Macy’s: A giant in trouble1

1. INTRODUCTION

Macy's Inc. is an American holding listed on the New York Stock Exchange (NYSE). The

company is a leader in retail sales in the United States being the owner of the biggest store

chains as Macy's and Bloomingdale's. The company sells a wide range of products, including

clothing and accessories for men, women and children. In addition, stores belonging to

Macy's Inc. offer cosmetics, home furnishings and other consumer goods. Most stores are

located in urban or suburban areas, mainly in populous places in the United States.

Beginnings of Macy's Inc. we can find out in 1830, when John Shillito founded a company

called Shillito's, which was the first department store in Cincinnati, in Ohio. Until today,

Macy's headquarters is in the same city, in addition the company also has its office in New

York City.

Source: Macy’s Inc.

Figure 1. Macy’s Inc. Logo

The company operates over 690 department stores under the Macy's and Bloomingdale's

brands and about 160 specialist stores in 44 states and the District of Columbia in the USA, as

well as outside the United States, e.g. in Guam and Puerto Rico. As of February 3, 2018, the

company's activity was conducted through the following store chains:

• Macy’s,

• Bloomingdale’s,

• Bloomingdale’s The Outlet,

1 Case written by Nirali Singh, Karol Bąk and Yawen Pan; and supervised by Oriol Amat,

UPF Barcelona School of Management, 2019.

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• Macy’s Backstage,

• Bluemercury, Inc,

• Macy’s China Limited.

In addition, Bloomingdale's in Dubai (United Arab Emirates) and Al Zahra (Kuwait) operates

on the basis of license agreements with Al Tayer Insignia - a company of Al Tayer Group,

LLC (holding company operating in the United Arab Emirates, founded in 1979).

1.1 HISTORY

Known for one of the biggest stores in the world, Macy’s is famous as one of the biggest

department stores in USA. Their story started in 1858 when Rowland Hussey Macy’s

established his first store in New York City. The store contained mostly dry goods, but the

location was far away from other dry stores at the time. Still, the store grew quickly as they

bought neighbouring buildings step by step. Early on, they were innovative in order to draw

customers like creating Santa Claus exhibitions and illuminated window displays.

The brothers Isidor and Nathan Straus bought the store in 1985 and moved it to Herald Square

7 years later where the famous Macy’s Herald store lies today.

Early 1920s they started expanding to other cities. The first expansions happened when they

bought existing companies in other cities. They renamed them into Macy’s and brought their

innovative concepts to the new locations. The company grew across United States, especially

around New York City.

The most important year in the company’s history is 1994, when Macy’s merged with

Federated Department Stores (FDS). Federated was a big department store operator owning

over 20 distinct brands. The changed its name to Federated Department Stores but changed

many of stores into Macy’s stores. The following years they restructured themselves into a

more united image using Macy’s as their main brand. This rebranding was not without

controversy as many local stores with long history became Macy’s stores in the early 2000s.

This encourage many protests, especially around Chicago where Marchall Fields was a

popular store.

In February 27, 2007, the Federated Department Stores Inc. announced that the company's

name will be reverted to Macy's Group, Inc. By March 28 the company has changed its plans

for a new name, deciding finally at Macy's, Inc.

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In March 2005, the number of Macy's stores increased to around 425 in the whole country.

In addition, it serves its clients through the website www.macys.com.

In 2015, as technology and new lifestyles made a big impact on shopping habits the company

made their first announcement that they had to close stores and lay off workers. As of 2018

they have closed over a hundred stores and fired over 20.000 people. Their stocks have

decreased with over 10% each year last three years and there are companies ready to buy the

rest of the company with its 880 stores.

Presenting the development history of Macy's Inc. it is impossible to skip two store chains

belonging to the company. They are Bloomingdale's and Bluemercury.

Bloomingdale's Inc. is an American department store chain that was founded by brothers

Joseph and Lyman Bloomingdale in 1861. In 1994, it became a part of Federated Department

Stores Inc., which is why it is currently a daughter company of Macy's Inc. From 2017 there

are 38 full-range stores and 17 outlets under the Bloomingdale's name operating in the United

States.

Bluemercury is a network of American beauty salons founded in 1999 by Marla Malcolm

Beck and Barry Beck in Georgetown, Washington, DC. Stores sell cosmetics, as well as face

and spa treatments. Macy's has launched Bluemercury services in its stores as well increased

the number of free-standing stores under the name Bluemercury.

Few important moments in the history of Macy’s are:

1858 Rowland H. Macy’s opens R. H. Macy’s & Co., as a dry goods store in New York City 1861 The red star first appeared next to the Macy's logo, which was a replica of a tattoo Roland

Hussey Macy’s had on his forearm when he was a Nantucket sailor in his teenage years 1902 Macy's became the nation's first building to have modern escalators—made of wood—

installed 1912 Isidor and Ida Straus, the former co-owners of Macy's, died in the sinking of the Titanic

(today, a plaque in their honour hangs inside the memorial entrance on the main floor) 1924 Macy’s first Thanksgiving Day Parade, which became a tradition in New York City since

then. 2005 Macy's had 240 locations, mainly in Eastern and Western Coast. The number of Macy's stores

increased to around 425 in the whole count 2008 Macy’s consolidated three divisions - Macy's North into Macy's East, Macy's Northwest into

Macy's West; and Macy's Midwest into Macy's South 2015 Closing of multiple stores and laying off workers 2017 Macy’s net sales were $25.78 billion. However, few stores sales fell, while few struggled to

remain open in previous years due to high competition

2018 More than 100 stores closed and 20.000 people fired. 880 stores still intact. Stock value plummeting each year.

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1.2 BUSINESS DESCRIPTION

Macy's, Inc. as one of the largest US companies is mainly combined with the activities of

luxury department stores. It is a multi-channel retail organization that runs not only stores but

also internet store and mobile applications. The company sells a wide range of goods such as

clothing and accessories for men, women and children, cosmetics; home accessories, and

other consumer goods.

The company offers many brands in its stores. These are both own brands as well related

brands. The main brands offered in Macy's, Inc.'s chain stores are: Alfani, American Rag,

Aqua, Bar III, Belgique, Charter Club, Club Room, Epic Threads, First Impressions, Giani

Bernini, Greg Norman for Tasso Elba, Holiday Lane, Home Design, Collection Hotel,

Hudson Park, Ideology, INC, Jenni, JM Collection, John Ashford, Karen Scott, Lune + Aster,

M-61, Maison Jules, Martha Stewart Collection, Material Girl, Morgan Taylor, Oake, Sky,

Style & Co., Sutton Studio, Tasso Elba, Thalia Sodi.

The company's retail operations are seasonal and characterized by high share of sales and

operating revenues in November and December. Working capital requirements fluctuate

throughout the year, increasing in mid-summer in anticipation of the autumn merchandising

season. They also grow significantly before the holiday season, when the company reaches a

higher level of inventory.

In addition, Macy's, Inc. has many subsidiaries that provide various functions support for

retail operations in an integrated manner, covering the entire company. Down these

companies include:

1. FDS Bank;

2. Macy’s Systems and Technology, Inc.;

3. Macy’s Merchandising Group, Inc, (MMG);

4. Macy’s Logistics and Operations;

FDS Bank is a subsidiary of a company that provides credit services for some collection,

customer service and credit services for various credit cards accounts. Macy's Systems and

Technology, Inc. is in full possession of Macy's, Inc. and provides data processing services

and operational information management in the field company's operations, excluding

Bluemercury and Macy's China Limited. Macy's Merchandising Group, Inc. (MMG) - a 100%

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subsidiary of Macy's, Inc and its subsidiary Macy's Merchandising Group International, LLC,

are responsible for design, development and marketing of private label brands and some

licensed brands. Macy's Logistics and Operations is a division owned by the company

Macy's, Inc. and provides services in the field of warehousing and distribution of goods.

2. INDUSTRY ANALYSIS AND COMPETITORS

2.1 INDUSTRY The department stores market in the United States is very large and represented by many

well-known companies. However, in recent years, it continued its long-term decline. This was

mainly due to competition from the electronic trading, which accelerated declines. Forecasts

indicate that within five years to 2023, the trend will continue, but department stores try to

reverse this trend, for example, by introducing new strategies. Such activities of enterprises in

this industry may lead to changes on market.

Competition from e-commerce has a negative impact in the short term, however, it positively

affects the activity of department stores in the long run, because they see their chances in the

development of e-commerce and start by themselves offer your goods online.

According to an IBISWorld report from May 2018, in the United States were 7,535

businesses classified in the department store industry in which 93,760 people were employed.

Annual revenues in this industry amounted to $ 155 billion, however, in the years 2013-2018

the annual loss of this sector amounted to 3,3. The forecasts for the coming years are also

promising successive drops in the industry.

As mentioned at the beginning of this subsection in the USA in addition to Macy's Inc.,

operates many companies in the department store industry. The list below presents the most

recognizable entities on the American market:

Barneys New York Lord & Taylor Bealls Neiman Marcus Belk Nordstrom

The Bon-Ton Sears Boscov’s Stage Stores

Burlington Target Corporation Dillards’s Von Maur

Hudson’s Bay Company T.J. Maxx J.C. Penney Lord & Taylor

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Moreover, Macy’s Inc. has a lot of competitors form the Europe, which also operate in the

United States of America:

• H&M

• Zara

• Massimo Dutti

• Topshop

• Next

2.2 SWOT ANALYSIS

Strengths

Macy’s uses omnichannel strategy to strengthen its position and to maximize the consumers’

experience. Bloomingdale's outlet, Macy's Backstage store, Bluemercury, and online sales

platform all together allows Macy’s to improve the customers experience. Macy’s Online

platform allows the customers to place orders using any devices in a flexible way. Macy's

enjoys a high business credibility and worthiness. This accreditation has made Macy's to

receive an exemplary rating of A+ to F. The company has received this rating because it is

committed to good faith when resolving issues related to customers. The company stocks a

variety of clothing ranging from star brands like Calvin Klein, Michael Kors and Ralph

Lauren among others. Macy's has individualized merchandise offering, for example, it utilizes

location-based technology to offer more personalized recommendation and discounts (Singh,

2012). This helps the company to improve customer involvement and strengthen its

promotional and marketing activities.

Weaknesses

Macy’s has a high employee turnover with low employees’ engagement. High overheads

associated with scale could be explained by the ineffective leadership of Macy’s and the lack

of training. According to the feedback of employees of Macy’s (from glasswork website),

there is a flawed scorecard system which hurts the employees. They are measured by

scorecard but not the management team. Furthermore, there is still limited global brand

recognition. In addition to it, there is no exclusivity in the products that Macy’s has to offer.

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Opportunities

The current business of Macy’s is concentrated in US market, however the company’s has the

huge opportunity of international expansion such as to Dubai, India and Asia. The company’s

online platform (ecommerce) also helps to improve customers experience and increase the

global market share of the company. The company is also privileged to witness a growing

market for luxurious items in the beauty industry, and this is an opportunity that Macy's can

benefit from, for example, Macy's Bluemercury store can offer an opportunity for the

company to stock luxury cosmetic products as well as providing spa services. This can give

the company a new growth channel.

Threats

The main threat of Macy’s is the intensive competition. Walmart, Amazon and Kohl’s are the

main threats of Macy’s. The main rival of offline segment is Walmart while the online rival is

amazon. the company must look into ways of meeting the changing customer preferences and

seal its market position. Discounts stores such as Wal-Mart tend to offer very competitive

price unlike Macy’s. This puts Macy's in a risky situation during tough economic periods.

Customers are likely to walk away from the company when prices are unfavourable for them.

Post economic crisis there has been a shift in consumer's consumption behaviour, people tend

to spend their income saving on technology and experiences rather than clothing.

2.3 MAIN COMPETITORS

Macy’s has been facing a tough competition from many rivals in the industry. Ecommerce has

hurt the industry business more than the internal competition. However, in the year 2018

Macy’s performance by segments has improved more than its rivals.

Few of the main competitors are mentioned below (compared on similarity in size and other

factors):

TJX Companies INC Bed Bath & Beyond INC Kohl’s Group Dillards INC

Ross Stores INC Burlington JC Penney Co INC Nordstrom

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SALES 2018

Macy’s has maintained a second position (2018

3rd Quarter) in sales among the above

competitors. Macy’s sales of (approx) 25 million $

was only surpassed by the sales of TJX amounting

to (approx) 36 million $ in 2018.

Macy’s vs Competitors: Sales, Source: Own

STOCK GROWTH 2018

Compared with other competitors we can observe that Macy’s performance has been better

than its rivals. This is visible by comparing the Year to date (YTD%).

Macy’s vs Competitors: YTD stock growth, Source: Own

In 2018, there has been a 15.58% value increase for Macy’s stock in contrast to TJX, who has

most sales in 2018 even then, they have not been performing well in the stock market and has

a YTD decrease in stock value.

TOTAL SEGMENT MARKET SHARE 2018

With revenue growth of 2.33% in 2018, Macy’s has been able to increase its market share in

comparison to its competitors.

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Macy’s vs Competitors: Market share, Source: CSIMarket

REVENUE GROWTH

The department store chains have

been faced with a very tough

competition from e-commerce sites in

the last few years. However, Macy’s

has been trying to keep ahead of this

raw competition by using new

strategies and has been able to

maintain a positive revenue growth in

comparison to its competitors. Macy’s vs Competitors: company revenue growth, Source: CSIMarket

NET INCOME COMPARISON

Macy’s net Income in the 3 quarter

2018 grew year on year by 82.35 %,

faster than average growth of Macy’s

competitors of 3.05 %.

Macy’s vs Competitors: Net Income, Source: CSIMarket

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NET MARGIN vs TOTAL COSTS

Macy’s vs Competitors: Net Margin to Total costs, Source: CSIMarket

Macy’s net margin is of 1.15% while the competition has earned a net margin of 2.93% over

their total costs. It’s lower than that of competition, but when compared to previous years it

shows a declining trend.

Conclusively, Macy’s has been able to keep a positive revenue and a respectable margin in

comparison to its competitors in the industry. Macy’s has managed to maintain good sales

even with a rising competition from e-commerce sites. They are working on new strategies to

keep up with the changing industry and maintain a positive margin.

3. PRESENT SITUATION

3.1 CUSTOMERS, DISTRIBUTION CHANNELS AND 4 PS ANALYSIS

CUSTOMERS

The main target of Macy’s are the American middle class who prefer quality products at

reasonable prices. The company’s stores under the Bloomingdale’s brand offer high-end

customers an assortment of established brands such as Armani, Burberry, Chanel and

Christian Dior. Hispanic consumers also plays an important role in the US market as their

numbers are increasing. Currently, Macy’s has also been targeting millennials with other

customers. The company has launched several collections specifically aimed at Millennials,

including QMack, Maison Jules, and Bar III Carnaby.

Macy’s caters to the tastes of multicultural buyers, who represent a major portion of its

customers. That is why one of Macy’s core strategies is My Macy’s, which focuses on

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localizing product assortment based on store location. Macy’s ensures that local tastes and

preferences are reflected in the merchandise size, fit, style, and colour of a particular store.

DISTRIBUTION CHANNEL AND 4P ANALYSIS

As we mentioned previously, Macy’s is using omnichannel strategy to improve the consumer

experience and also to acquire new customers.

Product & Services

Provides wide range array of apparel for

women, men and children

Goods for home

Beauty, hair, fragrances and cosmetics

products.

Provide the customers the option to consult

with professional personal stylistics / shoppers.

Price

Offering affordable prices

Constant sales, coupons and special

offers

Additional saving through loyalty

programs

Promotion

Tv and Radio ads

Magazines

Online advertisement

SEM, paid search

Place and Distribution

More than 700 stores, point sales.

Online platform, ecommerce Macy.com.

International shipping available

KEY SUCCESS FACTORS:

Macy’s KSF are the following:

• Continuous innovation in order to adapt to the market

• Using the Omnichannel strategy: “Be everywhere, do everything, and never fail to

astonish the customer”. This has become Macy’s mission, and it is as true for Macy’s

today as it was over 100 years ago. Omnichannel Strategy allows Macy to service the

customer more efficiently, striving to seamlessly integrate our stores, online and

mobile app through use of cutting-edge technology as well as guide a streamlined

workforce wired to maximize opportunities across sales channels.

• My Stylist – free personal shopping service

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• Loyalty program that provides discounts, benefits and offerings to credit card

members

• Magic Selling program trains sales associates to step beyond their day-to-day tasks to

make customers happy.

• Plenti – rewards program to earn and redeem points with Macy’s and its partners (i.e.

Exxon, AT&T, Hulu, etc.).

• Through My Macy’s initiative, Macy’s adjusts its merchandise assortments at local

stores and online to reflect the customer’ regionalized tastes and desires.

3.2 STRATEGY – NORTH STAR STRATEGY

Macy’s struggles with many problems, especially connected with e-commerce competitors

this led the Board of the holding to create a new strategy, called “North Star Strategy”. It was

presented in 2017, by Jeff Gennette – CEO of Macy’s Inc. The name of the strategy is of

course linked with the logo of the company, which is a red star. The new strategy is based on

5 points.

1. From Familiar to Favourite – Consumer research confirms the Macy’s brand is

well-known and well-loved in the USA and growing across the world. Actions in this

point include understanding and anticipating its customers’ needs and strengthening its

fashion authority, as well as executing initiatives around its loyalty and pricing

strategies.

2. It must be Macy’s – The company delivers the products and experiences its

customers love and can only find with Macy’s. This includes styles and home fashion

for every day and special occasions, from its leading private brands, as well as

exclusive national brands or assortments found only at Macy’s. It makes the

company’s products unique and desirable.

3. Every Experience Matters – The biggest Macy’s asset is the ability to combine the

human touch in its physical stores with cutting-edge technology. It is enhancing is

customers’ experience as they explore Macy’s assortments, find their favourite styles,

sizes and colours, and receive their purchase through the shopping channels they

prefer. Macy’s mobile app and digital capabilities complement the store experience

and help its talented sales associates serve its customers better than ever. Macy’s app

powers personalized recommendations, serves as a loyalty tool to deepen its customer

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relationships, and offers a simplified product discovery and checkout process. The

company’s successful Buy Online Pickup in Store (BOPS) option will continue to

provide customers with the omnichannel shopping experience they love.

4. Funding our Future – This point represents the decisions and actions that the

company takes to create resources to fuel its growth. Macy’s Inc. is focused on cost

reduction and reinvestment, and creating value from its real estate portfolio, which is

very big.

5. What’s New, What’s Next – this point explores how Macy’s innovates to turn

consumer and technology trends to its advantage and drive growth. This includes

exploring previously unmet customer needs and making smart investment decisions

based on customer insight and analytics. The company will use these insights to

improve its digital concepts, brand partnerships and acquisitions, while also

innovating the company’s internal processes and customer-facing ideas.

Following the strategy Macy’s can improve its performance and start growing again. In

February 2018, during the investor’s meeting, CEO of the company Jeff Gennette showed,

that the new strategy started giving positive effect. Some of the most important conclusions

were presented below:

• Macy's reorganized its marketing activities by putting more emphasis on fashion, as

well as simplifying the previously complicated price scheme;

• A loyalty program called "The Star Rewards", which was introduced in September

2017 proved successful, which is why the company is planning more solutions of this

type;

• Macy's improved its range of goods, which led to average growth retail sales by about

3 percent;

• Macy's Backstage (outlet with discounted products) has been expanded to 45 shops;

• The option called "buy online, pickup in store" has been extended using a more

artificial intelligence, to improve customer service in Macy's mobile applications;

• Cash receipts from the sale of real estate amounted to USD 411 million.

Points mentioned above prove, that the company is on the good way to implement the new

strategy and improve its performance in next years.

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4. PRESENT CHALLENGES FOR MACY’S

Macy’s has been trying to improve its sales by focusing on growth categories such as beauty

and by expanding its presence in the off-price retail space through its backstage stores.

However, intense competition from online retailers such as Amazon and off-price retailers

such as Kohl’s JC continues to impact Macy’s as well as other department stores’

performances.

Source : Wall street earnings estimates

• Outdated business model - low growth

Due to fierce competition and heavy promotional discounts in the industry, the entire retailing

industry is suffering from the decline of turnover and reduction of customers visiting the

store. On the other hand, the surge in online retailing is changing the consumption behaviour

steadily. The upsurge in online retailers such as Amazon has also impacted traditional brick-

and-mortar retailers. Macy’s has performed better than most of its competitors due to its

efforts to localize the merchandise under its My Macy’s localization strategy as well as the

expansion of its online business.

However, some rivals like Zara reacted quicker and better to customize the technology as per

needs of the consumer. Macy’s business model might no longer be sustainable. Consumers

are changing the way they shop, and it seems many are no longer willing to wander around

giant retail stores to find what they want, but instead shop online. Macy’s should have reacted

quicker on this huge global trend but they are late and it has led to a substantial decrease in

the company’s sales.

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• Losing its premier position and excessive discounting focusing on off-price business

Macy's flagship store in Herald Square serves as evidence of how the store is at risk of losing

its premiere positioning. Everything was

haphazard and in disarray, showing a lack

of care from employees. If the store

doesn't care — Why will the consumer

care? Why will they come back? Why

would they ever want to pay a premium?

In addition, the company focuses too

much on the discounts and off-prices.

Some of Macy’s store have applied the

discount apparel up to 80%. Source: Business Insider

• Threats of e-commerce rivals

The biggest concern of Macy’s (which even remains true for most of traditional, mall-based

retailers), is the imminent threat from Amazon and the aforementioned impending death of

malls.

• Fall of Macy’s stock

In the last 5 years, Macy’s highest stock price has reached to $72,31 (July, 2015). After

which, the company’s stock price started to go down and never reached higher than $45. The

investors are disappointed with their results lately. The whole departmental store industry is

suffering from falling stocks. Retailers in general had a tough time, with the SPDR S&P

Retail ETF down about 10%, but the major department stores fared far worse.

Stock price fluctuation in last 5 years, Source: Macy’s INC

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On September 17, Macy’s announced its partnership with Facebook, under which 150 e-

commerce brands will be offered through nine Macy’s stores in the 2018 holiday season,

called The Market. The company is working to provide a virtual and augmented reality

furniture shopping experience to customers. The short term goal is to Enhance Store Look

and Feel; Invest more into Off-Price Model. while the Long term goal is to lead the

omnichannel retail space.

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6. QUESTIONS TO BE ANSWERED: 1. Analyse the financial statements of Macy’s.

2. Recognize the qualitative and quantitative strengths and weaknesses of Macy’s.

3. Construct a cause and effect diagram.

4. Recommend some actions and demonstrate the effects they will have on Macy’s.

7. REFERENCES:

https://ecampus.bsm.upf.edu/pluginfile.php/116078/mod_resource/content/0/Analysis%20of

%20financial%20statements%20Análisis%20de%20Balances%20ENGLISH.pdf

https://www.macysinc.com

https://www.capitaliq.com/

https://finance.yahoo.com

https://csimarket.com/

https://www.nasdaq.com/

https://www.marketwatch.com/

https://www.thestreet.com/story/14521024/1/4-ways-macy-s-is-competing-with-new-age-

retail.html

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8. APPENDIX 1: BALANCE SHEET OF MACY’s. Source: S&P

Capital IQ

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APPENDIX 2: INCOME STATEMENT OF MACY’s. Source: S&P

Capital IQ

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APPENDIX 3: CASH FLOW STATEMENT OF MACY’s. Source: S&P

Capital IQ

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APPENDIX 4: RATIOS. Source: Own calculations

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