Abstract

In August 2016, US-based department store retailer Macy’s announced that it was closing down 100 of its more than 700 stores. This was in addition to the 40 stores it had closed during the year. This came in the aftermath of six quarters of drop in same store sales, and dwindling profits, amidst a changing environment, growing competition, and changing consumer preferences. In its 150-year history, Macy’s had pioneered department stores in the US and was credited with several firsts in the retail industry like the one price system, no bargains, creative merchandise, etc. Over the years, it had grown through acquisitions. In 1994, a holding company for several family-owned businesses, Federate Department Stores, acquired Macy’s to become the largest department store in the US. All the stores that were operated by Federated were converted into Macy’s stores. In 2006, Federated acquired US-based May Department stores which operated several regional department stores across the country. Over the next few years, all the May stores were converted to Macy’s. Before Macy’s could assimilate the newly acquired stores, the US economy came under recession. This impacted the sales and revenues of Macy’s. The CEO of Macy’s, Terry Lundgern, came out with several strategies like closing stores, merchandising the stores according to the needs of local customers, having regional managers for overseeing assortments, etc. These strategies, called ‘My Macy’s’ helped Macy’s get through the recession. Till 2013, Macy’s was ahead of its competitors. The company’s fortunes changed after 2014 when it fell victim to the growing popularity of online shopping, dwindling store traffic, and increasing competition from discount retailers. Post-recession, the American apparel and accessories industry witnessed several changes due to the emerging trend of fast fashion. Retailers like Zara and H&M brought new styles 11-15 times a year as against the prevailing trend of four seasons in the fashion industry. Every few weeks new styles arrived in the stores. With their supply chain efficiencies, these retailers were able to sell highly fashionable garments at affordable prices. At the same time, off price retailing also took off. The merchandise that was left back due to fast changing trends was sold at highly discounted prices by these retailers. On the other side, e-commerce companies like Amazon, which had had a presence in online fashion for over a decade, took to apparel and accessories in a big way, with several companies which refused to sell their products through e-commerce showing willingness to have an online presence. The customer profile also changed. The millennials were not interested in spending on shopping and instead preferred to travel and experience new cultures. The new age consumer waited for items to be discounted before they bought them. Many people preferred to shop online. In such a scenario in late 2015 and early 2016, the weather was unseasonable, with not so cold winters and not so warm summers. Macy’ s was unable to sell the weather specific merchandise it had stocked and had to resort to discount sales. This resulted in dwindling sales and stock price, and activist investors started demanding that Macy’s sell off its huge real estate holdings to return value to the shareholders. In such a scenario, the company announced the closure of stores whose annual net sales was estimated at US$ 1 billion. Along with the closure it also announced several plans to bring Macy’s back on the growth track. While a debate was raging about whether closure was the right move, Macy’s announced that its CEO who had steered the company for 13 years would step down, and a three-decade company veteran Jeff Gennette (Gennette) would take over as the new CEO. Gennette was inheriting a company facing challenges from all the sides – dwindling sales and share value, falling same store sales, competition, changing customer preferences, an industry that was facing an upheaval, and a legacy that he had to carry forward.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To understand the impact of a dynamically changing competitive environment
• To recognize the need to understand customer requirements and bring about appropriate strategy changes
• To identify the measures needed to contain the downward spiral of a company in trouble
• To retain customers in the face of growing competition and changing preferences and perceptions
• To understand how competitors’ strategies impact business decisions

Keywords

Macy's, fast fashion, recession, online retail, discount retail, turnaround, US Apparel Industry, Inventory, department store strategies, competition, store closure