Case Study Macys free essay sample

However, in the declining market for the department store industry, Macy’s consolidated stores, established a national department store and continues to make a steady profit. It is usually the time to divest, sale, or change product mix of a company when a company enters in a mature or declining phase in business. The marketing strategies used to do the analysis were the PEST and product life style. PEST examines the political, economic, social and technology of a firm to determine a company’s strengths, weaknesses and position in the industry. In the future, the Affordable Health Care Act will affect Macy’s in additional costs, which is political. The economic conditions will continue to be an issue as disposable income levels are not at the levels of 2006 prior to the recession. The social norm is to not like change. As Macy’s changes to improve sales, cut expenses and maintain its competitive advantage, some customers may not just care for it and shop online or in a discounted store. And, the technology for Macy’s to implement will be accepting debit cards from a hand held device vs. cash register, to be able o advertise as a customer walks in the door with their phone and in corporate user friendly replenish of inventory if an item is sold out. The product life cycle of the department store is mature and declining, due to declining sales. Furthermore, according to estimates, market share has eroded to 7 per cent, which is far below the 15 per cent desirable rate (Johnson, 2011, p. 3). Although, Macy’s during the declining phase has implemented strategies to maintain competitive advantage, create value for their customers and is staying afloat in the industry. In conclusion, the three marketing strategies Macy’s could use in the mature department industry are harvesting, defender and maintenance. The harvesting strategy requires raising prices and cutting costs. Defender strategy builds on what Macy’s has such as brand image, strong management team, competition being low to moderate and the stability of technology used. And, maintenance strategy is to maintain market share. Introduction The case study is Macy’s Department Store Repositioning. The key problem is that the traditional department stores sales and profits are declining, and the traditional department store is obsolete. Yet, Macy’s consolidated stores in an attempt to differentiate a new company from its competitors at the same time and remain a traditional department store. The marking strategies used to do the analysis was PEST and product life style. The solution presented is a combination of the defender, harvesting and maintenance strategies to create value and maintain a competitive advantage in a declining market of the traditional department store. Key Problem The key problem in the article, Macy’s Department Store Repositioning, is that Macy’s is that traditional store sales and profits are declining, and the traditional department store is obsolete. Yet, Macy’s consolidated stores in an attempt to differentiate a new company from its competitors at the same time and remain a traditional department store. The consolidation was completed two years prior to the economic recession of 2008. However, sales and profits had already begun to decline. The consolidation was done o establish Macy’s as â€Å"a national brand with national advertising, and lowered the cost structure considerably through volume purchasing and centralized administration (Johnson, 2011, p. 5)†. Analysis The marketing strategies used to do the analysis were PEST and product life style. PEST is the political, economic, social and technology economic environmental factors that affect the product or in the case the department st ore industry. The political analysis looked to the future and the additional health care costs that will be imposed on companies and fully implemented by 2014. The additional costs will be passed on to the consumer, and the amount will have an impact on the return on equity ratio, which is already below the industry desirable rate. The economic factors considered were the continued recession, increase in the coast of gas and cotton, the threat of substitutions and the life cycle of the department store industry. All the above economic factors will impact the cost of the products to the customers and further make the other stores appealing with less disposal income to spend on luxury items purchased in a department store. The other stores would be Wal-Mart, Target or other discounted stores. As with any change, change is hard to accept and customers will likely complain, find fault and decide not to shop at the department store. It is the social norm. However, once the regional company’s were converted to Macy’s, customers saw the price increases, which in turn caused them not to shop at Macy’s. Again, change and increase in cost are not easy for customers to accept or want to accept. Also, they can find similar products for less at discounted stores. Therefore, the threat of substitutions is very high. Lastly, technology is affecting the way stores do busy. Smart phones are allowing customers to shop with their phones inside stores; credit cards are accepted via phones vs. cash registers. Technology brings online shopping vs. in store shopping. And, advertising is popping up on smart phones as electronic messages as customers shop based on their location. Service is defiantly the key to keep a customer coming into a department store. The product life style of the department store is in the mature or declining phase of its product life style, because of the declining sales. Furthermore, according to estimates, market share has eroded away to 7 per cent, as of 2010, and is far below the desirable rate 15 per cent (Johnson, 2011, p. 3). Also, the brand image is being heavily relied upon and the bottom line is not showing significant increase in the years presented in the journal article. Macy’s is afloat due to a strong management team and the aggressiveness to deal with problems as they arise. For example, continuing to adjust its portfolio of stores, focusing on fashion, and developing private labels in bedding, outerwear, ‘tween’ clothing, increase national advertising and using celebrities. Additionally, Macy’s advertising is combining the national department store image with July 4 and the Annual Macy’s Thanksgiving Parade, which appeals to the American citizen. Solution The three marketing strategies for Macy’s to pursue are the harvesting, defender and maintenance strategies. As described in the text book, the harvesting strategy is to generate cash quickly by maximizing cash flow over a relatively short term (Walker amp; Mullins, 2014, p. 271). This is done by raising prices and/or reducing operating expenses. It was shown in Exhibit 2 that selling and general and administrative expenses ranged from a low of $8,062 million to $8,678 million. Those costs can be reduced by closing stores, reducing inventory levels, and modifying other expenses, thus increase the bottom line given that sales remain above $23,000 million. Also, given the strength of the name brand recognition, the existing marketing for any holiday and Macy’s are anchor stores in shopping malls; customers may not miss the extra advertising. The customers are attracted to the familiarity of the Macy’s for most of the household needs. The defender strategy should be used in a mature market by a leading company in the industry, which describes Macy’s situation in the department store industry (Walker amp; Mullins, 2014). The external factors influencing the strategy are industry and market, technology, competition, and business’s relative strengths. The industry is in mature stage, technology is stable with a few modifications, competition is small to moderate, and the strengths for Macy’s are in quality, marketing, sales, distribution and customer service. Lastly, due to the uncertain of future volume, the maintenance strategy should be implemented for the leading company, Macy’s, to maintain market share. The maintenance strategy would be implemented till the future becomes more predictable (Walker amp; Mullins, 2014). In general, customers associate price with quality. The higher the price for a product equates to a better product. For example, I expect the clothes I purchase at Macy’s to last longer than the clothes I buy at Target. Thus, spending a little more for a durable product is an option for customers. The defending strategy is an adequate plan to implement due to the established customer service offered by Macy’s, the brand image and the differentiation of products offered all in one location for the customer. Also, Macy’s dominant position in the industry is national and alluring to the customers. And, the maintenance strategy will allow Macy’s to maintain market share by continuing to increase sales, control expenses and maintain competitive advantage through strong customer service. Appendices PEST Analysis The PEST analysis was used to look at the environmental factors affecting Macy’s. PEST stands for the following: P is for political, E is for environmental, S is for social and T is for technology. The political analysis will perhaps become more of an issue for Macy’s as the Affordable Health Care Act is fully implemented by 2014. The above will mean additional health care costs to all employers, which will most likely be passed on to customers by price increases for merchandise. The return on equity (ROE) is a typical measure of profitability. As stated in the journal article, â€Å"In 2010, the ROE of the traditional department store industry was around 9 per cent-far lower than the 15 per cent range, which was considered desirable (Johnson, 2011)†. The economic factors to consider are: the continued recession, increase in the price of gas, cotton prices and threat of substitutions and the decline and/or maturity phase of the traditional department store industry. Exhibit 1 of selected financial data for years 2006-2010 for Macy’s, in the journal article, reflected revenue from $27. 0MM to $25. MM and low of $23. 0MM for 2009, gross margin fluctuated between $9. 0MM to $10. 0MM, other selling, general and administrative expenses were static at $8. 0MM, and net income was below $1. 0MM for all years except 2008, which was lt;$4. 8MMgt; (Johnson, 2011, p. 5). Also, exhibit 2, the sales industry segments in the retail sector from 1992 to 2006, in the journal article; reflect an increase in all the other categor ies presented category specialist stores, other general merchandise stores and electronic shopping and mail-order stores (Johnson, 2011, p. ). The inference from above is that consumers are not shopping in traditional department stores and look for substitutions to the shopping experience to fit the disposable income levels. Furthermore, the increase in gasoline effects costs related to delivery of merchandise, and the increase in cost of cotton effects costs related to clothing. This costs effect the bottom line and will further increase the cost of the product, which gets past to the customer. Therefore, the additional costs make the product more of a luxury item vs. need or a want that can be purchased at a lower end retail location. The social norms and patterns post consolidation have seen customers complaining that the quality and service has deteriorated, and the former regional chains found prices higher and reluctant to shop the new Macy’s (Johnson, 2011, p. 6). Addi tional problems post consolidation was the standardized merchandising strategy and the Everyday Value program. Macy’s found that they could not stock all the stores with the same products and those customers’ needs and preferences were different by location (Johnson, 2011, p. 7). Also, â€Å"Everyday Value program encountered problems, during the recession† (Johnson, 2011). Therefore, Macy’s abandoned the Everyday Value program and followed what the industry was doing with per cent off promotions. The interesting part of the PEST analysis was technology. In the journal article it mentioned that, The traditional department store contributed directly and indirectly to the adoption of numerous technological and managerial innovations such as credit purchases, inventory control, promotional techniques, store merchandising, hiring practices and data-processing procedures (Johnson, 2011, p. ). Today technology has improved issuing gift cards, just in time inventory controls, promotion techniques through the use of internet, e-mail or tests delivered to a smart phone, portable cash registers (phones) and collecting big data on customers to improve service for the customers. And, online shopping is trending to be the norm of many customers. However, in my opinion, there will be those trips to a department store for the shopping experience around special occasions. The question will be will the department stores still be around for those special occasions? Product Life Cycle The product life style has four stages which are the introduction, growth, maturity and decline. The first half of the 20th century the traditional department store was the dominant retail scene (Johnson, 2011, p. 1). Furthermore, it was designed to be a one stop shopping unique experience. The traditional department store had many departments and carried a wide variety of goods to satisfy the needs and wants of customers. However, the purchasing power held by the buyer is disposable income, which is effected by the economic environment. It was in the 1990s that â€Å"most analysts identified that traditional department store industry as being in the mature phase or even the decline phase, because of the decline in sales† (Johnson, 2011, p. 2). The Federated Group implemented the Macy’s store reposition in 2005-2006. Also, traditional market share was declining. The estimates for the traditional department store market share was 30 per cent in 1950s, 17 per cent in 1990 and to about 7 per cent in 2010 (Johnson, 2011, p. 3). It was still being discussed whether the repositioning was a bad move or was it a strategic move to improve sales and profit when the article was written. Given the above, it is possible that the traditional department is a dog vs. a cash cow, in terms of marketing, and it is time to divest the company or find a new market. References Johnson, H. H. (2011). Macys Department Store Repositioning. Richard Ivey School of Business The Univerisyt of Western Ontario, 1-8. Walker, J. O. , amp; Mullins, J. C. (2014). Marketing Strategy Eighth Edition. New York: McGraw-Hill Irwin.