Causes of Macy's Decline

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19th Jun 2020 Report Reference this

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ABSTRACT

How can such retail store that has been successful for more than 100 years, be closing so many stores? Macy’s has been considered one of the top, most successful retail stores for many years. Recently, there has been no other choice than to close some. This is due to several reasons such as eCommerce competitors (Amazon), profit loss, store appeal, and others. Macy’s hasn’t been known for the best customer service which has also hurt some. There are multiple incentives that Macy’s is pushing for the increase clientele and keep faithful customers. These incentives include Loyalty Program, Vendor Direct, and Store Pickup. Although Macy’s isn’t the only retail store suffering, something needs to be done to stay successful. I’ve wondered myself, why so many stores are closing especially when it’s one of my favourites. I have always felt welcomed and trusted at Macy’s. I have also trusted Macy’s with my personal information by opening a Macy’s Account. I find their Loyalty Program fits well with faithful customers. I really hope Macy’s can get back on it’s feet. With so much history, this retail store deserves to stay in business.

How can a company that has been successful for more than one hundred years fail?

Macy’s was founded in New York City in 1851 by Rowland Hussey Macy in 1851. On the first day of operation, the store pulled in $11.06. The store’s trademark emblem is a red star, inspired by the tattoo Macy got on his forearm. It represents the star that guided him when he was at sea. In the earlier years, the store installed illuminated window displays to attract the attention of customers passing by. This action gave rise to the notion of ‘window shopping.’ R.H Macy died in 1877. The Macy’s Thanksgiving Day Parade was started by Macy’s employees in 1924 and drew in a crowd of 10,000 people. Also in 1924, That same year, Macy’s Herald Square became “the World’s Largest Store.” The Macy’s website, macys.com was launched in 1997. In 2017, Macy’s ranked number 120 on the Fortune 500 list of America’s biggest companies. In 2018, Macy’s started to  offer the buy online pickup in store and buy online ship to store benefit at every location. The ability to buy online and pick up items at an actual store is giving a boost to Macy’s e-commerce business which saw double digit growth in the most recent year. As many companies have started to do, Macy’s department store chain is now hosting Facebook small business pop ups in nine different stores. In August 2016, Macy’s accounted plans to close about 100 of its 728 stores over the next several years. By early 2018, Macy’s had already completed more than 80 of its 100 planned store closures. While virtually all the company’s stores are profitable, for certain locations, the real estate value exceeds the value of continuing to operate the store. Some closings come as the retailer’s leases have expired. Macy’s stock fell once the department store chain reported low second quarter earnings. The growth ware of e-commerce companies, such as Amazon, has hit the large stores in recent times and the escalating trade war between the U.S. and China has made things worse for the industry this year. The retail chain has been forced to offer products at a high discount to remove spring inventory. Macy’s had been unhurt by the first tariffs since it focused more on industrial and agricultural products. Macy’s must reinvent it’s chain to attract shoppers who increasingly buy online. Many retail chains and mall-based stores must do the same. One of the greatest benefits is the ability to skip the line at the register. The company’s revamped loyalty card program has helped keep its best customers engaged. After closing more than 100 stores over the past several years, it’s going to see how a cluster of smaller stores work with today’s customers. After years of declining comparable-store sales and failed earnings, Macy’s began to get back on track in 2018. Nevertheless, it plans to continue closing stores in 2019. The malls where JC Penney and Sears left but where Macy’s still has a store have practically become ghost towns. Nearly half of all complaints the chain receives are related to interactions between consumers and sales associates. In the past, associates were required to watch a 90-minute video as part of their initial training. Today, new hires attend a three-and-a-half hour live training session. Research by Bain & Company found that positive interactions with sales associates leads to a 50 percent increase in the number of items purchased by consumers. When a customer calls into a Macy’s contact center, predicted behavioral routing recognizes the customer’s personality style, leveraging the industry’s largest customer personality and behavioral database. The routing engine makes a recommendation of which available agent is most likely to perform well with that customer’s personality, and the connection is made. Since 2017, behavioral routing has influenced just under half of the centers’ calls and the calls have become nearly a full minutes shorter. Success in retail customer experiences requires leaning on experts and working with them to bring vision to reality. Macy’s recognizes that shoppers are increasingly turning to online and mobile channels to browse for merchandise and make purchases. Macy’s enhanced it website with a virtual agent for customer service which has optimized the shopping experience for customers. As highly known, retail is highly competitive. Brands compete with off-price stores and online startups to grab customers’ attention as shopping patterns increasingly shift from brick-and-mortar shops to the virtual shopping mall of the web. For the increasing number of customers whose primary shopping touch point is mobile or online, Macy’s strives to give them a satisfying, frictionless, and personalized experience. When a customer enters the shore, Macy’s wants to continue the experience with a campaign it calls “Experience the MAGIC,.” The word MAGIC is an acronym that stands for:
  • Meet and connect: Greet the customer.
  • Ask and be an active listener: Find out the answers by asking the right questions.
  • Give advice: Make recommendations.
  • Inspire: Suggest other merchandise.
  • Celebrate: Find a way to bring the customer back.
This kind of “MAGIC” a customer will come back. The customer service that department stores years ago were known for is non-evident. Macy’s currently runs under Macy’s, Bloomingdale’s, and Bluemercury. In recent years, Macy’s has been challenged and has faced pressure on prices from eCommerce retailers such as Amazon, as their selection is vast yet remarkably easy to search. In the chart below you can see the change over the past decade in Macy’s and Amazon. Macy’s closed 68 stores in 2016 and early 2017 and an additional 30 stores from 2018-2019. Macy’s needs to consider its value to customers and continue to bring its physical and digital retail models to find what best matches consumer preferences. Macy’s isn’t just operating in an obsolete retail sector, but also that it drastically expanded years ago just as the model first began to fade. Over the past several years, department stores have given up several of their departments to other players. When those departments emptied, Macy’s filled that space with apparel and more apparel, which has seen margins tighten. Macy’s is trying to be too many things to too many people. To accomplish stronger results and profitability, Macy’s has taken significant steps. The seven major initiatives put in to play to boost sales and profits are:
  1. Loyalty program. This program has led to higher spending and greater customer participation. As of current, three million members have joined the program, and another four million are expected to join.
  1. Backstage. This program has boosted the regular store. There are now 165 Backstage locations.
  1. Store pick-up. “Buy online, Pickup in Store” or “Buy Online, Ship to Store”.
  1. Vendor Direct. This program has increased customer satisfaction. Vendors want to be partners with Macy’s.
  1. Growth50. There were 50 initial Macy’s stores chosen for upgrades and special customer service and have outperformed the chain.
  1. Mobile. This plays a key role in many department stores with customer’s shopping activity.
  1. Destination businesses. There are six areas for growth that currently have a high share of market.
Macy’s says it will act with speed in 2019. Will it be too late? The department chain announced it will cut jobs and make other changes to its business to achieve its goal of saving $100 million annually. Shoppers are not fleeing to shopping malls on the weekends to shop for handbags and clothes as they did years ago. They prefer to ring up their purchases online and this activity is increasing drastically. Many large brands such as Nike and Coach, have decided to open more of their own stores and build their own websites. Macy’s has a portfolio of more than 600 departments stores across the country and finding a wary to keep them relevant. The latest results from Macy’s are not of a company forging ahead. Instead, it points to one that is far from thriving but managing to survive. The main issue in many of Macy’s shops is the terrible environment. This terrible environment comes from resembling the 1980s. The failure to create new brands is another issue. Macy’s is behind on this and lacks the ability to create clear points of product differentiation with rivals and to achieve margin gains from own-label merchandise. Having to stand on your feet for long hours isn’t easy and this is required by Retail jobs and these jobs also don’t pay well. It’s harder to fill retail jobs as the labor market has tightened. Many consumers are not willing to walk around large retail stores to find what they want. This proves consumers are changing the way they shop. Most retail stores operate on thin margins. If a retail store cuts into those margins, it makes it that much harder to flourish. Macy’s is keeping its head above water. Can Macy’s make changes quickly enough to avoid a significant erosion in market share? Will Macy’s be able to meet consumers dynamic and increasingly complex demands for service while staying profitable? Will Macy’s brand still retain value and resonate with the market? In conclusion, Macy’s still has a chance to get back on its feet if they know how to be competitive and satisfy customer’s needs. I shop often at Macy’s, both online and in store. I prefer in store for specific items due to I can see the item in person versus dealing with shipping the item back and paying for shipping and handling.

REFERENCES

  • AP NEWS. (2019). Macy's warns customers could feel impact of trade war. [online] Available at: https://www.apnews.com/9cb13137640a1c6dcca0f0a25bf3792f [Accessed 28 Sep. 2019].
  • Levine-Weinberg, A. (2019). Why Macy's Is Closing More Stores in 2019 | The Motley Fool. [online] The Motley Fool. Available at: https://www.fool.com/investing/2019/01/15/why-macys-is-closing-more-stores-in-2019.aspx [Accessed 28 Sep. 2019].
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  • Benzinga. (2019). Actionable Trading Ideas, Real Time News, Financial Insight | Benzinga. [online] Available at: https://m.benzinga.com/article/9081545?utm_referrer=https%3A%2F%2Fwww.google.com%2F&utm_source=https%3A%2F%2Fwww.google.com%2F [Accessed 28 Sep. 2019].
  • Forbes.com. (2019). Macy's Big Magic Trick: How The World's Largest Store Keeps Its Customers Coming Back. [online] Available at: https://www.forbes.com/sites/shephyken/2017/12/24/macys-big-magic-trick-how-the-worlds-largest-store-keeps-its-customers-coming-back/#4e993093396c [Accessed 28 Sep. 2019].

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