1- Strengths: After repositioning of the Traditional Department Store in to Macy's store, low cost structure, successful national advertising campaigns & promotions such as Thanksgiving Day Parade, huge base of loyal customers and retail outlets on prime locations with heavy traffic in the main cities are the few advantages. In addition, Macy's has an experienced & competent management team which help them to resolve many issues like, to develop a strong relationship with suppliers and distributors. Also, private-popular brands support Macy's store to reach at an advantageous position.
2-Weakness: Macy's store is losing their loyal customers because of the implementation of standardization policy after repositioning. They faced income loss in year 2008 due to abandoning of 'everyday program'. The market share and ROE of traditional stores are declining in the retail industry.
3-Threats: Economic downturn is affecting retail sales; it is due to increase in price of gasoline and cotton. Moreover, Macy's biggest threats are discount stores such as Wal-Mart, Target and Specialty Stores as such H&M and ZARA which are significantly taking market share in the industry and Internet Online Stores are also a significant threat for the company in the long term.
4-Opportunities: They can open new stores in upscale shopping centres and overseas. They can also increase private brands on their stores, which will help to increase their revenue stream. Moreover, they can add young designer labels in stores to attract young women in US market.
Porters Five Forces Analysis
Following are the Porter Five Forces analysis of the Macy’s Departmental Store:
1-Threat of New Competition: After the advent of discount stores like Wal-Mart and Target with massive varieties & assortments in their stores, there is a declining growth seen in departmental stores. These discount stores offer tight competition to most of the department stores such as Eaton's, Mervyn's and Ward's, and eventually these stores shut down their operations. Indeed, advent of online shopping stores like Amazon and eBay also affect sales growth of other retailers. Internet also gives an opportunity to popular brands to sell their products to customers directly with a variety benefits like free delivery. Consequently, the threat of new competition in the retail industry is high. However, for every new entrant, it is slightly difficult to get and sustain customer loyalty, access to all distribution channels, develop a successful brand name and achieve breakeven point easily.
2-A Threat of Substitute of Product/Services: There are many departmental stores in USA and other segments such as Macy's, Dillard's, in high class general stores; Nordstrom, Lord, Taylor and Bloomingdale and in lower class such as JCPenney, Sears and many other stores based according to their segments. It shows that buyer's switching cost; buyer's propensity to substitute and relative price performance of substitute, are almost negligible. Nevertheless, perceived level of differentiation may create a difference in choice. For example, Nordstrom is famous for its customer service and discount stores are popular for low prices. Macy's tries to differentiate itself by positioning itself as "affordable luxury" and focusing more on middle segment with moderately prices.
3-Bargaining Power of Customers: The bargaining power of customers is low, yet it is effective as many of them opt for discount stores than traditional department stores. For example, internet based shopping stores are increasing because customers want convenience. However, customers do not have much bargaining power because this business runs on small margins and mostly retailers & suppliers determine the margins together. In the retailing industry, one can find large base of customers in comparison to other industries, this tells that bargaining power of the customer is low. Although, it can be said that customers do have some bargaining power, but they cannot make any major change in the retail industry. For example, Macy's repositioned itself to increase shopping experience and opted for localization & customization than standardization in their stores for their local customers.
4-Bargaining Power of Suppliers: In the retail industry, retailers have more bargaining power if they have a considerable amount of customer base. There are normally more suppliers available as compare to retailers. Therefore, retailers can switch to other brands easily. However, successful and popular brands can have bargaining power because retailers cannot do anything if customers demand it. For example, Macy's store is selling nationally advertised brands such as Ralph Lauren, Anne Klein and many more because they advertise heavily to generate their demand so that they may have some bargaining power. Retailers have to build a good relationship with such successful brands. Similarly, Macy's store decides to keep brands like Martha Stewart, Tommy Hilfiger, Matthew Williamson, Kurt Lagerfeld and many more to attract their customers.
5-Intensity of Competitive Rivalry: The intensity of competitive rivalry is high. Macy’s store is making sure to get more customers by adding popular brands, promoting their store via advertising and other promotional campaigns like, in 'fashion and service' promotion; they called popular celebrities like Donald Trump, Jessica Simpson, Usher and many more. Macy's revamped itself; they repositioned themselves to attract customers of upper-middle segment. They also refurbished their stores. The powerful competitive strategy is to give customers volume purchasing with lower cost structure. They focus on attracting customers of upper middle-segment. They are increasing their number of stores, assortment, advertising expense, volume and variety. They are also improving their service quality, as well.
Best available strategy for Macy’s Department Store to implement right now would be to go overseas and look for opportunities such as Dubai. They do have one store in Puerto Rico. However, it will be an excellent opportunity to look for similar markets like USA and market near to USA. For example, Canada would be another potential market to tap. Macy should follow market development strategy; it is the right strategy to get more revenue. It will increase the size of the pie, bring new customers, and bring more growth options for Macy's store. However, dark side of this idea is that there may be a massive investment loss if the company will be taking a significant risk. Also, local market competition will be a threat, and operating business indifferent style will hamper growth, as well. However, Macy's would have to compromise on margins because of low sales volume in Canada. In addition, if this project gets successful then Macy's can always tap in to South America and move to Europe, as well. This will enable Macy's store to launch their brands in the local markets of Canada, South America and Europe. Conversely, barriers to enter in these markets would be high, and it will take a lot of marketing efforts to convert walk-in customers to loyal customers. Also, they will have to invest a lot time, money and human resource in it. Although, Macy's has 810 stores in USA, but they should not put their all eggs in one basket. This strategy will help them to grow in the long term and sustain for a longer period. Indeed, they can always sell their private brands online globally, as well.