Macy’s Financial Analysis Essay Example

as the arrival of Santa Claus to tree lightings and detailed animated window displays.

Overall, department stores are in a period of decline and consolidation. Competition has increased as department stored are forced to compete with discounters, luxury chains, specialty stores and the internet. As a result, in today’s age, you could look at department stores as an endangered species. For example, in 1980 there were 35 major department store chains, leaving only 13 left today. Due to the changes in department stores, Macy’s has found its self with strengths and weaknesses. Utilizing the SWOT model, the following analyzes the strengths and weaknesses of the company, Macy’s: Strengths:

1.) The MACY’S brand is one of it’s strongest assets and is the most recognizable names in the retail department store industry. 2.) Macy’s has a unique marketing channel. The marketing efficiencies allow a better focus on it’s core assets and implement marketing efficiencies through national marketing campaigns. As opposed to splitting resources for regional campaigns, Macy’s is able to buy more national advertising. 3.) Macy’s continues to be focused on four key priorities for improving the business. T

hese include: differentiating merchandise assortments and tailoring them to local tastes, delivering obvious value, improving the overall shopping environment, and enhancing customer engagement, loyalty and traffic through more brand focused and effective marketing (macysinc.com, pg.14). 4.) Through a newly developed unified organization and utilizing these actions, and with investment in local markets through “My Macy’s” in 2008 and 2009, they have been able to reduce expenses by more than $500 million per year going forward.

5.) In 2009, online sales (macys.com and bloomingdales.com combined) were up 20 percent. 6.) Macy’s continues to

grow by learning from the process of analyzing customer behavior by data collection which leads to new marketing approaches. 7.) Macy’s has made large strides in reducing the impact on the environment. I.e.: installing solar systems in 40 stores, investing in energy efficient projects, decreasing use of paper by 24%, and diverted 60% of waste from the stores away from landfills. Weaknesses:

1.) Home furnishings and miscellaneous makes up for only 15% of sales annually. Men’s and children’s apparel makes up for only 22% of sales annually. 2.) In today’s evolving customers, a majority of customers changed their shopping habits. More shoppers research purchases on line and comparison shop. Macy’s must appeal to the new way of shopping and strive to meet the needs of their customer. 3.) Working capital requirements fluctuate during the year. It increases in mid-summer and increasing significantly around the holiday season.

This is when they must carry significantly higher inventory levels for consumer demand. 4.) They are subject to unfavorable economic and political conditions, other developments and risks. 5.) Changes with “interest rates, rates of economic growth, fiscal and monetary policies of the government, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends, oil prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spending and tourism could adversely impact the Company’s business and results of operations” (macysinc.com, pg.78). 6.) Macy’s has significant additional expenses in the period leading up to the months of November and December for the anticipation of higher sales volume at this time, including for additional inventory, advertising and employees. Opportunities:

1.) “My Macy’s” has invested in talent, technology and

marketing that ensures that each and every Macy’s store is “just right” for the customer who shops in that location. 2.) Since first impressions are a big deal, Macy’s feels it’s first impression will have a significant impact on those loyal to their store. The shoppers will come and judge the overall shopping experience and the merchandise behind the Macy’s name. 3.) Localization is a key component of Macy’s strategic formula for continued growth and success.

4.) Macy’s carries 15 private brands of various items. In 2009, private brands exceeded 19 percent of sales at Macy’s. Macy’s feels these private brands deliver outstanding fashion, quality and value to the customer. 5.) Macy’s expanded their presence in social media in 2009 by implementing sites such as Facebook, Twitter and YouTube. They had nearly 250,000 friends on Facebook in 2009. Threats:

1.) Due to constant fashion and household trends, Macy’s is forced to keep up with strategic priorities such as assortment, value, shopping environment and marketing. 2.) Because of the seasonal nature of the retail business, the number of employees peaks in the holiday season. 3.) The retailing industry is intensely competitive, and Macys must keep a continuous competitive edge against competitors. 4.) Macy’s faces the Squeeze by being threatened of being squeezed from all other retailers such as specialty shops, internet retailers, and middle ground competitors. 5.)

The Company conducts its retail merchandising business under highly competitive conditions. Competition includes: assortment, advertising, price, quality, service, location, reputation and credit availability. 6.) The Company’s sales and operating results depend on consumer preferences and consumer spending as well as the economy. 7.) The failure to anticipate, identify and respond to emerging

trends in lifestyle and consumer preferences could have a material adverse affect on the Company’s business.

Macy’s has a significant competitive edge among it’s department store competitors. I believe that the values that Macy’s has, and it’s loyalty to its customers is a major component as to its developed success. Macy’s four strategic priorities are : “differentiating merchandise assortments and tailoring them to local tastes, delivering obvious value, improving the overall shopping environment, and enhancing customer engagement, loyalty and traffic through more brand focused and effective marketing” (macys.com/investors, pg. 9). Working together, corporate financial objectives are: “to grow sales, to continue to increase the company’s profitability levels (earnings before interest, taxes, depreciation and amortization) as a percent of sales, to improve return on invested capital, and to maximize total share holder return”.

I firmly believe that a company is only as good as it’s employees. Terry Lundgren of Macy’s, CEO, chairman of the board, president and the director of Macy’s has been noted as an “innovator in merchandising, branding, and localization” (Wikipedia.org). He was known as being instrumental in the developing of the company’s private brands of merchandise, as well as creating one of the largest retailers in the world. Ever since his graduation in 1974 with a bachelor’s degree, he was awarded the honorary doctor of laws degree, and proceeded to work in the retail industry. Throughout his career he has been the president of Bullocks, CEO of Neiman Marcus, CEO of Federated Merchandising group, and CEO of Macy’s. Working under Terry, is Thomas Cody, a vice chair, Janet Grove, a vice chair, and Susan Kronick, a vice chair. As an outsider, I would make the

recommendation that Macy’s does increase their capital expenditures to increase competitiveness.

As previously stated, there are numerous competitive edges in today’s retail world. Macy’s challenge is disocunters, luxury & specialty stores, internet, and mail order. If Macy’s can expand on it’s capital expenditures it will give them a competitive edge with others. Purchasers these days want the lowest price, and Macy’s has had the reputation of being an upscale store. However, often times you can get a product at Macy’s for the lowest price. If Macy’s took the capital to advertise this, I believe that more consumers would consider Macy’s when making purchases. I would recommend that Macy’s increase market spending by at least 4 million dollars with in the next two years. I believe that Macy’s should increase this spending in online advertising.

Since the internet is becoming a preferred and convient way to shop, it would be ideal for Macy’s to put more advertising here. They should advertise more in the social media, online print ads, and comparison ads. I feel this would give them more of a competitive edge, yet not lose their image. Overall, there are two ways to increase profits in any business. This is to increase sales, and reduce labor costs. The question lies, How should Macy’s go about contolling costs including labor and health care? The answer is not simple, however I have concluded the following would help in cutting costs. Since labor is an important part of the cost structure, a small reduction in labor costs can result in a large boots to Macy’s bottom line numbers.

Labor cost’s include wages, taxes, and health benefits that the company must pay

towards the employee. If Macy’s can cut back some labor, they are ultimately cutting back on employee hourly wages, salaries, benefits, health insurance, disability insurance, paid time off and 401K plans. Ultimately, to increase income, one must reduce debt, and debt lies in too many employees. To save money, yet run an effective retail chain, I would make some recommendations. I believe that cross training is essential when training employees. Not only does it empower the employee, it also helps the employer out in times of need.

This is a process where employees are trained how to efficiently do their jobs, yet are able to fill in for other jobs as needed. To cut costs, I would also recommend offering an early retirement to older employees, this way we can hire more highly paid workers. This in turn may aid in the avoidance of lay off’s. Overall, there are many ways a company can save money, yet save the company at the same time. I believe that Macy’s has the capability to conduct both.