lower price. But one difference between the goods sold at both the department stores is that JC Penny focuses more on selling its own brand rather than third party brands. This is helpful in extracting higher profit margins but this adversely affects the revenue, since these brands are made for the masses and are very conservative in styling, they are less likely to excite the buyer thus less chance of him spend money. This is where Macy’s can hurt JC Penny, by creating an effective balance between third party brands and local brands (McIntyre, 2009). Sears Sears focuses more on selling electronic items to which Macy’s has countered by getting into An agreement with Zoom Systems to operate electronic stores within Macy’s. Today more than 500 depot Zoom shops sell electronic appliances in various Macy’s stores throughout the country. This helped Macy’s in attracting customer from a rival store for selling something that they were not traditionally good at (Fuhrmann (2011). Once arrived at a Macy’s store, the aforementioned customer could then be treated to goods that Macy’s is actually good at selling. Global Expansion Many high priced luxury stores like Saks Fifth Avenue have successfully branched out internationally into a selected group of rich countries like Saudi Arabia, UAE and Qatar. On the other hand, British mid priced department store Marks and Spencer has a completely opposite strategy of going scatter gun in terms of countries, with presence in more than twenty five countries. According to Wahba (2011), Macy’s interest would be best served better by branching out in rising economic super powers of the world i.e. China, India and Brazil. This would also help them in gaining advantage over their local mid priced rivals like JC Penny, Sears and Kohl’s. RECOMMENDATIONS Go Global: Macy’s should follow the footsteps of other retailers and expand its business globally. Macy’s should realize that by going global, it would capture more markets simply on the premise of being America’s oldest and largest retailer. As mentioned before, countries like India, China, and UAE are seeing many other stores opening up, and if Macy’s follow suit, it can be very successful. Promoting More Private Label Brands: Macy’s should emphasize on making more of its own labels rather than keeping items of other brands. This will create another unique identity and also will reduce the costs involved. Research and development can assist in identifying more popular trends and preferences of the customers and if correct strategies are applied, Macy’s can increase its sales. Currently, almost 20% of its sales are from Macy’s own labels and if increased, can bring in more sales and profits. Brand Repositioning: Macy’s should be more specific as to what market does it cater to, whether it is a high-end customer or the bargain hunters. It needs to place itself somewhere in the middle so that its own identity can be formed. Internet Retailing: Although Macy’s has a presence on the web, however to compete with the likes of www.amazon.com and www.buy.com, they need to treat Internet retailing and physical retailing as two completely separate entities. Macy’s should follow best practices of these giants to make their Internet retail aspect side of the business more competitive by offering aggressive and variable prices. Moreover, they should also offer products in various varieties keeping in mind that the Internet helps them reach a global audience and they have to cater to the different needs of this new market. Have different products for different markets Macy’s should venture the global market firstly through the Internet and then later explore physically entering new markets with products that cater to local demands. Customised products for regional markets may gain them more customers and appeal rather than mass production. Moreover, they should also consistently change fashion like Zara’s that changes its line very often to meet the changing needs of fashion conscious customers. REFERENCES: Fuhrmann, R. 2011, Macy's Is On A Roll, accessed on 25th May 2011, available at: http://stocks.investopedia.com/stock-analysis/2011/Macys-Is-On-A-Roll-M-JCP-SKS-JWN-SHLD0513.aspx Gustafson, K. 2010, Macy's CEO: Unemployment Threatens Retail's Recovery, accessed on 24th May 2011, available at: http://www.cnbc.com/id/36714157/Macy_s_CEO_Unemployment_Threatens_Retail_s_Recovery Macy’s 2011. Accessed on 25th May 2011, available at: www.macy’s.com McIntyre, D. 2009, Macy's: The Retail Universe in a Box, accessed on 25th May 2011, available at: http://www.time.com/time/business/article/0,8599,1876571,00.html Wahba, P. 2011, Macy's CEO in no rush for big Bloomie's outlet push, accessed on 25th May 2011, available at: http://www.reuters.com/article/2011/05/20/macys-idUSN2026883520110520 Read More