{"id":10716,"date":"2020-02-11T16:27:58","date_gmt":"2020-02-11T21:27:58","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/macys-store-closings-layoffs-a-sign-of-struggle-in-omnichannel-retail\/"},"modified":"2020-02-11T16:28:55","modified_gmt":"2020-02-11T21:28:55","slug":"macys-store-closings-layoffs-a-sign-of-struggle-in-omnichannel-retail","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/macys-store-closings-layoffs-a-sign-of-struggle-in-omnichannel-retail\/","title":{"rendered":"Macy\u2019s Store Closings, Layoffs a Sign of Struggle in Omnichannel Retail"},"content":{"rendered":"

In 1858, former sailor Rowland Hussey Macy opened the doors of R.H. Macy & Co., a dry goods store in New York City. That day, he sold just $11.06 worth of merchandise. The first year, however, was more auspicious with Macy earning $85,000 in annual revenue. Macy\u2019s would proceed to grow organically (including a Herald Square flagship \u2013 the world\u2019s largest store in 1924) as well as through acquisitions.[1]<\/a> Today, Macy\u2019s, Inc. is comprised of Macy\u2019s, Bloomingdale\u2019s, and Bluemercury.[2]<\/a> It is its Macy\u2019s brand, however, that has made recent headlines due to the announcement of the chain closing 125 of its 636 stores (a whopping 20%) as well as \u201ccutting roughly 2,000 corporate jobs, or 10% of corporate and support staff, and closing several offices.\u201d[3]<\/a> This news is a manifestation of how Macy\u2019s is not on the winning side of the digital revolution.<\/p>\n

In the context of brick-and-mortar retail, digital growth has challenged the traditional model. The expansion of broadband access and the normalization of online shopping has squeezed mom and pop and established international chains alike out of the market. One cannot analyze this market without mentioning the behemoth driving and capitalizing upon this digital revolution: Amazon. Amazon\u2019s scope and scale empower it with leverage across the supply chain to deliver low prices (along with its inherent convenience and ease of use). How can Macy\u2019s and other traditional brick-and-mortar incumbents win in this largely upended omnichannel retail industry? I argue there are three major levers of delivering value in this context: price, experience, and product.<\/p>\n

Macy\u2019s has long been a stalwart of American shopping malls (which face their own plight, with vacancy rates approaching double digits in 2018).[4]<\/a> With price points above discounters and below other mall department stores like Nordstrom, Macy\u2019s contends that it \u201cdelivers quality fashion at affordable prices.\u201d[5]<\/a> However, Macy\u2019s \u201cquality\u201d or value for one\u2019s money is being surpassed by the growth of outlets and discounters, and its claim of \u201caffordable prices\u201d are being undercut by Amazon. With SG&A comprising 42.9% of sales,[6]<\/a> Macy\u2019s is incapable of competing with e-retail on price alone (consider Amazon\u2019s SG&A costs of only 6.7% of net sales).[7]<\/a> Since Macy\u2019s cannot compete on low price, we look to our second main lever of driving value: experience.<\/p>\n

Retailers (both brick and mortar and online) must deliver a valuable experience for shoppers to drive in-store and online traffic. There is no one-size-fits all solution in this respect. Shoppers seek and are attracted to experiences that are highly differentiated and they patronize these varied experiences to suit various needs\/wants and occasions. For example, TJX has experienced growth[8]<\/a> as it delivers on the fun of the hunt, eschewing greeters, personal shoppers, and shoe salespeople, for example. Or, consider the success of Sephora,[9]<\/a> which delivers a seamless omnichannel retail experience. With in-store experts and services and online reviews, the company facilitates discovery in a supportive environment. Macy\u2019s arguably provides a somewhat vanilla shopping experience, with no unique or stand-out attributes (e.g., it is not white glove service, competitive\/fun to hunt, personalized, etc.).<\/p>\n

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Macy’s underperforms Amazon and TJX (Key: Macy’s in blue, TJX in purple, Amazon in yellow)\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Source: https:\/\/www.wsj.com\/market-data\/quotes\/M<\/a><\/figcaption><\/figure>\n

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The third major way through which Macy\u2019s can compete in the post-Amazon market is through offering a unique product mix which drives (and responds to) consumer tastes. This is a difficult task, as Amazon aggregates SKUs and hosts branded retail products on its site (and then replicates the most popular designs in-house). The solution: exclusive items.<\/p>\n

To illustrate this logic, consider another industry recently upended by digital competition: media. Content aggregator Netflix was able to draw eyeballs away from traditional media in a manner not unlike Amazon drew consumers away from traditional retail. Netflix built out its library (in both depth and breadth), all accessible for a low price point when compared to cable packages. A \u2018golden age\u2019 of TV ensued, with more money being pumped into content creation as well as SVOD players extending the lives of existing content through syndication windows. How, then, can one compete in an industry where there is so much new content and in which content hops from platform to platform? Original content. That is, exclusive series that draw viewers onto owned platforms. This, in effect, is why Netflix reportedly spends over $14 billion on originals each year,[10]<\/a> and why we see competitors like Disney+, Amazon, and Peacock focusing efforts around original programming on owned platforms.<\/p>\n

Just as media companies can drive consumer value and product differentiation through original content, so too can retail brands create differentiation and consumer demand via exclusive products and designs. Macy\u2019s is aligned with this strategy, as it hosts 18 proprietary brands.[11]<\/a> However, it is not sufficient to have exclusive SKUs, they must also drive consumer demand. Without knowing the performance of Macy\u2019s owned brands, it is difficult to opine on the company\u2019s performance in differentiated product offering (although I\u2019d be suspect given Macy\u2019s bland brand statement of being \u201cAmerica\u2019s store for life\u201d \u2013 denoting no unique creative point of view).[12]<\/a><\/p>\n

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Macy’s faces the need to drive architectural innovation<\/figcaption><\/figure>\n

Macy\u2019s latest downsizing news illustrates that its previous competencies in the retail market (store design, merchandising, discounting, real estate development, advertising) are not fit for the evolution of the retail industry. I would further argue that Macy\u2019s faces barriers to change as it is so entrenched in its 160-year history and does not have the capacity or capability to adapt. That is, in order to compete in today\u2019s retail market, Macy\u2019s must undergo an architectural change \u2013 one in which the product is not greatly changed, but in which the mechanisms or architecture with which to deliver that product (e.g., supply chain management, sourcing, product development\/lifecycle, digital sales and analytics) is radically different.https:\/\/www.wsj.com\/market-data\/quotes\/M<\/a><\/p>\n

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[1]<\/a> https:\/\/www.macysinc.com\/about\/history<\/a><\/p>\n

[2]<\/a> https:\/\/www.macysinc.com\/brands<\/a><\/p>\n

[3]<\/a> https:\/\/www.wsj.com\/articles\/macy-s-to-close-125-department-stores-exit-weakest-malls-11580850007?mod=breakingnews<\/a><\/p>\n

[4]<\/a> https:\/\/www.wsj.com\/articles\/shopping-mall-vacancies-are-highest-in-seven-years-after-big-box-closings-1538564400<\/a><\/p>\n

[5]<\/a> https:\/\/www.macysinc.com\/brands\/macys<\/a><\/p>\n

[6]<\/a> https:\/\/content-az.equisolve.net\/_4b741bec1fe5a20fdbc2173bd7bcb1d8\/macysinc\/news\/2019-11-21_Macy_s_Inc_Reports_Third_Quarter_2019_1594.pdf<\/a><\/p>\n

[7]<\/a> https:\/\/ir.aboutamazon.com\/news-releases\/news-release-details\/amazoncom-announces-fourth-quarter-sales-21-874-billion<\/a><\/p>\n

[8]<\/a> https:\/\/www.forbes.com\/sites\/walterloeb\/2019\/08\/21\/tjx-companies-project-robust-growth-during-the-rest-of-2019\/#60eee23710b3<\/a><\/p>\n

[9]<\/a> https:\/\/www.forbes.com\/sites\/pamdanziger\/2018\/08\/06\/sephora-and-ulta-are-on-a-collision-course-then-there-is-amazon-where-is-us-beauty-retail-headed\/#2a23d2d355dd<\/a><\/p>\n

[10]<\/a> https:\/\/www.theverge.com\/2019\/8\/19\/20813005\/apple-tv-plus-original-video-spending-6-billion-the-morning-show-amazon-netflix-streaming-wars<\/a><\/p>\n

[11]<\/a> https:\/\/www.reuters.com\/companies\/M.N<\/a><\/p>\n

[12]<\/a> https:\/\/www.macysinc.com\/brands\/macys<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Macys is unable to deliver on competitive pricing, differentiated customer experience, and unique product offering. Its historical competencies leave it ill-equipped to compete in the omnichannel retail market.<\/p>\n","protected":false},"author":11299,"featured_media":10774,"comment_status":"open","ping_status":"closed","template":"","categories":[156,2623,102,2622,318,647],"class_list":["post-10716","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-amazon","category-competency","category-loser","category-macys","category-omnichannel","category-retail","hck-taxonomy-organization-macys","hck-taxonomy-industry-retail","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/digital-winners-and-losers-2\/","yoast_head":"\nMacy\u2019s Store Closings, Layoffs a Sign of Struggle in Omnichannel Retail - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/macys-store-closings-layoffs-a-sign-of-struggle-in-omnichannel-retail\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Macy\u2019s Store Closings, Layoffs a Sign of Struggle in Omnichannel Retail - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Macys is unable to deliver on competitive pricing, differentiated customer experience, and unique product offering. 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