With the emergence of ecommerce and consumers growing interest in spending more on services instead of products, traditional big box retailers have suffered. In particular, Macy’s has continued to struggle to adapt to consumer’s preferences and the ever-evolving fashion retail landscape. Competitors like Amazon have entered the industry, creating more tailored, seamless shopping experiences and thus, Macy’s once highly valued business model no longer resonates with many.
Macy’s got its start in 1858 as a dry goods store and has grown to over 600 brick and mortar locations selling an array of products. The department store is one of the largest in the world and is renown for its brand-building and advertising efforts — in particular, the Macy’s Thanksgiving Day Parade and the Macy’s Fourth of July Spectacular. As a result, Macy’s commands high brand awareness; however, recently this hasn’t translated into strong sales and revenue goals.
Macy’s existing model creates value for customers by providing an extensive selection of products under one roof (or on one online domain). Goods are merchandised in an orderly fashion and are priced competitively, often bolstered by heavily advertised sales and promotions. Macy’s brand is synonymous with high-quality, reliable department stores and, due to the company’s event-based marketing efforts (i.e. the Parade and the Spectacular) illicit favorable and nostalgic emotional responses among many. With the rise of ecommerce, the company expanded its distribution channels to online (in addition to its brick and mortar presence) to further enhance the overall shopping experience (i.e. adding flexibility and optionality).
The value capture portion of Macy’s model is fairly simple: Macy’s sells an assortment of fashion and home goods priced above cost. From an operating model perspective, a large portion of their work force consists of sales people and back-of-house employees working within the brick and mortar locations. These individuals are supported by corporate employees who oversee buying, merchandising, and marketing, among other functions.
In order to stay competitive, the company has made efforts to provide greater value to customers by offering different types of promotions, changing their product assortment, and enhancing the in-store shopping experience. Although some of these efforts have resulted in temporary increases in foot traffic, Macy’s bottom line (i.e. value capture) has continued to take a hit. In fact, sales declined for six straight quarters from Q1 2015 through Q2 2016.
The retailer’s foray into ecommerce also hasn’t been able to keep pace with the value created by its competitors. Disruptors in the space, like Amazon, have devised customized, quick, hassle-free shopping experiences by leveraging their software expertise and maniacal focus on UX and UI. Conversely, Macy’s hasn’t been able to acquire and hone this competency, which is critical under the current market conditions. Macy’s product offerings are more commoditized than ever before, thus making the shopping experience the key driver of differentiation. By not being able to meet — let alone exceed — customer’s heightened experience expectations, Macy’s is losing in the fashion retail sector.