Harvard Business Case Study Macy's

This is a challenging time for retail and Macy’s is so exception. There has been a large shift in the last year as profits have decreased and earnings are forecasted to fall this year. There are numerous challenges and obstacles that have caused this to occur, including: irregular weather patterns, too high inventories, a decrease in tourism, limited growth in women’s wear, and a decline in share prices by 45.4 percent. Shareholders are also affecting business, especially one stakeholder in particular, Jeffrey Smith of Starboard Value. Smith has allied with other shareholders to advocate for “real estate spin-offs to lift shareholder value.” In other words, Smith sees more value in Macy’s real estate rather than in the operation of the stores. Morgan Stanley evaluated Macy’s real estate and came up with an aggregate value of $18.5 billion, with a range of $16 billion to $20.8 billion. The previous value was $11 billion. This suggests that the stores are worth more than the operating business.
A large part of why Macy’s is struggling is the rapidly changing retail landscape: the rise of fast fashion, the digital revolution, price deflation, shifts in spending patterns, and consumers’ desire for incorporating entertainment into the shopping experience are all

contributing factors. Fast fashion is less expensive and available more quickly than the merchandise found in department stores. Many technologies have been incorporated into the shopping experience, such as RFID and beacons, which many Macy’s locations have. However, further efforts could be taken. Consumers are spending less on physical goods and more on experiences, such as vacations,

restaurants, and other outings. Consumers also want to be entertained while they shop, with stores being transformed into lifestyle centers. This constant desire for change and innovation is a challenge for retailers. The brick-and-mortar business model is changing. While Macy’s certainly provides an entertainment experience in their stores in major metropolitan areas, this experience could be made better in other geographic areas. The department store is not dead; it simply needs to be revamped.
Jeffrey Smith’s proposal to develop a real estate investment trust would not be beneficial for Macy’s.

Macy’s is valued at twenty-eight billion dollars. Macy’s is not increasing their cash flow. This proposal is not an answer to Macy’s problems. Instead it will merely move around cash and real estate. Selling stores and then renting out some floors could be detrimental to Macy’s because they would no longer be in control. Rents can rise, increasing operating costs and harming profits. Underperforming stores should be closed so efforts can be directed to stores that are performing well. The value of these stores would outpace sales so this would be beneficial. Other stores could be downsized for

efficiency.
A better strategy for Macy’s is to increase value and incentive for their customers. While it is not an easy task, it is the best long-term solution. Macy’s has a strong online presence and is an omni-channel retailer but other areas can be improved. Macy’s can generate more interest and traffic by changing how they are perceived, particularly by millenials. Macy’s is very dependent on large brands and while the product assortment is extensive it lacks newness. While Macy’s should not
abandon relationships with existing brands, Macy’s should carry more emerging, innovative, and independent brands to attract new customers. Macy’s is thought of as a mid-range department store but it could also be thought of as a destination for millennial shoppers if the product assortment is modified. Fast fashion is also disrupting Macy’s sales so Macy’s could develop a fast fashion line. Macy’s already has many private label brands and adding another that caters to millennials could boost sales. Macy’s is not positioned as a retailer that introduces trends first but this could be changed. In addition, Macy’s could introduce a new category of merchandise, such as electronics. Consumers are buying more electronics than apparel and Macy’s could obtain market share by selling electronics.
Macy’s can drive in-store traffic by increasing the entertainment and convenience of brick-and-mortar. Services can be integrated into the stores, such as hair salons and restaurants, to provide incentive for customers to visit stores. Technology can also be incorporated into stores. Macy’s has already begun experimenting with RFID and beacons but other things can be done. Many retailers have incorporated smart mirrors into their stores. Content can be displayed and customers can see how clothing looks without fitting rooms. However, fitting rooms can be improved in similar ways. Customers can view items in other colors and patterns, see availability and outfit combinations, and request assistance from sales associates. Smart walls can be used to request items be sent to fitting rooms and to order beverages or request a personal
stylist. The check out process could also be made better by having sales associates check out customers on iPads.
Macy’s will be able to improve their relationships with existing customers and build relationships with a new customer base. Macy’s own value will have increased as well as the value for customers. A variety of metrics can be used to evaluate effectiveness, such as customer acquisition, customer retention, customer loyalty, and profit per customer.