This week Macy’s stock plunged nearly 20% based on a pitiful Holiday 2018 report where owned sales increased only .7% (this compared to a nationwide holiday reported sales increase of 5.1% and online increase of 16.5%). This was the day of reckoning for the failed and confused strategy Macy’s had pursued over the last 20 years, and their impotence to meet the competitive situation in the market.
The death sword to Macy’s is their price, price and more price strategy that has for years blurred the distinction between them and TJX, Target, etc. which was taken with a chaser of “fashion” and acquired fashion resources. This was all smoke and mirrors, for what the customer saw was overwhelmingly price, upon price and if you use your card or blah blah, more price. Add to that crowded, confusing and over inventoried stores that convey no message except price. Tragic Result: Loss of Identity and Relevance.
The market itself outdid Macy’s and made Macy’s irrelevant. Fashion is super abundant online and in stores, such as Everlane, Untuckit, Zara, etc. etc. and price is the wheelhouse of others who advance that as their strategic message (see TJX).
Michael E. Porter, the modern guru of strategy, clearly says that, in order to succeed, your strategy must be Unique. Macy’s used to be unique. What are they now?
Almost 2 years ago, in April 2017, my very first article on my blog wwww.isourcerer.com was “The Death of (Apparel) Retail (As We Knew It)-Part I- The Survivors”in which I said, “Some of them: Inditex (Zara, Massimo Dutti, Zara Home), Uniqlo, H&M, Primark, Amazon, Costco, Sam’s Club. Why are they growing while others (like Macy’s, JC Penney) are dying slow and painful deaths?”
“So let’s be clear- the imminent expiration of the world of Macy’s et al. is NOT due to PRICE. Macy’s can get down and dirty with the best of them. It is about VALUE. The brand value which deparment stores used to represent and which differentiated them from the discounters is gone- eroded by the overdistribution of brands. Since middle class brand worship is dead, department stores are resorting to promotion to bring in consumers (while at the same time killing the manufacturers by making them pay for the buyer’s incompetence and the stores errant philosophy). Most important, losing the TRUST and respect of the consumer.”
“There was a time when self-respecting middle class America did not want to be seen shopping at, or wearing product from “the mass market.” Now there is no distinction about shopping in Macy’s- it is a confusing and discouraging experience- and no shame to shopping at the new normal. If you go to Uniqlo, Massimo Dutti, or sit home and shop from Amazon, it is a satisfying experience- can it also be a badge of honor?”
One year later after including the same message in many articles, I wrote the unfortunate truth: In my article, “Macy’s- The Asteroid That Killed Retail” I compared Macy’s to the Chicxulub asteroid that killed the dinosaurs and changed the world in that, during their takeover of Federated (NOT a merger) and May Co. and Broadway, they sanitized regional department stores that had been in people’s lives for decades and made them, arrogantly, MACY’S. This effectively buried the American department store heritage, the Bailey Savings and Loan. NOW department stores are “irrelevant”-why?
I don’t think that the department store format is necessarily dead. Years ago, it represented the great moderate middle for those who wanted quality at a price. And it was “our A&S, or our Filene’s” etc. That needs to be revived. Different segments of the country have different needs and ideas. One universal marketing strategy won’t work.
Retail dive reports (“Macy’s On the Brink): "Macy's in the Northeast and in California was a higher-end department store," "There's New York City and Boston and San Francisco, and then you had everything else. And for the 'everything else' part of Macy's, nothing that this guy [CEO Jeff Gennette] is doing is meaningful in a Dayton, Ohio, or a Kansas City, Missouri. The stuff he's doing that's good probably isn't even enough in New York, so it's too little, too late, and not applicable to the whole chain." Correct.
Mark Cohen, an esteemed professor at Columbia and a former colleague at A&S (one of Macy’s victims) says in the article, “"Macy's didn't have to mean something years ago because Macy's had a reputation. Now most of what Macy's sells can be found elsewhere, often in a nicer place," Cohen said. "Or in front of your computer at home."
And “"Macy's is caught between the fantasy and the lack of reality (emphasis mine), between Herald Square and Union Square and everything else in the world," he said. "The web and the store have to speak with one voice, and underlying it all, which is the most challenging, they have to answer for themselves and their investors and their customers — 'What is Macy's?'"
What is Macy’s?
In light of the dynamic current market and in the context of competitive strategy, Jeff Gennette, please answer the above question so we (and your customers) all can understand.
Can Macy’s survive? Absolutely. Remember, Macy’s is not just a department store- its real estate holdings probably have more market value than the company itself. What it takes to revive the retail, in my opinion, is, first, facing the truth. Then, a TOTAL reexamination of strategy, followed by an overhaul of the value chain, and, most important, humbly restaff with people whose experience and dedication will get you there (Basil Liddell Hart’s Great Captains)- Merchants with a proven track record, regardless of their AGE (they are out there).
Since the fish stinks from the head, leadership should be replacedwith those who have no stake to defend themselves in the current mess, and who will embrace the fact that Macy’s is of much smaller relevance in today’s market (I avoided irrelevant) and have the market, marketing knowledge and vision to rebuild from there.
Full disclosure/true history- I am a former A&S (Federated) buyer who took great pride in the iconic regional department stores in our company-You know them no matter where you are from: A&S, Filene’s, Woodward and Lothrop, Marshall Fields, Burdines, Bullocks, shall I continue? Nothing short of criminal to deprive the loyal residents of their shopping home. As I said earlier, THIS is what killed department stores, because, truly, who gives a crap about Macy’s in Indiana?
Last and worst, after returning from China in 2017, and seeking to find my role back in US, I had several phone interviews with Macy’s because I felt (correctly) that I could help them. Needless to say, never got even a face to face. I was told that I was not qualified for a position with the title, Strategy (or others). How’s your strategy working out for you now, Macy’s?
Last year, in my Baruch class on Leadership in the Fashion Industry, I listed Macy’s after Sears and JC Penney as a potential fatality. And here we are.
Let’s summarize: Macy’s, the only way back from the brink (a few of many things that need to be done):
1. Make yourself relevant again; reinvent your message in the spirit of what department stores WERE- fashion destinations with value.
2. As Mark Cohen said, we should be able to answer the question “What is Macy’s” with a UNIQUE strategy.
3. Hire some people who can select the right items instead of filling your floors with redundant merchandise- MERCHANTS (regardless of their AGE).
4. New management team who has no baggage and the vision to succeed.
5. Be humble about what you are now and what you are not.
6. Create an omnichannel strategy that will help you WIN (not like today where you allow your competitors to sell the same thing on your web page as long s they pay).
7. Have a national and global retail strategy that reflects the different needs and wants of different regions- maybe bring back the old names (you own them anyway) or just append a regional name to Macy’s (Like Macy’s Indiana). But, most important, you cannot have one buying strategy for the whole nation- you need to learn about your regions and follow them. If you go to Massimo Dutti in Shanghai and in Parma, Italy, you will find the merchandise is mostly different.
Truthfully, I don’t expect my advice to be sought or followed, therefore I do expect that Macy’s will continue to be a great stock to short in the future. I hope for Macy’s and its loyal employees sake that I am wrong.