Case Study

Quinn Nevares

Retail Strategies

Jackson

6/18/13

Macy’s is one of America’s oldest department stores, and has established itself as an

iconic American brand since 1858. (Hoovers.com) Financially, Macy’s has had a bumpy

ride over the past century, specifically over the past decade. Due to the downturn of the

economy resulting in the worst recession since the 1920’s, Macy’s, along with many other

retailers suffered. By repositioning themselves and their initiatives, Macy’s was able to not

only survive but regain some of the market share they had lost. Earning $27.7 Billion in

fiscal sales in 2012, Macy’s has credited much of that success to their M.O.M. retailing

strategy. The acronym stands for My Macy’s, Omni-channel, and M.A.G.I.C. selling.

(MacysInc.com)

My Macy’s is the stance to reposition each location to provide more localized

merchandise reflecting each store’s unique location. By offering more personalized

merchandise catering to different demographics has become Macy’s attempt to further

engage and delight their customer. This has proven to be a successful angle for Macy’s, in

addition to the other two branches of this strategy.

Omni-channel retailing entails creating a seamless and uniform experience for the

customer across all channels: in store, online and mobile device, and catalog. The true

telling of an Omni-channel retailer is the ability to run their business under one inventory.

Macy’s has made large investments to achieve this status and is making headway in

creating a uniform experience for the customer.

The third initiative in the M.O.M. strategy is M.A.G.I.C. selling which stands for: Meet

and make a connection, Ask questions and listen, Give options/give advice, and Celebrate

the purchase. This is the key in creating a sustainable competitive advantage, which has

positioned Macy’s to focus on the customer, who at the end of the day is the only thing that

really matters.

The M.O.M. strategy has proven to be successful for Macy’s over the past three years.

However, as of the beginning of the 2013 fiscal year, Macy’s has implemented a slightly

different initiative, focusing their priority towards the Millennial customer. The Millennial

market segment total 73.3 million in the U.S., range in age from 13-31 and are the next

largest generation next to the Baby Boomers. (U.S. Census, 2010) The Millennial’s are

more racially diverse than previous generations, are more technologically savvy, and are

more environmentally conscious. (Pew Research Center, 2010)

Looking at Macy’s current merchandise assortment it is clear that this channel is

aiming to offer exclusive merchandise. As of 2013, about 45% of merchandise sold at

Macy’s was exclusive or in limited distribution. Currently, according to their online channel

and in store merchandise, 26% of their assortment account for Macy’s own private labels.

This reflects the approximate 20% of their sales that is solely private label.

(Macy’sInc.com)

Looking at the future, Macy’s must fully understand their Millennial customer in

order to fully satisfy and gain their share of wallet. Today’s Millennials are constantly

connected. Macy’s has addressed this with creating a multi-channel experience including a

m-commerce channel. The Millennials are also very keen on fast fashion. Vertical Retailers

such as Zara, H&M, and Forever 21 have shown rapid expansion over the past five years.

Looking at these competitors, Macy’s has continued to expand their brand portfolio with

new private labels reaching to increase the Millennials share of wallet and lift their spend

level.

Macy’s current merchandise assortment coincides directly with what their sales

figures show, and will continue to focus a significant percent on private label merchandise.

Macy’s has announced the release of two new private label brands for next year with hope

to stir excitement and draw in customers. However, with the abundance of ‘sameness’ that

is overwhelming the market today, careful planning ought to be in order for Macy’s to stand

out. By using vertical retailing as a strategy to control quality and cost while offering an

exclusive product Macy’s is able to compete with retailers such as Zara, Forever 21, H&M,

and Abercrombie & Fitch.

Using this strategy, Macy’s should continue to offer select and exclusive

merchandise. They should increase their exclusive merchandise by an approximately 15%,

using only their most successful labels. By continuing to launch new brands, Macy’s is

diluting what they currently carry with similar merchandise. Macy’s should therefore

choose fewer more successful and desired brands as their primary focus, rather than

continuing to saturate their stores with too much of the same merchandise. This requires

strategic marketing and research of the most current trends to engage and delight their fast

fashion customer. Offering over half of their merchandise as exclusive or private labels,

60%, will help gain a strategic competitive advantage against the competition.

The remaining 40% of Macy’s assortment should also be closely tailored to only the

most desirable and sought after brands. Macy’s store locations have been known to be

overly saturated with excessive merchandise. By eliminating items that are not selling and

taking up inventory it will reduce cost and make room for more attractive and desirable

merchandise.

Current Assortment Future Assortment

Exclusive/Private Labels 45% 60%

National Brands 55% 40%

Today’s Millennials are an extremely challenging market segment to impress.

Constantly connected, they are always looking for the next new and exciting thing. They

live in an era of instant gratification, and in order to compete with fast fashion retailers,

Macy’s must create new and exciting ways to engage and delight their customers. One way

to reach out their customer would be the use of a celebrity spokesperson. Recently H&M

launched their Spring/Summer 13 campaign with Beyonce. This gained massive

recognition as Beyonce carries a very positive and exciting brand image that many of the

Millennials aspire too.

The most effective way to push a private label would be the use of a highly sought

after celebrity as a spokesperson to create a buzz. For example, Macy’s newest brand to be

launched, Maison Jules, takes inspiration from Parisian street style and will be

incorporating the classic style into chic basics to create a tailored, effortless look. Looking

to create a ‘cool factor’ buzz, Macy’s could aim for an ‘American Girl in Paris’ take on

launching the brand. Using stylish celebrities such as Blake Lively and Leighten Meister

from the popular show Gossip Girl would give Macy’s Millennial customer a relatable

spokesperson to build the brands equity.

In order for Macy’s to reposition their retail strategy towards Millennials, they must

first understand their competition. Because Macy’s is looking to compete with the big fast

fashion retailers the most relevant competitors to asses would be Zara and H&M.

Zara is a global retail brand using vertical retailing and has established one of the

fastest supply chains in the business today, giving the brand a massive sustainable

competitive advantage. Zara has announced the upcoming plans for their newest flagship

store on 5th Ave in NYC and is continuing to build brand equity by offering the latest styles

with the one of the fastest inventory turnover in the industry. (Hoover.com) Zara provides

their customers with J.I.T. merchandise and offers a variety in their assortment, including

women’s apparel and accessories, men’s apparel, children’s apparel and home goods.

Zara has been able to maintain a seamless and continuous brand image throughout

each category of merchandise. Zara offers stylish merchandise at prices that are marginally

higher than other fast fashion retailers, yet lower than designer market. Zara uses their

brand equity to create a more desirable product, therefore justifying the price

differentiation. Price points for apparel range from $30-$120, where price points for

accessories range from $25-$79. In their store-fronts, women’s apparel and accessories

dominate the merchandise assortment with approximately 70% of the total merchandise

mix. Men’s apparel accounts for about 20% and the remaining 10% for children’s. Zara

Home has not been launched in the U.S., and their online channels reflect this merchandise

assortment as well.

In comparison to ‘Impulse’ of Macy’s, Zara carries only privately designed and

manufactured merchandise. Focusing on the women’s department, accessories include

jewelry, neckwear, eyewear, shoes and some handbags. The ratio for apparel to

accessories is approximately 3:1. Zara does not carry any beauty or cosmetic products.

Zara’s overall experience for their customer is consistent with their brand image.

The store is well lit, well organized and well presented which reflects their significantly

higher price point than other fast fashion retailers. Their online presence does not offer a

lot of engagement with their customer. The online channel is organized and easily

accessible, however with a very limited selection in assortment. Their customer service is

not entirely consistent throughout the staff, where upon some visits the customer may

experience good customer service, where during other visits may experience poor

customer service.

H&M, a Swedish, vertically integrated global retailer offers a variety in their

merchandise assortment as well. Carrying women’s apparel, men’s apparel, children’s as

well as accessories, H&M has gown to be one of the largest fast-fashion retailers in addition

to Zara. (Hoovers.com) H&M tailors their brand directly to the Millennials, promoting a hip

and edgy lifestyle with affordable merchandise to be worn for every occasion.

As previously mentioned, H&M utilizes celebrity endorsements to create high brand

awareness. Using celebrities such as Beyonce and David Beckham H&M create a ‘cool

factor’ that drives customer loyalty and C.L.V. This POD sets H&M apart from competitive

brands by creating an exciting and desirable image for the brand and their products. H&M

uses direct and indirect, as well as online and offline communication techniques for the

Millennial customer through their ad campaigns.

H&M has a slightly different assortment, with women’s accounting for

approximately 55%, men’s 35% and children’s the remaining 10%. H&M is still behind the

curve in terms of multi and Omni-retailing due to their lack on online presence in the U.S. If

they continue to miss the opportunity of e-commerce they will undoubtedly fall behind and

continue to loose market share.

Looking at the women’s merchandise mix, H&M carries women’s accessories that

include neckwear, handbags, jewelry, headwear, and shoes. Apparel accounts for the

majority of the merchandise mix, with the ratio of apparel to accessories of 4:1. Similar to

Zara, H&M carries only vertically integrated merchandise. H&M specializes in staple

merchandise, where a large majority of the assortment consist of basic t-shirts and tank

tops. Overall H&M carry a lower to moderate price point on average per apparel SKU,

ranging from $10-$30. For accessories, price points range from $8-$20. H&M does not

carry beauty or cosmetic products.

Assessing H&M’s overall presentation as a brand, their store’s are not completely

consistent with their online presence. H&M’s website offers many interactive

communications with their own blog, Pintrest, Facebook, Twitter and Instagram. However,

there is no online store where the customer is able to purchase in the U.S. H&M’s stores are

moderately organized, but they do not create an engaging environment for the customer

and does not provide stand out customer service.

Macy’s ‘Impulse’ Zara H&M

Apparel to

Accessory Ratio

1:1 3:1 4:1

Price Points $20-$150 $30-$120 $10-$30

Beauty/Cosmetics Yes No No

As Macy’s continues to reach out to the Millennial customer, store experience will be

a very important element in creating a sustainable competitive advantage. Zara and H&M

offer an assortment of merchandise for their customer to create an entire outfit with one

stop. Macy’s has separate departments where the customer must seek out each category in

separate areas. Macy’s would benefit by creating a smaller store experience, offering their

customer a desirable assortment of apparel, accessories and cosmetics. This would

encourage the customer to lift their spend level per visit. By offering a beauty/cosmetics

area within the ‘Impulse’ department Macy’s would employ a significant POD in

comparison to Zara and H&M, creating a new and exciting shopping experience for their

customer.

In summary, Macy’s Millennial initiative has positioned Macy’s to reach out to the

Millennial customer. Macy’s has chosen to modify the Millennial departments to create a

more desirable environment by offering a variety of brands, including a significant

percentage of private label brands. Zara and H&M both offer a selection of accessories

along side their apparel assortment. Macy’s should focus on their successful private label

and work towards building brand equity within each brand, for example the launch of their

newest brand Maison Jules and using celebrity spokespersons such as Blake Lively and

Leighten Meister. Macy’s should adjust the departments to appeal to the Millennial

customer as well. By offering a select amount of accessories, beauty and cosmetics

products within the ‘Implulse’ department, Macy’s would gain a significant POD against

their competitors.

Macy’s carries about 25% of private label merchandise as well as 45% of exclusive

products available only at Macy’s. Focusing on the Union Square Macy’s in downtown San

Francisco, the ‘Impulse’ department offers a clean layout that is designed in a racetrack

layout. Upon entering the department, the customer is greeted with work wear for the new

professional woman. Private label brands such as Alfani and I.N.C. are intermixed with well

known national brands. The assortment shows a majority of business dresses (25%), dress

skirts (15%), blouses (45%) and dress pants (15%). Further into the department are more

causal and fashion forward styles, with brand stores within the department such as a Free

People section. The assortment shows a majority of tops (55%) and dresses (30%), with a

15% of the merchandise being skirts. A classic and very strong theme for the merchandise

is using the summer holiday with a large portion of American styles and lots of red, white

and blue.

At the end of the casual wear, there is a separate department dedicated entirely for

denim. Well known national brands dominate this area including 7 for All Mankind, A.G.,

True Religion, Hudson, Rich and Skinny, and Citizens for Humanity.

Three actionable points Macy’s should use to address the Millennial customer and

create a sustainable competitive advantage are: 1) Make merchandise modifications, with

both their assortment as well as their brands. 2) Use more effective communication tactics

with the Millennial customer. And 3) Create a more engaging store experience, both online

and in bricks and mortar.

First, Macy’s should be to invest in offering a more desirable product than their

competitors. This would entail Macy’s to evaluate which of their private labels are most

successful and position those towards the Millennial market segment. This would provide

their customer with exclusive and desirable products, while still providing desirable

national brands as well. Macy’s should increase their private label merchandise by 15% by

utilizing the most successful and desirable brands and merchandise assortment. This

would require investment in trend forecasting and design production to ensure an

assortment of on trend merchandise.

In addition to offering more desirable private label product, Macy’s should evaluate

the national brands carried in their store, and assess which ones are successful and look to

possible update with more current and relevant brands. This would reduce the saturation

of too much sameness throughout the store. The idea would be to excel with fewer brands

and products, rather than stay mediocre with a multitude of brands.

Secondly, Macy’s should utilize the advancements in technology and invest in

communication techniques to engage their customer. As previously stated, Millennials are

constantly connected, whether it is through mobile device or laptop computers, there is

great opportunity to create a connection through social media outlets including Instagram,

Facebook, Twitter and Tumblr blogs. ‘Impulse’ should create a brand image of their own

and offer interactive tactics such as an Instagram contest, where customers engage in

wearing clothing purchased at ‘Impulse’ and posting stylish and creative images. The

‘Impulse’ department could also create their own blog that offers styling tips, pop culture

news, advise columns, and lifestyle topics that engage with the customer. By using more

interactive techniques Macy’s, more specifically ‘Impulse’ would create a community with

their customer’s, which would result in building brand equity.

Macy’s should also use celebrity spokespersons to promote their private labels.

Macy’s has taken the stance to offer a good selection of private label merchandise, and

using a pop culture celebrity that would connect the brand to their customer would

drastically increase brand awareness. As previously mentioned, using the stars from the

hit show Gossip Girl Blake Lively and Leighten Meister. This ‘American Girl in Paris’ angle

would increase brand awareness and attract Millennial customers.

Thirdly, Macy’s should create an attractive store environment and keep consistency

throughout all locations. From researching the Union Square location and comparing it to

the Stoneridge Mall location in Pleasanton, the San Francisco location has a far superior

store environment and presentation. Macy’s should create a full store experience for the

Millennial customer by offering accessories and beauty products within the same

department. Macy’s has attempted this with the ‘MyStyleLab’ department by placing a

M.A.C. counter adjacent to the apparel section. However, this would make far better sense

in the older Millennial department of ‘Impulse’. More specifically, Macy’s ‘Impulse’ should

carry a merchandise assortment with 45% apparel, 20% shoes and handbags, 20% jewelry,

and 15% cosmetics and beauty.

To summarize, Macy’s has been a dominant presence in the retail industry for more

than 150 years. Macy’s has been on a roller coaster ride over the past decade in attempt to

stay current and in demand during and after the recession. Looking to gain back market

share they have decided to take initiative to focus their ‘Impulse’ and ‘MyStyleLab’

departments towards the Millennials, the most up and coming generation. In order to gain

and sustain a competitive advantage Macy’s must re-evaluate their retail strategies through

these three actionable points: 1) Adjusting their merchandise assortment. Macy’s should

exclusively offer only high quality, on trend products with a limited number of brands,

private labels accounting for 30% of the merchandise. 2) Invest in technology and

advertising through social media. By utilizing the media outlets that the Millennial

generation are connected to Macy’s will create a stronger presence within the online

Millennial community. Macy’s should also utilize celebrity endorsements and partnerships

to create higher brand equity and awareness for their own private brands. 3) By adjusting

their store layout and the store experience. By offering apparel, accessories and cosmetics

in one hip and cool atmosphere Macy’s will have the competitive advantage to life the

spend level and create a C.L.V. with the Millennial generation.

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