Macys Department Store Repositioning Case Analysis Marketing Essay

1682 words (7 pages) Essay

1st Jan 1970 Marketing Reference this

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Federated Department Stores made a decision in 2005 to reposition and consolidate 15 of its regional department store chains under just one national brand-Macy’s. This decision was in response to the decline in sales and profits that had hit the traditional department store industry, which was in a maturing stage and moving towards a downward trend for some time. Just three years later, in 2008, U.S. economy was hit with a recession that threatened the livelihood of many successful retail giants. While Macy’s did experience a significant drop in revenue in 2008 with a net loss of $4,803 million, compared to other department stores such as Mervyn’s that went bankrupt when the recession hit, Macy’s managed to stay in the game. Macy’s ability to not become obsolete was in part due to the consolidation and repositioning tactics that provided the company an avenue in creating a national brand and reducing the unit cost of advertising and promotional budgets considerably due to having one central hub for all of the company’s administrative functions and bulk purchasing.

The success of the consolidation strategy is attributed to several factors. For instance, Macy’s brand already had nationwide recognition as “America’s department store” through aggressive national advertising activities, Fourth of July Celebrations and Thanksgiving Day Parade. In addition, when Federated had consolidated its regionally established department stores, these stores had a well-established customer base, were regionally well known, and were in prime locations close to business districts or large shopping centers, which meant that Macy’s did not have to put any efforts into developing business for those stores but rather maintain and increase business with them.

Moreover, both Federated and Macy’s had solid leadership teams with strong retail and department store experiences. In fact, Federated management team was already well aware of the issues involving brand conversion since Federated had converted some of its regional stores to Macy’s brand prior to the official 2005 consolidation. The management team also had a well established relationship with major supply chain and distribution networks that were now selected to serve the Macy’s stores. Thus, once again Macy’s did not have to put any efforts into establishing new relationships but would simply have to maintaining the existing ones.

On the other hand, as a consequence of a declining retail industry, less and less customers were flocking towards department stores as well, thus making competition aggressive for the existing companies competing for a sliver of the limited profits that were still available. Yet competition within existing companies was not the only threat, discount stores like Walmart, Target and Marshalls were beginning to build momentum in the market, gaining more sales. Moreover, with the presence of Internet, online shopping was beginning to rise in popularity, which also brought in more retailers to the already heavily competitive retail environment. Thus, due these challenges, Macy’s repositioning and consolidating efforts was a good strategic move to restore its vitality. In fact, the offshoot of the consolidation tactics enabled Macy’s to provide moderately priced products. Thus, by remaining at the middle of a bell shaped curve, Macy’s was able to gain a large part of the market share and by identifying a new position as “affordable luxury,” Macy’s would be able to broaden its consumer base. In addition, Macy’s national brand coupled with its unique product price point at the mid-level range (lower than Saks Fifth Avenue but higher than Walmart), certainly provided the company with a stronger buying power in the marketplace.

Yet, offering affordable prices was not the only repositioning tactic used by Macy’s, the company also changed its brand from specific demographics to fashion conscious consumers as well as the younger female audience. Macy’s created a bridal registry and offered fashions made by younger designers to further differentiate its brand from the traditional department stores that had failed in their past attempt to attract consumers between ages of 18-25 since traditionally consumers of department stores were women between ages of 25 to 55. In addition, Macy’s launched Everyday Value strategy program that promoted value pricing such that customers would be able to purchase products without having to wait for sales day and the availability of coupons to get the most bang for their buck. In this way, Macy’s would have a better chance to stay close to its customers, provide affordable luxury and find a viable middle ground.

While consolidation and repositioning efforts had their benefits, there were some challenges. Change is often very difficult as most individuals are creatures of habit. Thus, consolidation of department stores to one brand (in this case Macy’s) meant that existing consumers who had regularly shopped at their favorite department stores (such as Marshall Field’s in Chicago) would now have to adjust to new products, prices and services. In fact, the perception of some loyal consumers post consolidation was negative, complaining that Macy’s store had lower quality products and services. In addition, Macy’s had standardized its products and pricing nationwide to lower purchasing cost, however this tactic actually backfired. Standardization resulted in higher prices of products offered at Macy’s compared to the former regional department stores chains, thus consumers were apprehensive to shop at the new Macy’s.

Yet such challenges did not deter Macy’s, instead the company made the necessary adjustments in order to accommodate its consumers. For instance, Macy’s abandoned the standardization strategy in response to the negative consumer reception and tailored its product selections based on the consumers’ needs and preferences. In this way, Macy’s would be able to penetrate the local market and also provide consumers a more pleasant shopping experience thus securing consumers’ loyalty in Macy’s brand. In addition, Macy’s continued to aggressively promote its brand nationwide through celebrity advertisement. The company forged ahead as an exponential revenue generating entity by focusing on fashion, adding Martha Stewart, Tommy Hilfiger , Beyonce products as well as many other popular product lines to its menu. Macy’s also developed its own private brands such as American Rag and Charter Club. By creating private brands and providing exclusive brands such as Martha Stewart and Donald Trump , Macy’s was able to have a greater control over each brands’ value chain there by reducing product cycle time as well as increasing the frequency in line creation. Thus, it is clear that Macy’s had a competitive advantage over other department stores that were bound to the extended buying cycle where clothing selections were ten or twelve month old and were outdated in terms of latest fashion trends. In this way, Macy’s integrated two different models to remain competitive. The company used strong retail brand model by creating and promoting its own products, which comes with a higher operating cost however produces higher profit margins. At the same time, Macy’s utilized showcase model by providing diverse and popular brands to entice customers thus creating a unique shopping experience while lowering its operating cost. The company also continued with the concept of affordable luxury, participated in Fourth of July Fireworks as well as the annual Macy’s Thanksgiving Day Parade. Additionally, as a result of the financial crisis in 2008, many department and retail stores offered promotional discounts such as “percent off” to sell overstocked inventory and attract consumers. Macy’s followed suit and discontinued its “Everyday Value” program. Instead, in 2010 Macy’s introduced “My Macy’s” program by tailoring products based on local tastes in order to gain customer loyalty and market share.

Thus, for Macy’s the consumer became the basis for its strategies in terms of the market segments generated, the objectives of the national promotions and advertisings created, the remodeling of the stores for a better shopping experience, the focus on fashion rather than demographics, understanding differences in consumers’ needs and setting the price point at a moderate level. In this way, Macy’s found a way to be less conservative and more forward thinking in its strategy development than traditional department stores. As a result, Macy’s was better prepared to weather the storm when financial crisis had plagued other department stores during the recession and thereafter.

In just a short year after the recession and subsequent year after that, Macy’s net income began to show positive gains, moving from $350 million in 2009 to $847 million in 2010 respectively, a clear indication that the repositioning and consolidation strategies Macy’s had begun just five years earlier had indeed been successful thus far. With the aftermath of recession still lurking about, the rise in gas prices that increased the delivery cost of products to stores as well as issues with cotton crop that increased the cost of cotton and consequently the rise in prices of cotton based clothing the entire retail industry is still fighting an uphill battle. Thus, what the future holds for Macy’s remains to be seen, however in order to remain relevant, Macy’s would need to continue adjusting its strategy to keep up with ever evolving economy and judging from Macy’s past behavior, the company is likely to reinvent itself once again.

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