Macy Case Analysis

Running head: CASE ANALYSIS 1
Macy’s Inc.: Turnaround Strategy in Crisis’
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CASE ANALYSIS 2
Macy’s Inc.: Turnaround Strategy in Crisis
Marcy is the world's biggest first-class store. Macy's should have advanced technological
integration to deal with the evolving retail industry, where online shopping is now becoming
more common, and minimize the potential adverse impacts of emerging online shopping shops
on department stores such as Macy's.
Macy's inability to react rapidly to changes in customer requirements is a potential cause for a
decrease in income. In reality, shopping habits of clients are developing towards online shopping,
and Macy's has failed to adapt quicker to their preferences, unlike its rivals (Kapner, 2017). The
firm has no control over this internal factor, but its inability to guarantee a rapid e-commerce
transition caused the business to lose clients to rivals like Amazon and Zara (Kapner, 2017). Less
customers imply reduced market share and reduced market share leads to reduced profits, which
could explain why income in FY2016 decreased by 3.7% over the past year.
Macy's dependence on the US is another potential source of revenue decline. The company
has a strong presence in the U.S. with 870 stores in the U.S., Puerto Rico and Guam,
confined to the U.S. factories and distribution centers, but its worldwide presence is
negligible compared to its more diverse competitors (Macy's, Inc.–Financial and Strategic
Analysis Review, 2016). This internal strategy exposes Macy's to some global risks,
including changes in the US economy, politics, climate, demographics, and population.
Knowing that Macy's is concentrated on a single market, a shift in the habits of US
customers or a fresh political reform might impact the company's income. Unlike rivals like
Sears Holding, which runs 1672 US and Canadian shops, Macy's lacks an global presence
that could cause the business "to lose out on varied sources of income and possibilities in
CASE ANALYSIS 3
other growth industries" (Macy's, Inc.–Financial and Strategic Analysis Review, 2016).
Also "reduced client reach and development prospects that could reduce the
competitiveness of the company" (Macy’s, Inc. - Financial and Strategic Analysis Review,
2016).
Profit decline
The price associated with a reduced inventory turnover ratio may trigger a decrease in
profit. Indeed, the inventory turnover ratio reaches a value of 3, as recorded in FY2016,
which is small compared to one of its main rivals, a target that reported a value of 6
(Macy's, Inc.-Financial and Strategic Analysis Review, 2016). This implies that "Macy's
requires more days than rivals to clear its stock" (Macy's, Inc.-Financial and Strategic
Analysis Review, 2016). Macy's also requires 118 days to sell its stock compared to Target's
61 days. The low turnover ratio added to elevated inventory days increases the cost of
transporting inventory that could reduce profit.
The rise in labor costs in the U.S. is also responsible for a decrease in profit. A political,
economic or sociological factor, as we learned from PESTEL study, may influence a
business performance, and the changes in the USA in this situation can influence the output
of Macy. The study states,' the tight labor markets have forced the government to raise
minimum wages and to boost the labor costs of a greater percentage of full-time staff.'
Since Macy initiated expansion projects to boost the staff base, the cost of operations was
improved and the net margin was impacted.
The big price of e-commerce wars are the third reason for a decrease in profit. In reality,
firms like Macy's and Nordstrom enhanced their e-commerce output with 21% and 19% of
CASE ANALYSIS 4
e-commerce revenues respectively (Wahba, 2017). Even revenues risen "all at the expense
of pressured profit margins" (Wahba, 2017). Macy offers free delivery and free yields that
boost operating cost to be more appealing and compete with businesses like Amazon.
(Wahba, 2017). Moreover, the Company has constructed distribution facilities in order to
facilitate digital sales and has retained certain shops open, thereby increasing costs.
Although Macy's income is increased by e-commerce expenditure, the price of achieving
this is greater than an rise in income which reduces profit (Wahba, 2017).
Strategy for five years
Store in China and elsewhere in Asia
Given the fact that there is a high number of market in China shown in its, it is an opportunity for
Macy’s to expand its market globally through establishing stores in China and other parts of
Asia, penetrating diversified target market (Cook, 2015),
Focus more on producing products with higher profit margin
In order to be able to correctly allocate greater financial investments to its most lucrative product
line such as Bluemercury's beauty products that generate greater profitability, it is essential for
companies to understand the product line that produces high profit margin.
Technology Integration
Macy's should have advanced technological integration to deal with the evolving retail sector,
where online shopping is now becoming more common, and minimize the potential adverse
impacts of emerging online shopping in department stores such as Macy's.
CASE ANALYSIS 5
Because clients are now looking for high-quality, low-cost goods, Macy's should open a product
line that provides extremely differentiated, low-cost products that meet the requirements and
needs of a diverse customer through vertical integration to attain economies of scale (Cook,
2015),
It should also concentrate on innovating its products, particularly the products of Bluemercury
that are the most lucrative among the products and eventually introduce those products
worldwide through globalization, establishing shops worldwide.
As mentioned in the article, the bad performance of Macy's highlighted income and profit
decrease can be explained by domestic and external variables, such as the change from clients to
the internet market or the elevated price associated with the e-commerce conflict. Macy's
decrease in revenues primarily is due to the company's inability to react quickly to customer
needs changes because sales have declined substantially. Although it tries to reclaim lost market
shares in fresh approaches, its revenues continue to decrease because some competition, unlike
Macy's, adapt more quickly to the requirements of the customer and still benefit from this rapid
move.
With regard to the decrease in profit, profit is mainly due to labor costs. Indeed, external
variables such as tight labor markets or an increase in the company's uncontrolled minimum
salaries will boost labor cost as sales decrease. This would have an impact on profit.
The other primary reason for a decline in the cost linked with E-commerce wars. In fact, Macy’s
want to keep up with competitors and satisfy customers’ needs but it comes at a huge cost that is
higher than the revenue generated by sales coming from e-commerce which ultimately reduce
profit. The increase in E-commerce sales is good but not enough to significantly increase market
CASE ANALYSIS 6
share and cover the huge cost knowing that large market share is held by strong competitors like
Amazon.
CASE ANALYSIS 7
References:
Cook, N. D. (2015). Crisis management strategy: Competition and change in modern enterprises.
Routledge.
McCarthy, B. (2003). Strategy is personality-driven, strategy is crisis-driven: insights from
entrepreneurial firms. Management Decision, 41(4), 327-339.
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Running head: CASE ANALYSIS 1

Macy’s Inc.: Turnaround Strategy in Crisis’

Macy’s Inc.: Turnaround Strategy in Crisis

on department stores such as Macy's.

including changes in the US economy, politics, climate, demographics, and population.

Knowing that Macy's is concentrated on a single market, a shift in the habits of US

transporting inventory that could reduce profit.

economic or sociological factor, as we learned from PESTEL study, may influence a

improved and the net margin was impacted.

Although Macy's income is increased by e-commerce expenditure, the price of achieving

Strategy for five years

Store in China and elsewhere in Asia

Asia, penetrating diversified target market (Cook, 2015),

Focus more on producing products with higher profit margin

impacts of emerging online shopping in department stores such as Macy's.

worldwide through globalization, establishing shops worldwide.

McCarthy, B. (2003). Strategy is personality-driven, strategy is crisis-driven: insights from

entrepreneurial firms. Management Decision, 41(4), 327-339.

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