Strategy Analysis-MACY Inc

8/9/2019 Strategy Analysis-MACY Inc

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[Type text]

Amit Prakash S-07, Manu Maudgal S-42, Saurabh Jain S-78 Group 7 | Authored By

CS1Group#8/MacyGroup -8 Manu Maudgal S-42, Mohit Donter S-43, Mudit Mehrotra S-44,

Murali Krishna Rupakla S-45, Nagendra Yadav S-46


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EMBA Batch 2013-2015

1Submitted By Group 8: Manu Maudgal S-42, Mohit Donter S-43, Mudit Mehrotra S-44, Murali Krishnarupakla S-45, Nagendra Yadav S-46

Contents

1. The Case Information ................................................................................................................. 2

2. Case issues ................................................................................................................................. 2

3. Case Data Analysis ...................................................................................................................... 3

4. Case Solution Hypothesis............................................................................................................ 7

5. Company Profile ......................................................................................................................... 9

6. Vision ......................................................................................................................................... 9

7. Mission....................................................................................................................................... 9

8. Objectives .................................................................................................................................. 9

9. Factors Affecting Business: Porters five forces ...........................................................................10

10.Competitive Profile Matrix (CPM) ..............................................................................................10

11. Internal Factor Evaluation Matrix (IFE) ........................ ........................... ........................... .........11

12.External Factor Evaluation (EFE) Matrix .....................................................................................12

13. Internal-External (IE) Matrix ......................................................................................................13

14.Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix .............................................. .....14

15.Strategic Position & Action Evaluation Matrix (SPACE) ........................... ........................... .........15

16.Grand Strategy ..........................................................................................................................16

17.Boston Consulting Group (BCG) Matrix ......................................................................................17

18.Quantitative Strategic Planning Matrix (QSPM) .........................................................................17

19.Suggested Strategic Course .......................................................................................................20

20.Appendix: Case Update .............................................................................................................21


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The Case Information

In 2005, Macy Inc, acquired May department stores, which operated regional brands such as Filene's, Marshall

Field's, and Kaufmann's, which were all well known for their flagship downtown stores and local traditions. The

process of re-branding them to Macyor even closure was met with negative reaction in many of the regions

surrounding those department stores because they were widely considered to be beloved local institutions.

If this was not enough, post 2008 economic melt-down, the United States is passing through a serious economic

downturn, which has resulted in closing down of a further 11 Macy stores. Macys 2008 financial figures were

poor and the 2009 results upto quarter 2 are not encouraging either.

The respected Wall Street Journal in February 2009 reported that Macys intends to shed 7000 jobs, around 4 %

of its workforce. Further it said that Macy is ending merit pay increases for executives and cutting shareholder

dividends by 62%.

Clearly in this morale sapping environment, Terry J Lundgren, Macys Chairman, President and Chief

Executive Officer outlook for the future is very optimistic. According to him, the 2009 Q1 results were in line

with expectations. In Q1, the My Macy localization initiative was completed and in Q2 a new organizational

structure is in place. Thus an improvement in sales trend is expected starting Q4.

Chairman Lundgren has described the recent store closures as part of our normal-course process to prune

underperforming locations each year. The long term strategy is to continue selectively adding new stores while

closing those that are underperforming.

Case issues

Macys leadership needs to determine an appropriate strategy to

1. Avoid more layoffs

2. Avoid store closings

3. Meet (or surpass) the financial objectives:

To accelerate comparable store sales growth.


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To continue to increase the companys profitability levels (earnings before interest, taxes

depreciation, and amortization) as a percentage of sales to a level of 14 percent to 15 percent.

To effectively use excess cash flow through a combination of strategic growth opportunities and

stock buybacks.

To grow earnings per share while increasing return on gross investment.

Case Data Analysis

Exhibit 1: Macys divisional organizational chart

The organization has regional divisions (Central, East, Florida, West), Home store and online.

Exhibit 2: Macys Division review

Ratio

No of Division

Stores

Total Store Area

(million sq ft)

No of

Employees

Area/Store Employees/Store Employees/

Area

Central 239 42543 39200 178 164 0.92

East 253 52896 57700 209 228 1.09

Florida 62 10277 10200 166 165 0.99

West 259 40507 46700 156 180 1.15

Observation:Stores in the West and East have the highest ratios of employees per store area.

Recommendation:It would be useful to understand the need to have more employees in West and East.

Exhibit 3: Sales by Merchandise categories

Macy has four distinct product categories

i.36%-Furniture, accessories, intimate apparel, shoes and cosmeticsii.27%-Feminine apparel

iii.22%-Mens and childrensiv.15%-Home/miscellaneous

Observations:The sales percentage has been more or less constant over the last three years.Category (i) has gained 1% share since 2006, whereas Category (ii) has lost 1%. It might be useful tounderstand if this change in merchandise reveals a trend or is just a re-distribution of category.

Recommendation: Category (i) should be sub-divided into sub-categories for analysis.


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Exhibit 4: Consolidated Statement of Income

$ Million 2009 2008 Change ($ M) Change (%)

Net Sales 24,892.00 26,313.00 (1,421.00) (5.40)

Cost of Goodssold (COGS) 15,009.00 15,677.00 (668.00) (4.26)

Gross Margin(GM) 9,883.00 10,636.00 (753.00) (7.08)

% Margin to sales 39.70 40.42 (0.72) (1.78)

As is observed from the table, in 2009 Macys net sales dropped by $ 1421 M, i.e. 5.4% drop in sales over 2008,whereas company has not been able to maintain the same ratio of drop in COGS and change is $ 668, i.e. 4.26%. Due to disproportionate decrease of Cost of Goods Sold, there is huge drop in the gross margin in 2009. Thedecline in GM is $ 753 M, i.e. a 7.08% drop. This is despite the decrease of 5.76% in Inventory; Macy is not

able to maintain its COGS down by the same ratio, which indicates an area of concern. In our opinion reasonsfor inability to manage the COGS can be:

Excess inventory holding costs

Excess purchase costs for merchandise/ raw material.

Recommendation: Reduce costs of merchandise and its inventory

In Selling & general expenses

Year Sales ($)

Selling &

General

Expenses ($)

Variable

Cost ($)

Fixed Cost

($)

2008 26,313.00 8,554 1,352 7,202

2009 24,892.00 8,481 1,279 7,202

The total variable cost in selling & general expenses are only 5.13% of the sales and rest is fixed costs. Thisindicates that company should reduce its fixed cost.

Despite the saving in Integration cost in 2009, an additional cost of Divisional Consolidation and Assetimpairment charges of Rs $398 M has reduced companys EBITA by $ 859 M. In 2009 EBITA has droppedfrom 7% (2008) to 4% (2009).

Further despite a good GM of 40%, Macy has not been able to generate good net income. Macy has huge selling& distribution expenses which contributes 34 % of sales in 2009. In addition 2% cost is for other charges.

In 2009 MACY has EBT of $ 444 M i.e. 1.78% of sales against $1320 in 2008. In 2008 Macys EBT was5.02% of the sales. It depicts that company is paying higher interest cost than last year. This is explained asinterest cost in 2009 is 2.25% against 2.06% in 2008.

Recommendation: Reduce fixed costs and use it retire debt.


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Exhibit 5: Consolidated Balance Sheet

Analysis of Macy Inc. balance sheet suggests the current status of companys sources and application of funds:

Apparently it looks that company is maintaining huge cash balance. Whereas on the other hand companyhas increased its short term debts by $ 300 M. There is huge interest cost to the company in 2009 whichis due to higher short term as well as long term debts. In our opinion Macy should repay some of itsshort term debts and utilize the excess cash & cash equivalent in better way.

Company is recovering accounts receivable (AR) but not paying its creditors in the same proportion. Company has been able to reduce its inventory but has not reduced its Accounts payable.

Company has given advance of $ 226 M and increased the same by $ 8M from 2008 and on the otherhand company has accrued liability of $2628 m.

We have analyzed Macy Inc performance relative to the retail industry using ratio analysis (Source:statcan.gc.ca). Ratio analysis of Macy relative to industry suggests the following:

a) Debt: Equity ratio is 1:1 in 2009 which is ideal for any company, but relative to the industry is highHence Macy needs to reduce its debt.From the balance sheet it is observed that Macy has Short term debt of $ 966 M which increased by

$300 from 2008. It is recommended that Macy reduce its short term debt by utilizing the excess cash &cash equivalents. It is evident that the firm maintained a higher debt level in times when macroeconomicconditions were on downward trend. The costly debt was affecting the profitability of the firm.Alternatively, Macy can explore to raise equity to repay short term as well as long term debt.

Liabilities 2009 2008 Change Assets 2009 2008 Change

Current Liabilities Current Assets

Short Term Debt 966 666 300 Cash & Cash Equivalent 1,306 583 723

Accounts Payable 1,282 1,398 -116 Accounts Receivable 439 463 -24

Accrued Liabilities 2,628 2,729 -101 Inventory 4,769 5,060 -291

Income Tax 28 344 -316 Supplies & Prepeaid expenses 226 218 8

Deffered Income tax (DIT) 224 223 1 0

Total Current liability (TCL) 5,128 5,360 -232 Total Current Assest (TCA) 6,740 6,324 416

Long Term debts 8,733 9,087 -354 Property & Equipment 10,442 10,991 -549

Deffered Income Taxes 1,416 1,446 -30 Goodwill 9,125 9,133 -8

Other Liabilities 2,521 1,989 532 Other Tangible Assets 719 831 -112

Equity 9,729 9,907 -178 Other Assets 501 510 -9

22,399 22,429 -30 20,787 21,465 -678

Total Liabilities 27,527 27,789 -262 Total Assets 27,527 27,789 -262

BALANCE SHEET OF MACY INC. (Amount in $ Millions)


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b) Inventory turnover ratio is lower than the industry. It means company has maintained huge inventory oris not able to liquidate the stock into sales, resulting in high inventory costs.

c) Receivable turnover ratio of the retail industry is 41.47, whereas MACY Inc. has 55.19, indicates thatthe company is getting its dues quickly from the debtors. MACY Inc. is getting its debtors in 6 days. Butcompany is not managing its funds efficiently to pay its creditors. MACY Inc. has creditor turnover of3.73, i.e. company is paying off debts in 97 days.

d) Return on Capital Employed (ROCE) is lower than the industry (4.48% vs 7.2%).This implies that Macyis not able to generate the return on the capital employed. (note: Return is EBITA for ROCE & CapitalEmployed is Total Assets Current Liabilities)

e) Return on Equity (ROE) is less than the industry (2.88% vs 9.6%); Macy is not managing its equityefficiently despite reduction of equity (buy back) there is still low return on Equity.

f) MACY has a Fixed Assets ratio of 73.69% i.e. fixed assets to Total Assets is 74%. Macy can considerliquidating some fixed assets and generate funds to repay short term and long term debts.

Exhibit 6: Macys closest competitors

Comparing Macys vs competition sales in January 2008 and 2009, it is observed that

The generic retail segment catering to all segments has seen sales dip 5-24%.

The segment catering to below 30 age group seems to have bucked the trend with sales actually growing11-14%.

Similar is the case with small town (Gottschalk) sales which have increased 8.8%.


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Recommendation:Focus on below 30 age group demographic to enhance sales.

Exhibit 7: Macys Inc, Store Closings, 2008-09

Division wise closure of stores is as follows:

Division Stores %West 5 50

East 4 40

Central 1 10

Florida 0 0

Total 10 100

Observation: Correlating with Exhibit 2, we see that stores in the West and East having the highest ratiosof employees per store area have been closed down.

Recommendation: Recent store closures are in line with overall strategy to enhance sales and reducecosts

Case Solution Hypothesis

On the basis of the case information, Macy Inc website and our own analysis, our group as arrived at thefollowing strategy hypothesis:

A. Manage financials


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i. Reengineer financial debt (short term debt to be retired, cash reserve to be reduced, property/goodwill to beutilized)

ii. Enhance inventory turnover (invest in technology)

iii. Manage HR layoffs/ retraining

B. Increase sales / margin

i. Bring focus on target customer (my Macy should continue)ii. Omni channel inventory integration (inventory tagging, point of sales technology, merge online offline

especially sharing of sales commissions)

These hypothesis have been tested using various strategy tools, to arrive at the final strategy outcome.


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Company Profile

Macys is a mid-range department store chain catering to middle and upper middle class life style merchandisein the USA.

Vision

Existing Recommendation

Our vision is to operate Macy's and Bloomingdale'sas dynamic national brands while focusing on thecustomer offering in each store location.

Change proposed is to dropthe word nationalbeforebrand. This is to reflect theinternational aspirations ofMacy.

Mission

Existing Recommendation

Our goal is to be a retailer with the ability to seeopportunity on the horizon and have a clear path forcapitalizing on it. To do so, we are moving fasterthan ever before, employing advanced technologyand concentrating our resources on those elementsmost important to our core customers.

No change

Objectives

Macys leadership has set out three key objectives

1. Avoid more layoffs

2. Avoid store closings

3. Meet (or surpass) the financial objectives:

To accelerate comparable store sales growth.

To continue to increase the companys profitability levels (earnings before interest, taxes

depreciation, and amortization) as a percentage of sales to a level of 14 percent to 15 percent.

To effectively use excess cash flow through a combination of strategic growth opportunities and

stock buybacks.

To grow earnings per share while increasing return on gross investment.


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Factors Affecting Business: Porters five forces

An analysis of Macy as per Porters five forces model is as under:

The essential challenge before Macy is to enhance sales in a period of economic downturn. Another issue is

that existing baby boomer customers are spending conservatively, while America is facing a demographic

shift from baby boomer to the Millennial (age


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Macy's Dillard's J C

Penny

Saks

Critical Success

factors

1Weights0.0 to 1.0

2Rating1 to 4

3=1x2Weighted

Score

4Rating1 to 4

5=1x4Weighted

Score

6Rating1 to 4

7=1x6Weighted

Score

8Rating1 to 4

9=1x8Weighted

Score

1. Advertising 0.1 3 0.3 1 0.1 4 0.4 2 0.2

2. Financial

Position

0.1 4 0.4 1 0.1 3 0.3 2 0.2

3. Store locations 0.1 2 0.2 3 0.3 4 0.4 1 0.1

4. Market Share 0.1 4 0.4 2 0.2 3 0.3 1 0.1

5. Price

Competitiveness

0.12 3 0.36 4 0.48 2 0.24 1 0.12

6. Product Quality 0.11 3 0.33 1 0.11 2 0.22 4 0.44

7. Technology 0.1 4 0.4 1 0.1 2 0.2 3 0.3

8. Customer

loyalty

0.1 1 0.1 2 0.2 4 0.4 3 0.3

9. Merchandise

Variety

0.09 4 0.36 3 0.27 2 0.18 1 0.09

10. Customer

Service

0.08 2 0.16 3 0.24 2 0.16 4 0.32

TOTALS 1 3.01 2.1 2.8 2.17

The matrix clearly reveals that Macy scores high in most areas vis--vis the competition. However in the areasof Customer Loyalty and store locations, Macy scores lower. On both these critical success factors, Macy hasinitiated action under the My Macy strategic initiative piloted in 2008. An online retail thrust is alsounderway.

This matrix reinforces that Macys current strategic path is correct and should be continued.

Internal Factor Evaluation Matrix (IFE)

The intrinsic strengths / weaknesses of Macy are analyzed as under:


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External Factor Evaluation (EFE) Matrix

Key FactorsWeights

0.0 to 1.0

Rating

1 to 4

Weighted

Score

Opportunities

Expand overseas for growth 0.07 4 0.28

Expand focus on online retail channel 0.13 4 0.52

Leverage buyout to consolidate the segment and boost presence 0.1 1 0.1

Rejig the merchandise portfolio towards those items which are growing 0.11 1 0.11


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Key FactorsWeights

0.0 to 1.0

Rating

1 to 4

Weighted

Score

faster

Enhancement in technology and automation for retail industry 0.12 4 0.48

Total 1.49

Threats

Global economic recession 0.1 4 0.4

Change in laws effecting wage increase 0.06 1 0.06

Competitors getting desperate 0.07 3 0.21

Price reduction by competitors 0.08 3 0.24

Employees layoff affecting motivation 0.1 1 0.1

Change in customer demand and preference 0.06 2 0.12

Total 1 1.13

Internal-External (IE) Matrix

For Macy we have obtained two scores-for Internal analysis- 2.76 and from External analysis-1.13. When we

plot these on a IE matrix (sample provided below), depending on in which cell those lines intersect, we can

obtain the direction in which our strategy should be.

Macy as per our analysis falls in quadrant VII, which implies harvest or exit strategy. If costs for rejuvenating

the business are low, then it should be attempted to revitalize the business. In other cases, aggressive cost

management is a way to play the end game.


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Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

Strengths

1. Macy brand

recognizable in America and abroad

integrated in cultural fabric of America

known to introduce innovative brands,categories and practices

2. Scale: 800 stores allow for

Bargaining power on suppliers

Operational efficiencies

Marketing efficiency3. Merchandise

large portfolio of private brands

diverse product mix4. My Macy localization initiative5. Restructured workforce-future ready as per My

Macy6. Financials

Goodwill

Cash on hand

Land / asset ownership

Weaknesses

1. Retaining customers loyal to regional brandswhile transiting to brand Macy

2. Loosing trained man-power in lay-offs3. Reducing mark-downs on merchandise4. Financials

High debt: equity ratio

Low inventory turnover ratio

Opportunities

1. CSR initiatives

Promoting customer orientedenvironmental/ social causes

Vendor/supplier code of conduct2. Merchandise

Eco-friendly products

Celebrity promotions

Franchising out e.g. selling ipad

3. Advertising Online / Social media

4. Tap Brand Macy

organic and inorganic growth abroad5. Technology

New point of sales enabling multi-channel retail in future

Online retailing website

Threats

1. Litigation issues due to closing stores / lay-offs /social media/ CSR issues

2. Economic down-turn likely to continue for next2-3 years

3. Margins squeezeas traditional baby boomercustomers demand better value

4. Changing customer

Traditional baby boomer generation is

spending conservatively Below 30 age group is spending and is

also the largest consumer group in nextfive years


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Strategic Position & Action Evaluation Matrix (SPACE)

The SPACE matrix reveals the type of strategy the company should pursue. The SPACE Matrix analyses twointernal and two external strategic dimensions in order to determine the organization's strategic posture in theindustry. For Macy, these have been analyzed as under:

Financial Strength

+1 to +6 Y Axis

Environmental

Stability

-1 to -6 Y Axis

Competitive

Advantage

-1 to -6 X Axis

Industry Strength

+1 to +6 X Axis

Cash Flow 4.0 TechnologicalChanges -3.0

Market Share -1.0 Profit Potential 4.0

Inventory Turnover3.0

Rate of inflation-4.0

Product Quality -2.0 Growth Potential3.0

Liquidity 4.0 competing productsPrice range -4.0

Customer Loyalty-3.0

Financial Stability2.0

Earnings per Share1.0

Barriers of entry intomarket -1.0

Product Lifecycle-2.0

Ease of entry intomarket 4.0

Price earnings ratio2.0

Risk involved withbusiness -5.0

Control oversuppliers anddistributors -3.0

Productivity 3.0

Y Coordinate = -.6 X Coordinate = .8

Macy falls under quadrant four implying competitive strategy.


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Grand Strategy

Grand Strategy Matrix represents two evaluative dimensions referred to as market growth and competitiveposition. Horizontal line shows market growth labeling rapid market growth at the upper front and slow markegrowth at the lower front whereas vertical line shows competitive position labeling strong competitive positionat the right end and weak competitive position at the left end. Thus the Grand Strategy Matrix has fourquadrants where right strategies are enlisted in accordance with the characteristics or attributes of each quadrantfirms.

An organization can be placed in any one of four quadrants. Appropriate strategies for an organization toconsider are listed in sequential order of attractiveness in each quadrant of the matrix. All quadrants contain allpossible strategies.

Macy as per our analysis falls under Fourth quadrant (competitive position (strong) and Market Growth(slow)).

Recommended Strategies to be employed by Macy

1. Related diversification2. Unrelated diversification3. Joint ventures

Weak

Quadrant IIQuadrant I

Quadrant IV

uadrant III

Stron


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Boston Consulting Group (BCG) Matrix

The analysis so far has essentially suggested that Macy needs to be competitive. The IE matrix also suggesting

that either a business is harvested or Macy should consider exiting the business. The BCG model helps in

understanding what to harvest and what to exit.

Quantitative Strategic Planning Matrix (QSPM)

The SPACE matrix has placed Macy in quadrant four, i.e. maintaining competitiveness in a weak growthmarket. The QSPM helps in identifying the best one.

External Factors:

Omni-channel salesand International

Expansion

Manageinventories and

reduce cost

ManageFinances better

WEIGHT AS TAS AS TAS AS TAS

1 to 4 1 to 4 1 to 4

OpportunitiesExpand overseas for growth 0.07 4 0.28 0 0

Expand focus on online retail 0.13 4 0.52 2 0.26 3 0.39


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Omni-channel sales

and International

Expansion

Manage

inventories and

reduce cost

Manage

Finances better


1 to 4 1 to 4 1 to 4

channel

Leverage buyout to consolidate

the segment and boost presence

0.1 1 0.1 2 0.2 2 0.2

Rejig the merchandise portfolio

towards those items which are

growing faster

0.11 1 0.11 4 0.44 4 0.44

Enhancement in technology and

automation for retail industry

0.12 4 0.48 4 0.48 2 0.24

TOTAL 1.49 1.38 1.27

ThreatsGlobal Economic Recession 0.1 4 0.4 1 0.1 1 0.1

Change in laws effecting wage

increase

0.06 1 0.06 1 0.06 0

Competitors getting desperate 0.07 3 0.21 3 0.21 3 0.21

Price reduction by competitors 0.08 3 0.24 3 0.24 3 0.24

Employees layoff affecting

motivation

0.1 1 0.1 1 0.1 0

Change in customer demand and

preference

0.06 2 0.12 2 0.12 3 0.18

TOTAL 1.13 0.83 0.73

Internal Factors:

Omni-channel salesand International

Expansion

Manageinventories and

reduce cost

ManageFinances better


1 to 4 1 to 4 1 to 4

StrengthsVery Solid Brand Equity 0.09 4 0.36 4 0.36 4 0.36

Great Advertising 0.08 4 0.32 4 0.32 3 0.24


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Omni-channel sales

and International

Expansion

Manage

inventories and

reduce cost

Manage

Finances better


1 to 4 1 to 4 1 to 4

Economies of scale 0.06 4 0.24 4 0.24 4 0.24

Track record of the organization 0.07 3 0.21 3 0.21 3 0.21

Well-structured vendor

agreements

0.08 3 0.24 3 0.24 3 0.24

Merchandise portfolio 0.05 3 0.15 3 0.15 3 0.15

Openness to new innovations 0.05 4 0.2 4 0.2 3 0.15

Clear segmentation with

Bloomingdale

0.03 2 0.06 3 0.09 3 0.09

Market share leader 0.04 3 0.12 4 0.16 3 0.12

TOTALS 1.9 1.97 1.8

WeaknessDeclining Net Profit 0.1 1 0.1 1 0.1 1 0.1

Declining footfalls in stores 0.08 0 1 0.08 1 0.08

Lack of diversity in merchandise 0.06 1 0.06 1 0.06 1 0.06

Weakness in certain

merchandise departments such

as ladies sportswear,

mattresses, handbags

0.05 2 0.1 2 0.1 4 0.2

Historically reliable profit

centers facing pressure

0.05 3 0.15 2 0.1 1 0.05

No clarity on how to handle the

threat of Walmart at the lower

end

0.07 0 2 0.14 0

Current customer perception

slightly negative about the

brand

0.04 0 2 0.08 1 0.04

TOTALS 0.41 0.66 0.53

GRAND TOTALS 4.93 4.84 4.33

Clearly the model is suggesting that Macy focus on Omni-channel sales and International Expansion followed

by managing inventories to reduce costs. It may be noted that many of the actions to be undertaken will be

common to these two strategies.


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Suggested Strategic Course

Macys is a mid-range department store chain catering to Middle and upper middle class seeking affordableluxury. The unique economic situation in the USA ensures that Macy competes in many retailing formatsincluding specialty stores, general merchandise stores, department stores, off-price and discount stores, homeshopping including the Internet, catalogs and television, and manufacturers outlets.

The business is and will require constantly improving business strategies to maintain and increase market share.

On the basis of the case information, Macy Inc website and our own analysis, our group as arrived at thefollowing strategy initiatives:

1. Omni-channel sales / International diversification

a. Retain focus on target customer (my Macy should continue)b. Omni channel inventory integration (inventory tagging, point of sales technology, merge online

offline especially sharing of sales commissions)c. International stores to leverage on Macy brand / diversify from US downturn

2. Manage Inventory / Reduce costs

a. Reengineer financial debt (reduce fixed costs, short term debt to be retired, cash reserve to bereduced, property/goodwill to be utilized)

b. Enhance inventory turnover (inventory tagging, point of sales technology, merge online offlineespecially sharing of sales commissions)

Both of these initiatives are currently underway throughMy Macy initiative, organizational restructuring,

Emphasis on online-store inventory synergies and capital expenditure on new point of sales technologies.

Our group feels the morale sapping financials upto Q2 2009 notwithstanding, Macy should go full throttle on

the existing strategic initiatives and timelines.


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Appendix: Case Update

Macy has been successfully able to ride out the economic downturn in the US economy. As per Macy Annual

report (page 1), the following initiatives were successfully carried out in 2009:

MY MACYS

After initial pilots in 20 markets in 2008, the My Macys localization initiative was rolled out across the country

in 2009. In doing so, Macy created eight stores regions and 49 new districts (for a total of 69 districts). Macy

added human intelligence including new district merchants and planners in each district in a manner that

enables Macy to tailor merchandise assortments and the shopping experience by location.

My Macys is proving itself to be a powerful competitive differentiator and driver of sales.

In 2009, all of the companys top 12 markets in sales growth were from the initial My Macys pilot districts. As

the national rollout progresses, it is expected that the remainder of the company to perform consistently with the

initial pilot districts.

UNIFIED ORGANIZATION

To enable the rollout of My Macys, the operating division structure was unified for all of Macys. By

eliminating redundancy in central offices and instituting consistency in stores, Macy was able to act more

quickly, sharpen execution and partner more effectively with vendors and business partners while reducingadministrative expense.

Through these actions, in 2008 and 2009, Macy has been able to reduce previously planned expenses by more

than $500 million per year going forward.

MULTICHANNEL INTEGRATION

Continued emphasis on integration of stores and online sites at Macys and at Bloomingdales.

This has helped to create a 360-degree view of the customer so that customer needs can be serviced across

channels, which in turn drives sales in both stores and online.

Investments in the infrastructure of online businesses over starting 2005 are paying off. In fiscal 2009, online

sales (macys.com and bloomingdales.com combined) were up 20 percent.

BLOOMINGDALES

Significantly improved its performance in the second half of 2009. Bloomingdales has re-emphasized designer

merchandise, contemporary fashion and uniqueness in its assortment. During the year, Bloomingdales debuted


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an entirely new Beauty Floor on the main level of its Manhattan flagship store. In early 2010, two

Bloomingdales stores (one for apparel, one for home merchandise) opened in Dubai. These stores, operated

under a license agreement with Al Tayer Insignia, a company of Al Tayer Group LLC, are Macy

s, Inc.

s firstinternational locations. A Bloomingdales Outlet store concept is planned to launch in fall 2010 with four

locations and others to follow in subsequent years.

Over the next few years Macy has built on these initiatives to devise a three pronged strategies which are known

by the acronym M.O.M.

1. My Macys localization,

2. Omni-channel integration

a. Creation of a new post --Chief omni-channel officerall sales & inventory report to him

b. Sharing of commissions with store from which inventory is being pulled through online sales

c. Use technology--RFID tags

3. MAGIC Selling customer engagement

The results of these initiatives are reflected in Macys stock price, which has increased from less than $10 in

2009 to $55 in 2014, a fivefold gain in five years.

Strategy Analysis-MACY Inc

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