Can Macy’s Bring Back the Magic?

Can Macy’s Bring Back the Magic?

Synopsis/Overview:

Federated Department Stores (Parent to Macy’s) has always been focused on making Macy’s a national brand after the market crash in 2008. The crash created a vacuum that sucked up a lot of their competition among department stores. Federated then sought to expand their consolidated department stores, now known as the singular name, Macy’s, even further now that a big portion of the market share was up for grabs. However, the crash also created a huge decline in spending that forced Macy’s to raise prices, thus making sales (volume) decline as well. The holiday season was very tough for Macy’s as well due to the decline in overall spending among consumers. Many other factors such as gas prices, cotton prices, and labor costs all affected the company negatively in respect to a strong recovery. Now that Macy’s has proven that they are a flagship that is here to stay, the question is no longer whether they will survive, but moreover whether it will continue to expand. This case analysis will attempt to determine what possibilities the company has and what path they should start to take if they have not already.

Analysis of the Business Environment:

Federated Department Stores had many different key factors that had to be changed and still do today. For the purpose of this analysis I will outline the use of Porter’s Five Forces as an aid in describing the environment that Macy’s and Federated must deal with.

1. Suppliers

a. Before Federated consolidated all the department stores, each individual store-front had their own supplier instead of sourcing from the same distributor, which also had some impact on quality/quantity controls.

b. This made the suppliers extremely competitive and thus raised prices for Federated’s department stores.

c. Once they consolidated the stores into one (Macy’s), the suppliers were then consolidated as well which helped aid in price reductions for Macy’s as a result of less competition among their suppliers.

2. Costumers

a. Broad customer base due to the, essentially, 4 tiers of product quality.

b. This helps decrease consumer bargaining power.

c. Consumer base stretches across the nation as a result of the massive expansion of over 120 stores nationwide.

3. Threat of New Entrants

a. Due to a number of factors such as a highly-saturated market, large start-up costs, and low ROE, it does not seem as though Macy’s should have to worry very much about new entrants.

b. This lack of fear should entice Macy’s to take their time in reinventing their public image and restructuring of operations to get it right the first time.

4. Rivalry

a. Very strong competition in the department store market.

b. Competition is mainly due to substitutions with other department stores.

c. The decision to consolidate reduces the rivalry among the department stores

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