The Winning Strategies of Macy’s December 2013
The Winning Strategies of Macy’s Macy’s, founded in 1858 and headquartered in Cincinnati, Ohio (US), operates department stores and sells merchandise that includes apparel and accessories (men’s, women’s and children’s), cosmetics, home furnishings and other consumer goods. As of November 02, 2013, Macy’s operated c.843 stores across 45 states of the US, the District of Columbia, Guam and Puerto Rico under the names ‘Macy’s’ (c.795 stores) and ‘Bloomingdale’s’ (c.48 stores, including 12 Bloomingdale’s outlets). Additionally, Macy’s operates a ‘Bloomingdale’s’ store in Dubai (UAE) under a license agreement with Al Tayer Insignia. The company also operates through its website (www.macys.com and www.bloomingdales.com). Macy's: Sales (USD Bn) and Sales Growth (%) 28
24%
21
18%
14
12%
7
6%
0
0%
-7
-6% FY06
FY07
FY08 Sales (USD Bn)
FY09
FY10
FY11
FY12
Y-o-Y Sales Growth (%)
As seen in the exhibit above, Macy’s was having troublesome years before it started posting positive sales growth since FY10. For the past three years, it has posted revenue growth of more than a billion US dollars each year. What did Macy’s do to achieve this turnaround? “For us at Macy's -- what we've been trying to do for the last four or five years -- is to elevate beyond the rhetoric, beyond the tagline, and say, 'What are we really doing here? What does it mean to put the customer at the center of all decisions?" – Julie Bernard, Group VP – Marketing and Advertising, Macy's
The key to this turnaround was to shift its focus on customers and become a customer-centric company. This led Macy’s to formulate a triad of business strategies (known by the acronym M.O.M), which, it believes, has resulted in providing a boost to its growth. These three strategies are as discussed below: “We feel extremely excited about all three of our major strategies: My Macy’s (M), which I think we continue to improve and get better at; Omnichannel (O) ... ; and Magic Selling (M), where the culture is just building." – Karen Hoguet, CFO, Macy's
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1. My Macy’s “My Macy’s” is the localization strategy that the company adopted in 2009, emphasizing on more of localized merchandising in its stores. The company takes decision related to merchandise assortments, size ranges, marketing programs and shopping experiences according to local demographics and customer demands. Localization strategy is extremely difficult to adopt and execute, and hence provides Macy’s with a unique competitive advantage. “(My Macy’s) is about listening to the customer and reacting. It’s doing a million little things right." – Jim Sluzewski, Spokesperson, Macy's
Macy’s partnered with DunnhumbyUSA (a joint venture between Kroger and Dunnhumby) to churn the data and provide it with insights to understand its customers and their buying patterns. Macy’s also hired c.1,600 merchandising specialists who visit its stores every day across the US to understand local customer demand and improve store offerings. Apart from boosting sales, this strategy has also helped Macy’s to have better control over inventory and reduce markdowns that results in increased earnings.
2. Omni-channel Omni-channel strategy allows customers to shop seamlessly in stores, online and via mobile devices. One of the key features of Macy’s Omni-channel strategy is to fulfill order in store or online by sourcing inventory from other store or online fulfillment center. Hence, the likelihood of serving a customer increases manifold. Omni-channel also helps optimize store inventory and increase revenue. When a customer orders an item online, the item is shipped from the location where its likelihood to sell at full price is lower than just shipping it from the closest store (as is the general trend), which may be more likely to sell that item at full price. “Customers don’t really care from where we pull the goods, as long as we fill the order accurately and the delivery is timely." – Karen M. Hoguet, CFO, Macy’s
As of February 02, 2013, the number of Macy's stores fulfilling orders from other stores and/or from the Internet and mobile devices was 292 and is expected to reach c.500 by the end of 2013. Though online sales at Macy’s are increasing, the company believes that physical presence is the reason behind it and online-only retailers will have to open physical stores to remain in the business. Hence, a retailer needs to be ‘Omni-Present’ (present across all channels of sales). “The way the customer is shopping today is very blurred between store experience and online experience. We wouldn’t have the multibillion dot-com business if we didn’t have Macy’s stores. I think we’d do a fraction of the business online if we didn’t have the store experience. I passionately believe more pure-play online businesses will be opening stores." – Terry Lundgren, Chairman, President and CEO, Macy’s
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3. MAGIC Selling MAGIC is an acronym: Meet and make a connection ... Ask questions and listen ... Give options, give advice ... Inspire to buy and sell more ... and Celebrate the purchase. This program of Macy’s is to ensure more caring and responsive customer service from ‘on the floor’ associates. Associates are taught how to better engage with customers and are empowered to make decisions on the selling floor. “Magic selling simply means never fail to astonish the customer. That’s easier said than done, so we are retraining all our 130,000 (currently c.175,000) sales associates to step beyond their daily tasks and do whatever it takes to make the customer happy… It’s not about pushing for sales, but making a connection with shoppers.” – Terry Lundgren, Chairman, President and CEO, Macy’s
Conclusion M.O.M strategies have worked well for Macy’s who will reap the benefit of these strategies for next several years. However, what will be the next winning strategy for Macy’s to continue on the growth path? The company believes that the next wave of growth will come from ‘Millennials’ – those who are currently between 13 and 30 years of age. It is now formulating a strategy to capitalize on the ‘millennials’ opportunity to continue with the growth momentum. “The strategies we put in place are working. Yet I realize you can’t sit still on good performance. I worry more when we’re performing well than when we’re not performing. When you’re doing well, others are watching and they’re going to try and emulate some things. To stay out in front, you have to continue to move forward, continue to change to continue to grow... …So where do we go next? We have a big opportunity with the millennials. At 70 million strong, this will be the biggest group we sell to, bigger than the baby boomers. Instantaneous. They always have a cell phone in hand. They are constantly connected. We have to figure out how to connect with this consumer.” – Terry Lundgren, Chairman, President and CEO, Macy’s
Source: Company Website; Company Reports; Secondary Research; Sutherland Analysis
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