Strategic Management: Macy’s, Case Study Example

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Case Study

Introduction

In order to determine whether the consolidation and repositioning of Macy’s was a brilliant master stroke that will facilitate prosperity despite a declining retail industry , or an exercise in futility, due to the perception of many that the traditional department store concept has done its time  and was heading into obsolescence; a critical has be to taken , and this will encompass a situational analysis of the industry and Macy’s operation itself, and  an evaluation of the consolidation and repositioning strategy in 2005, to determine whether a unique and valuable position was indeed achieved, despite the high level of competitiveness and the threats of the continuing recession.

Situational Analysis

During 2005 when Macy’s decided to pursue the repositioning and consolidation strategy, the general economic condition was quite good, because among other things, consumers had ample disposable incomes to purchase the products that were being marketed. However, in the next three years and beyond, things were to change for the worse due to the onset of a critical recessionary period that threatens the existence of many successful retail giants, including Macy’s.

Macy’s leadership strategic decision became questionable when the recession continued after 2008, because for the first time in several years it was unable to sell off its substantial Christmas inventory.

The loss in profit was exacerbated by a rise in the prices of gasoline as well as production problems regarding cotton, two vital ingredients that negatively impacted the cost of several products Mac’s supply to its customers nation-wide. The rise in the process of these variables forced Mac’s to increase the prices of certain goods to its customers, and this in the final analysis will lead to reduction in the sales volume and the profits gained by the company which had positioned itself in the upper-middle segment of the market.

The challenge was made even more difficult for Macy’s, in that the industry was quite competitive within a 5 market segment, namely the high-end luxury, high-end general, upper-middle, lower-middle, and the low-end, and the company could not overnight launch into any of these other segments without spending time developing a workable strategy that will not negatively affect its revenue generation, brand image, market share, the continue availability of the  jobs of many of its employees in different locations, and the retention of the  loyalty of customers and suppliers..

Experts in the strategic management field for this industry were also of the general consensus that the  traditional department store concept was either at a mature or declining stage, and hence Macy’s had to find a strategy that will enable it successfully reposition itself or remain a brand entity to its loyal customers, but heading into extinction.

The company will be forced to look within itself and in the external environment to see what process, systems, assets, procedures, tactics, personnel changes, successful customer preferences, unprofitable activities and relationships in terms of cost, contractual agreements, replicable competitor strategies, and research studies, as well as become more innovative in product delivery, to find a viable and sustainable position.

A critical challenge that will face Macy’s at the end of its consolidation and repositioning exercise will be the perception of its loyal customers that the company has changed in terms of its new product, prices and services, and this may result in substantial losses in revenues and market shares as well as greater market dominance form its competitors.

These considerations, as well as the pursuit of a broader focus using customers tastes instead of demographics, the embracing activities that differentiates it from its competitors, implementation of Everyday Value, and the use of fashion and celebrities to attract younger customers were the foundations under which the strategic decision of the management of Macy’s to position the company between the mid-level and the high–end market segments were made.

This meant the company that under this new image and position each store location in different zones of the country will have the same products priced according to the perceived quality expectations of the customers, and as a result Macy’s will be able to generate higher than normal revenues from products that were made at low fixed rates by its suppliers.

Macy’s repositioning and consolidating grew out of the continuing loss in revenues in retail zones that were once prosperous, but the negative downturns in economic climate may force many of its competitors to close in areas where Macy’s, because of its size, market strength, the national scope of its brand and advertizing budget, as well as its new strategy, was able to remain viable and capitalize on the vacuums created.

In these situations the companies profited by gaining greater sales volume from customers that were previously served by its competitors.

However, there are also negative aspects to this consolidation and repositioning strategy across the country by Macys, as it resulted a number of stores being closed, employees of these stores fired, transferred or demoted, dependent suppliers contracts cancelled, distribution routes cancelled or reduced, and companies and consumers in several communities depending on Macy’s stores and its suppliers were left destitute.

The image of Macy’s in the external environment among these specific former stakeholders will be a badly tarnished one and may have negative repercussion in terms of future sales being lost to its competitors, and possible sabotage of company’s products and services.

Internally, Macy’s from a positive perspective will be able to reduce the unit cost of its advertising and promotional budgets considerably, while generating super normal revenues at the same time, Additionally, the company will benefit from the sales, inventory, systems and distributions experience of the former Federated employees, an increase in floor space for greater displays and promotions and  the advantages gained from the prime locations of many of the former stores, in terms of the ready access to former Federated consumers and the opportunity to market its new lines of products using the well know celebrities like Donald Trump, Jessica Simpson, and Usher among others.

It could be argued that Macy’ definitely strategy created synergy and an exponential revenue generating entity, when it is able to combine the use of fashion designers, the concept of affordable luxury, the use of well known designers, and celebrities, its Fourth of July Fireworks, the annual Macy’s Thanksgiving Day Parade and many other national events into one package, because individually all these activities are cash cows themselves, and by combining them, Macy’s has created a unique and valuable marketing position on the national landscape that will be difficult for its competitors to replicate.

Further, the argument that Federated Department stores attempt to differentiate the new entity from its competitors was certainly a brilliant idea could be reinforced  by the fact that the Macy’s before the recession and the one recreated because of the recession were totally different entities, especially in terms of the categories of customers being served, the range of products on display in wider and more accommodating aisles, the combined knowledge, skill, attitude and experience of its employees, and the type of customer appeal being made base on taste, and the enduring impact of its strong advertising and marketing programs.

The later status will ensue the company will positioned to generate maximum revenues from a number of streams while maintain its market segmentation in a very competitive retailing industry.

Critics could argue that had Macy’s not been able through Federated Department Stores to become more relevant to its customers by appealing to the younger groups, by changing its brand from a focus on specific demographics to that  of  focusing on attracting fashion conscious customers and inserting the Everyday Value strategy; where customer were able to purchase products without having to wait for sales day and the availability of coupons, the company would have become obsolete in a matter of a few years.

Evaluation of Macy’s 2005 Consolidation and Repositioning Strategy

An evaluation of Macy’s 2005 brings to light several strengths and weakness that can be discussed.

Macy’s through the process was able to acquire 810 stores in 50 states, and was able to design systems, low cost advertising strategies with broader reach and greater revenue generation, purchase merchandise at the same price for all stores, minimize distribution and administration cost through centralization, as well as reducing signage cost, while achieving high levels of visibility for its national brand

The offshoot from these cost saving exercises was that they allowed Macy’s to deliver goods at very low cost to its stores and as such it was able to maintain high levels of competiveness in attracting customers to its stores due to affordability of the  of the goods on display.

Macy’s by this strategy was also able to deter or minimize the entrance of new competitors as well as the emergence of substitutes into its section of the market segment.

Annually Macy’s has always been able to maximize its image as Americas Department Store because it is able to use its nationally televised Thanksgiving Parade in New York, and the Fourth of July Celebrations to saturate the market with its product range, current fashions and store locations using top celebrities like Ralph Lauren, Martha Stewart, Alfani, Michael Kors and America Rags, such that its financial returns be difficult to evaluate successfully.

Federated Department Store decision to retain Bloomingdale with 40 stores, in order to maintain the stores position at the slighter higher-end, and combining it with brands like Burdine, Richs and Goldsmith; which were acquired over decades, was a vital strategic move that enable Macy’s to keep its loyal customers, while using other stores to widen its market reach. This reduces the level of revenue loss that could have occurred otherwise.

The combination of the reputations of both Macy’s and Federated Department was also beneficial to recreated entity, in that both had their individual loyal group of customers, they could cross train employees to expedite service delivery, they can share floor space to attract more customers to each locale, share advertising cost, and make volume purchases at low unit cost, so that their customers could benefit from low prices and remain loyal going forward.

A downside to the consolidation and repositioning strategy is in the area of stores closures and prices increases that loyal customers would be exposed to in the process. Store closures brings greater economic hardship to communities, other business, the education of children whose parents were employees of Macy’s and  the suppliers of goods to these stores, who had their contracts cancelled or have to make longer trips using more expensive fuel cost to earn the same amount of revenue.

Loyal customer to Macy’s are likely to resist the high prices they are subjected to, by turning to the competitors like Wal-Mart at the low end of market segment, and may never return thereby depriving the company from revenues that may amount to millions, depending on the number of stores and the population centers where these customers are located.

Macy’s Unique and Valuable Position

Macy’s in collaboration with Federated Department store have implemented eight different components of its consolidation and repositioning strategy to carve out a new company that was unique and hold s a valuable position in this very competitive retail market.

This was due to the assets like prime locations, knowledgeable employees, reputable companies like Burdine, Richs, and Goldsmith, the use of fashions to attract specific segments of the market, national advertising strategies, the recruitment of celebrities the use of Everyday Value, instituting bridal registry, staging regular fashion shows, improving dressing and rest rooms, re-designing of aisles to meet the taste of consumers in different locations, the engagement of national brands like Tommy Hilfiger, Ralph, Martha Stewart among others as well as the concerted effort of the leadership of the company to make sure these activities differentiate it from the competition.

Macy’s leadership further enhanced the image of the company, by abandoning the standardized merchandising strategy and adopting one that was tailored to meet the unique taste of customers in each location, so that the shopping experiences created will result these customers increasing the frequencies in which they will visit these stores and make purchases.

Additionally, Macy’s by this approach had also made provision for these customers to engage in impulsive buying, by widening the aisle and including more products and advertisement, so that it can continually maximize sales.

The author of the article would have helped to justify the argument that Macys new position was unique and valuable, if research was done on the strategies other competitors were engaged in at the same time, and how different they were from the company under review, but in the absence of such information, the efforts of the leadership of the company to use its nationally televised events to promote the products of the company, as well as the use of events like fashion shows involving celebrities as well as well know fashion designers and brand names, goes a far way to ensure the nation see the new Macy’s brand on display and recognize in the way it was intended by its marketers.

Conclusions

Macy’s strategy of consolidation and repositioning was indeed impressive in every respect, despite operational problems in some areas, and this auger well futuristically.

Base on its experience the leadership of the company it should be assumed will realize that in order for Macy’s to maintain its current position and uniqueness, change will have to be a constant in all operational areas, as consumer tastes will not remain the same, neither the strategies its competitors, s engages in, nor the economic condition that prevails in the country at any point in time.  Should they embrace this change concept, Macy’s future will be assured.

The success was gained from implementing strategies that possible were not prevalent in any other company to the extent that Mac’s had done.  Customers became the basis for its strategies, in terms of the market segments generated, the objectives of the national promotions and advertisings created, the layout of the aisle, the type and age group of the celebrities recruited, an understanding of the important of their tastes, and the fashioner designers brought into the mix.  It was because of these tactics and strategies that the company began to increase its relevance and uniqueness among its targeted customers.

Macy’s therefore  had definitely found a way to be less conservative than the traditional department store as a results of  its well developed and thought out and timely executed strategies, and should continue  reaping the success for several years to come.

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