Macy’s, Inc. The Omnichannel Strategy
Macy’s Inc. (Macy’s) is a merchandise retailer in the U.S. with men’s, women’s, and children’s clothing apparel as well as accessories, cosmetics, home furnishings, and a wide variety of other consumer goods (Macy’s, Inc., 2014). Macy’s main headquarters is located in Cincinnati, Ohio with 172,500 employees (Macy’s, Inc., 2014). As of January 2014, Macy’s had revenues of $27,931 million, an operating profit of $2,678 million, and a net profit of $1,486 million (Macy’s, Inc., 2014). Macy’s owns and operates two of the most popular brand name department stores in the U.S., Macy’s and Bloomingdales, which have been in operation for more than 150 year (Macy’s, Inc., 2014). Macy’s also owns numerous private labels that contribute nearly 20% of the net sales in the department stores (Macy’s, Inc., 2014).
The Omnichannel Strategy
Retailers experienced a major slowdown in their growth from the 1990s until 2007 while at the same time generating an increased trend in return on equity (ROE) (Baud and Durand, 2012). The slowdown in growth contributed towards the increased utilization of online retailing, which was supported by strategies designed for ROE. Financial and operational activities that increased ROE in the retailers shift to the online environment included operational advantages such as lower wages and lower prices, reorganizations of the value chain, and improved supply chain management (Baud and Durand, 2012). The result of strategic planning and investments in response to the industry slowdown were high profits, better power positioning to gain a competitive advantage, and reduced capital expenditures (Baud and Durand, 2012). The emergence of e-shopping happened at the end of a long slowdown in retailing. Retailers had invested a large amount of resources into their operations in response to the slowdown, and those investments became integrated with the increased utilization of the internet for online shopping.
Online shopping, or e-shopping, is a growing and maturing market, which has led to increased competition for online retailers and a need for traditional in-store retailers to enter the online retail market (Ha and Stoel, 2012). E-shopping is a new shopping channel that acts as an important source of information that can boost consumer power and consumer capability (Wikstrom, 2005). The shift to the online shopping environment is based on changes of social trends such as a press for time and an increasing need for affordable, efficient services (Wikstrom, 2005). E-shopping is an innovation that requires a change of behavior by the customer, and a major change in behavior in society requires an adoption life cycle, which means adoption of e-shopping will occur over a long period of time with many impeding issues (Wikstrom, 2005). The most important factor for retailers to consider in a move to an online store is to induce customer satisfaction (Ha and Stoel, 2012). Customer satisfaction can lead to outcomes including customer trust, customer retention, customer referral, online conversion, and online loyalty (Ha and Stoel, 2012). High-performing customer satisfaction in the online environment will provide retailers with a greater competitive advantage and more opportunity for growth (Ha and Stoel, 2012).
Macy’s Fulfillment Center
Macy’s announced in 2013 that it will build a 1.3 million-square-foot fulfillment center providing direct-to-consumer services that will support Macy’s omnichannel strategy and will contribute towards their competitive advantage in the online sales environment (WWD, 2013). The new fulfillment center will open in April 2015 and a $170 million investment will equip the new facility with the latest technology in material handling and warehouse management system WWD. (2013). The omnichannel strategy has contributed towards an increase of $4.4 billion in sales from 2010 to 2014 (WWD, 2014). The construction of its fulfillment center is a response to the growth potential realized through the earnings based on the omnichannel strategy.
Merchandising Strategies at Macy’s
Macy’s views its merchandising activities as a very important aspect of its business; especially with the adoption of e-shopping and the wide spread use of the internet. Macy’s has implemented a strong merchandising leadership training program for over 80 years (Koeth, 1985). By investing resources into merchandise leadership training, Macy’s objective is to intensify the need for ensuring that new hires acquire the experience necessary to lead Macy’s into new markets (Koeth, 1985). Training involves learning the systems at Macy’s and the interrelationship between the buying operation and the functionality of the store (Koeth, 1985). This approach helps instill the merchandising philosophy at Macy’s that the “complete” merchandising executive should be well experienced on both sides of the system. (Koeth, 1985, p. 33). Other strategies that emerge through training at Macy’s are the value of the long-term approach and the value of seeing the “bigger picture” (Koeth, 1985, p. 33). Macy’s extensive training in merchandising leadership has led into some impactful actions as well as strategic moves in the merchandising divisions. In 2006, Macy’s integrated its Macy’s Merchandising Group with its merchandising team at Macy’s Home Store in a move to manage both divisions under one leader (Furniture/Today, 2006). The cosmetics division within the Macy’s Merchandising Group is also issuing integration through more collaboration between vendors and retailers (Evans and Mitra, 2008). Debbie Murtha, the senior vice president of cosmetics for Macy’s Merchandising Group said, “Integration and collaboration have to be the operative words” in regards to the move to integrate vendors and retailers (Evans and Mitra, 2008, p. 1). She elaborated on this and said, “Them versus us has to be eradicated, we have to be in concert. This hasn’t been the case” (Evans and Mitra, 2008, p. 1). Macy’s investment in merchandising divisions have also led to a strong platform of initiatives including the lifestyle center stores and My Macy’s strategy, which involves the assortment of merchandise based on consumer preference and a store’s local market. (Evans and Mitra, 2008). The local focus is based on the need to maintain its national strategy at the local level (Evans and Mitra, 2008).
Digital Asset Management
Digital Asset Management (DAM) is an operational strategy that shortens the time it takes for a retailer to take a picture of a product and post in on marketing resources including a direct mail piece, an in-store display, merchandise package, a print advertisement, or a retail Web site (Cass, 2006). Due to the high utilization of the internet, many retailers including Macy’s have brought DAM in-house (Cass, 2006). The strategy behind in-house DAM according to Shani Schechter, who is the End User Support Manager at Macy’s East, is “If you can create fast, you can sell fast” (Cass, 2006, p. 249). One of the key components of DAM is the software. Macy’s uses Xinet WebNative (Cass, 2006). What Xinet WebNative allows is the streamlining of graphic media for collection, access, production, distribution, and archiving, which decreases the time for the creative process and production workflow through tools that improve staff, vendor, and client interactions (Cass, 2006). Macy’s has a library of 100,000 images on its Xinet WebNative software, and everyone involved in the creative and production process has access including photographers, art directors, copywriters, image librarians, and buyers, all of whom work in different locations (Cass, 2006). By organizing DAM throughout the supply chain, business can improve because acceleration of the creative and production process can lead to faster sales.
Partnerships and Alliances
Macy’s strategy behind partnerships and alliances is to build on its reputation and image through attractive advertising that will lure more shoppers into its stores (Wong, 2010). Macy’s national identity has allowed it to engage in copromotions with popular companies including Warner Bros, Sex and the City, Norwegian Cruise Line, and the Tony Awards (Wong, 2010). These copromotions were built on prior partnerships with experimental promotions that included Clorox, Ocean Spray, Dell, and Q-tips, which were implemented to try to draw new types of customers to its stores (Wong, 2010). The marketing EVP at Macy’s, Martine Reardon, said “It’s important for a brand to have a personality” and that “the push is part of Macy’s strategy to differentiate itself” (Wong, 2010, p. 1). Bringing in outside partners for new product concepts and new advertising promotions opens up opportunities to build traffic (Wong, 2010). The fact that Macy’s has improved its reputation and gained such a popular identity opens up these new opportunities to build traffic by attracting other big name companies and brands through partnerships.
Strategy Execution Model
Due to open access of the internet, online strategies can be easily copied from a company. When strategies are easy for rivals to copy, super strategy execution capabilities provide the only method of sustainable competitive advantage (Thompson, Strickland III, and Gamble, 2013). Strategy execution capabilities are developed in the same way that companies develop organizational structures and operations (Thompson, Strickland III, and Gamble, 2013). Superior strategies contribute to the company’s overall business model by creating the opportunity to take full advantage of organizational resources and competitive capabilities (Thompson, Strickland III, and Gamble, 2013). When copying a company’s strategy is easy like in e-shopping, superior strategy indicates to outexecute the competition in order to achieve a competitive advantage (Thompson, Strickland III, and Gamble, 2013). In order to achieve maximum results, the company’s organizational structure should be aligned with the company’s strategy (Thompson, Strickland III, and Gamble, 2013).
Customer Relationship Management (CRM)
In online retailing, customer relationship management (CRM) is a valuable superior strategy that combines performance and strategy through operations and organization. The amount of CRM a company invests in will impact the value of the company. Customer acquisition and customer retention expenses have been shown to have a significant and positive effect on the company’s value (Srinivasan and Moorman, 2005). CRM technology investments have been shown to have a positive relationship with CRM performance (Srinivasan and Moorman, 2005). CRM as a capability has been shown to have a positive effect on CRM and business performance (Srinivasan and Moorman, 2005). In online retailing, investments in CRM will have a positive impact on the company’s performance, especially when online strategies can be easily copied and entry into the online environment has become standardized.
Macy’s has partnered with Affinity Solutions to offer card-linked offers and transaction-enabled programs to its customers as part of a back-to-school promotional program (Affinity, 2012). Through this CRM strategy, Affinity Solutions compiles, monitors, and analyzes retail data on customer purchasing behavior in order to target potential shoppers and raise their awareness of Macy’s back-to-school promotions (Affinity, 2012). Back-to-school spending is a huge market, which was estimated at $30.3 billion in kindergarten through twelfth grade and $53.5 billion for college students in 2012 (Affinity, 2012). Due to the high importance of generating revenue in the back-to-school season, Macy’s has developed strategies in the design and execution of its back-to-school marketing (Affinity, 2012). What Affinity Solutions offers is a data centered customer focused marketing campaign that creates deeper relationships with Macy’s existing customers while developing relationships with new customers (Affinity, 2012).
As companies transform themselves in the online environment and competition increases based on open access to information, strategies designed to exploit intangible assets becomes more valuable than strategies designed to manage physical assets, which can be best accomplished through the balanced scorecard (Kaplan and Norton, 1996). In a balanced scorecard, financial measures are supplemented with criteria that measures performance related to customers, international business processes, and learning and growth (Kaplan and Norton, 1996). Financial outcomes can be linked to the performance of customers, international business process, and learning and growth in order to monitor performance progress and to make decisions on future growth (Kaplan and Norton, 1996). Financial outcomes and performance outcomes are linked and they provide a greater tool for managerial decision-making, and it also creates a new management process that links long-term strategic objectives together with short-term actions (Kaplan and Norton, 1996). The benefit of a balanced scorecard is that it allows companies to achieve a similar consistency of vision and action through directional changes, strategy changes, and changes in the organizational process (Kaplan and Norton, 1996). The framework of management created through the balanced scorecard allows managers to implement strategy while allowing the strategy to evolve in response to the environments affecting the company including the competitive environment, market environment, and technological environment (Kaplan and Norton, 1996).
Macy’s Balanced Scorecard
The aim of Macy’s financial and strategic alignment is focused on maintaining its brand image. Macy’s brand allows products to sell for themselves through association, it creates opportunities for partnerships, and it retains customers as well as builds new customer relationships. The Macy’s brand image will be very valuable in the move to an online environment. Macy’s will implement an omnichannel strategy that will take full advantage of its resources including retail and online through the advancement of technology and the internet.
Translating the Vision
Translating the vision is a measurement tool that helps managers develop an understanding of the organization’s vision and strategy (Kaplan and Norton, 1996). Macy’s omnichannel strategy will help Macy’s brand remain popular and attractive by integrating its selling sources including stores, internet, and mobile devices, so as to make customers’ feel at ease in their shopping needs. Due to the availability of data in an omnichannel strategy, tracking customer purchase behavior will provide a measurement tool to aid managers in determining the strategy’s success. Data will also help Macy’s to know whether their customers are remaining loyal and how many new customers have purchased from their multiple stores or online shopping environment.
Communicating and Linking
Communicating and linking is a measurement tool that allows managers to communicate their strategy throughout the organization hierarchy and to link it to both departmental and individual objectives (Kaplan and Norton, 1996). The DAM strategy at Macy’s allows fast implementation of digital resources through the streamlining of graphic media into a production workflow that improves communications and interactions between employees, vendors, and clients. DAM software creates fast results for decision and actions implemented by all departments and individuals in the workflow process. Managers have the ability to make quick decisions and approve actions so that products get on the shelves fast or in the marketing platforms fast and customers can begin to purchase them. The capacity of DAM software and production workflow can be tracked and used as a measurement in relation to customer purchase behavior and financial outcomes.
Business planning is a measurement tool that allows companies to integrate their business and financial plans (Kaplan and Norton, 1996). The omnichannel strategy will require full capacity implementation from all employees. Store clerks must be aware of the online environment in order to make sure customers are getting the products they want despite whether the product is located at their store. Technology will be used to its full potential and this requires strong organization and full cooperation from the entire staff. The organizational structure and operational framework can be assessed through multiple means based on the various internal strategies utilized by the company. The financial results can be tracked through data management, which can be assessed by management and leadership in order to make strategic decisions for internal changes to make Macy’s more profitable.
Feedback and Learning
Feedback and learning is a measurement tool that builds the companies capacity for strategic learning (Kaplan and Norton, 1996). In order to implement a strategy, it is important to first educate those who have to execute it (Kaplan and Norton, 1996). Macy’s prides itself on its training of leadership through in-house curriculum. By developing leaders in a way that will benefit Macy’s overall performance, Macy’s strategy can be executed on all levels, especially through decision-making. This will allow Macy’s to move forward knowing that their strategic changes were made by Macy’s educated leaders. Organizational and operational changes can be measured based on financial performance, which can be traced back to the training provided to its leaders.
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