As the global recession happened, the traditional department stores were experiencing consistently declining sales and market share. Also, the traditional department stores industry is between mature and decline stage of life cycle. Macy’s changed parts of their strategy and consolidation that focuses on localizing management, strengthening supplier relationships and providing products and customer service based on local consumer preferences. However, the consolidation was not with problems. With dealing these problems Macy’s changed parts of the strategy as following:
The tradition department stores were one of the areas hit by the recession. While some companies dropped previously supported causes and programs, Macy’s got more profit and market share through repositioning strategy and consolidation, even with the rough economic times.
Analysis of the situation
Macy’s is a kind of traditional department store, and consolidation in 2005, at that time the economy is quite good. In 2008, the broad environment is not good; the economy of U.S. entered a recession. The sales of Macy’s are decreased. Also, in 2011, the price of gasoline and cotton were increased. This increased the cost of Macy’s. So the profit and market share of Macy’s reduced. As the department stores industry was attracting fewer and fewer consumers, Macy’s entered into the declining industry life cycle model.
The recession and the declining industry life cycle model are both negatively affect the success of Macy’s. Although the external factors are not good, the internal factors are very good for Macy’s.
One such factor was Macy’s has the national recognition. Another positive factor is Macy’s is really strong. It has 810 stores across the United States. Thirdly, Macy’s has the experience management. Macy’s was founded between 1843 and 1855 in downtown Haverhill, Massachusetts. Department stores created for “one-stop shopping”, Moreover, they had specific experience in converting regional brands to the Macy’s brand. A fourth factor contributing to the successful consolidation was that Macy’s made their stores on prime locations. These internal factors are positive for the success of Macy’s.
Porter’s five –forces model describes the competitive environment in terms of five basic competitive forces: 1. The threat of new entrants. Macy’s had more competitors because more and more self-made fashion lines join to the market to get the market shares, such as H&M, Forever 21. Self-made fashion brands remodeled for more pleasant shopping experience. It is the threat for Macy’s. Also, the developed national stores have the lower cost and overcome quality and service same as Macy’s, it cause the competition.
Buyers threaten an industry by forcing down price, bargaining for higher quality or more service, and playing competitors against each other. Macy’s has lower cost but because of the bad economic, the customers have little bargaining power. Secondly, Macy’s already had everyday value. They give lower price means they will get lower profit. Low profit creates incentives to lower purchasing costs. However, highly profitable buyers are generally less price sensitive.
Supplier power refers to the ability of providers of inputs to determine the price and terms of supply. Suppliers can exert power over firms industry by raising prices or reducing the quality of purchased goods and services, so reducing profitability. After Macy’s consolidation, Macy’s bought mass amounts from same buyers and Macy’s have strong relationship with these buyers. The bargaining power of suppliers is really high.
All firms and industry compete with other industries offering substitute products or services. The threat of substitute products and services was the major concern, particularly with discounters such as Target offering similar products, and large chain that specialized in clothes such as H&M. 5. The intensity of the rivalry among competitors in an industry Rivalry refers to the degree to which firms respond to competitive moves of the other firms in the industry. Macy’s repositioned its industry segment to the upper middle level. Macy’s decided to change the strategy, they will be more fashionable and fashion at lower price. Also Macy’s change the brand to focus in attracting customers interested in fashion rather than customers in a specific demographic.
Macy’s repositioned itself as an upper-middle level store is easily imitable. Other department stores also can position as the same level. But Macy’s attempt to become “America’s department store” is something that other, small department stores cannot imitate. Also, Macy’s focus on less traditional and conservative than other department stores is a flawed value proposition, but it is not a bad one. Because of some of the consumers may like the traditional Macy’s. Consolidating brands to allow for lower prices is a good way to cut cost and to be unique.
Macy’s consolidation and repositioning strategy is really good and Macy’s did the best decisions. Because as the external environment is bad but Macy’s use itself internal advantage to consolidate and reposition to gain back the market share and profit. Consolidation and repositioning strategy help Macy’s get more brand power, prime location and improved consumer experience. Additional Macy’s got consumers focus on the affordable fashion. However, it also came with some problems such as uncertain industry conditions, excess costs and emphasis on standardization.
As Macy’s pursued an aggressive strategy in 2011, Macy’s was doing well. Almost everybody knows the everyday value of Macy’s and Macy’s afford the “America department store”. But department stores industry is in declining and competition is growing rapidly. Macy’s has recently instituted the strategy to compete in a tough market. So Macy’s is doing well and have huge advantage, but maybe other department stores will catch up and overcome in following years. Macy’s may change strategy when economy, competition change.
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