macy's case study analysis

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Macy’s: reinventing customer experience through data analytics

Traditional retailers have been significantly impacted by the increasing penetration of e-commerce. Macy’s has focused on developing its data analytics capabilities to survive the fourth industrial revolution.

Value creation

Macy’s is an icon of American retail and one of the oldest and largest department stores, with 775 stores in the US [1]. The traditional business model of the company consists of purchasing high quality merchandise from many suppliers and reselling the goods in their stores [1]. By offering a superior selection of products, an exciting shopping environment, and superior service, the company creates value for customers [2].

The company has been impacted significantly by the entrance of online retailers. The Amazon effect [3] has negatively impacted the financials of the company over the last 5 years. The penetration of new competitors has incentivized cost-reduction initiatives as well as the digital transformation of the company. The use of data has been critical for understanding customers behaviors to increase customer spend and loyalty, and for analyzing operations to reduce costs. Those initiatives have enabled Macy’s to capture value by sustaining healthy margins.

Use of data and its challenges

Pathways to a Just Digital Future

To combat the new entrants, Macy’s has strengthened its omnichannel experience. One of the 5 pillars of its new strategy is to adopt new consumer and technology trends to improve its value proposition.

Use of AI for enhancing customer service

Macy’s developed a website virtual agent based on the Microsoft Dynamics 365 AI solution for customer service. The virtual agent answers more than one quarter of customer queries, reducing the company’s costs[4]. The roll out of the initiatives was not difficult since it was based on an external solution. Although this initiative reduces Macy’s cost structure, I believe it is not a competitive advantage since it has been implemented for multiple companies.

Use of predictive analytics to grow customer spend

Macy’s has invested in a predictive analytics solution from SAP to better understand customer buying behavior and optimize email and website marketing campaigns [5]. Based on past consumers behavior, the software helps the company to target customers more efficiently to increase their spending. Since Macy’s decided to implement an external and standardized solution, the initiative’s roll out only took 3 months. The initiative has increased online sales by 10% through more targeted emails to customers.

Use of Google Cloud data management for warehouse optimization

Warehouse optimization is critical for reducing costs and meeting shoppers’ expectations. By having all the information centralized and by applying real-time inventory management, Macy’s has been able to optimize the inventory allocation and reduce costs [6]. Although the implementation of the technology provided by Google seems to have been a success, the company’s cultural transformation has been challenging. To successfully implement the cloud technology, it is critical to have leadership on board, training the employees and selling the benefits of the new solution [7].

Experiment to improve customer experience

In addition to using external solutions, Macy’s has deployed an internal team to analyze data [8]. The team members work as consultants within the organization and support other teams in analyzing data for improving decision making process. Macy’s uses experimentation to improve customer experience. By conducting A/B testing, the team optimizes different website elements such as layout, design, style, pricing, promotions, headlines, and photos [8]. The company uses the t-test to analyze if a change in the website (e.g. color of the button) increases the conversion ratio of customers. The company has invested in increasing the size of the team.

Going forward

The digital transformation of Macy’s and the use of analytics represents an opportunity for the company, but also a challenge. Educating the organization to make data-driven decisions requires continual efforts as an important strategic imperative. Creating a robust team to conduct experiments that increase customer conversation is also a critical task that requires time and capital investments.

To reduce the impacts of the Amazon effect , in February 2020 Macy’s announced that it will double down on its digital growth strategy and will reduce elements of its traditional business. The company plans to close 125 stores in the next three years, cutting 2,000 jobs and reducing costs by $1.5 billion in 2022 [9]. I believe that Macy’s has implemented a robust strategy for improving its omnichannel customer experience and reducing costs. Going forward, the company should take advantage of its physical stores by personalizing its in-store experience with data analytics, providing a competitive advantage versus online retailers. Boosting loyalty program and being obsessed with customer experience are critical for thriving in the fourth industrial revolution.

Appendix: how Macy’s uses advanced analytics and big data

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Bibliography

[1] macy’s. “annual report 2019.” https://www.macysinc.com/investors/sec-filings/annual-reports/content/0000794367-20-000040/0000794367-20-000040.pdf . accessed on april 2020, [2] https://www.macysinc.com/investors/sec-filings/annual-reports/content/0000794367-12-000096/0000794367-12-000096.pdf, [3] investopedia. “amazon effect.” https://www.investopedia.com/terms/a/amazon-effect.asp . accessed on april 2020. ha, [4] microsoft. “macy’s uses ai-driven virtual agent to transform online and mobile customer service.” https://customers.microsoft.com/en-us/story/macys-retail-microsoft-ai . accessed on april 2020., [5] sap. “macy’s gains better insight into customers with predictive analytics from sap.” https://news.sap.com/canada/2014/05/macys-com-gains-better-insight-into-customers-with-predictive-analytics-from-sap/ . accessed on april 2020., [6] google. “macy’s uses google cloud to streamline operations.” https://cloud.google.com/blog/topics/customers/macys-uses-google-cloud-to-streamline-retail-operations . accessed on april 2020., [7] ricoh. “the cultural impact of cloud migration.” https://www.ricoh-usa.com/en/insights/library/articles/the-cultural-impact-of-cloud-migration . accessed on april 2020., [8] tableau. “macy’s: cracking the code of a/b testing and market basket analysis.” https://www.youtube.com/watchv=ttlggd27kqk . accessed on april 2020., [9] wall street journal. “macy’s to close 125 department stores.” https://www.wsj.com/articles/macy-s-to-close-125-department-stores-exit-weakest-malls-11580850007 . accessed on april 2020., student comments on macy’s: reinventing customer experience through data analytics.

Thanks for this great post, Andres!

I think that these initiatives are very interesting and will hopefully help Macy’s overcome some of the challenges it has been experiencing for years. However, I’m concerned about the realistic potential and use of Macy’s in-store mobile initiatives. I think that one of the consequences of the rise of online shopping is that fewer millennials shop in department stores. I’m concerned that the older generation will not be tech-savvy enough or interested in using their phones to get answers to their questions while shopping. They might find it as a hurdle and prefer the traditional way of asking a sales representative for help.

Great post, Andres! I was reading about Macy’s recently and learnt that they are struggling financially. A shift toward digital technology could be a strategy to move to lower-cost models (e-commerce). Based on your research for this blog, do you think they can leverage data and analytics to optimize their business model such that they can revive the financial health of the company? Possibly downsizing their retail footprint ( lease costs?) or optimizing supply chains due data analytics and demand prediction? What do you think?

Thanks Andres for sharing this insight into Macy’s! I’m wondering about the specifics of Macy’s cost-benefit analysis in terms of how much time / capital it will take to make this transition, and what is the path toward recouping the investment and driving further growth? Additionally, digital transformation is a defensive move for a large incumbent, and it is just table stakes for retailers going forward. I wonder if there are specific elements of its digital transformation that can differentiate it enough from its competitors to enable Macy’s to capture share.

Really liked the post! Shocking that through the targeted advertising they were able to grow their topline by 10%! A worthwhile investment to say the least.

While they’re using traditional means to improve the online UX, I wonder if there are more opportunities to use analytics to improve the in-store customer experience. Perhaps through AR, geolocation analytics (in-store shopping behavior insights), or other creative means to improve the shopping (and browsing) experience. Also, as they increase their presence online, it might behoove them to derive ways to more intimately tie the in-store with the online experience.

I like all the new initiatives that Macy’s is undertaking to improve their position. What is missing I think is not the strategy how to compete with Amazon but how to compete with all the DTC brands that are so focused on attracting customers with their mission, the green manufacturing, their donations to different causes, etc. These brands are all the new generation is following and Macy’s needs to have a plan how to bring them in on the top of all the operation optimizations. They can use AI data to see what are the behaviors of this young customer segment and when they buy from Macy’s what do they look for. If Macy’s was able to partner with these brands or grow in house similar ones, they would be in a much better position.

Thanks for a great article Andres! I’m a bit of a skeptic regarding how useful these measures taken by Macy’s will be in the long run. Seems to me that they’re playing catch-up with Amazon at this point. By this I mean that the technology and AI solutions they’ve implemented are not sources of a competitive advantage, given that most (if not all) reputable online retailers already have them (they’re kind of a must to compete in the space). I believe Macy’s will have to be more innovative in the solutions they’re implementing and take more risks in order to generate the results they’re looking for.

Great article! It is nice to see how a traditional business is utilising data / AI to improve their business operations. I believe to remain competitive and fight off competition from other retailers and Amazon, the company may need to embed these capabilities in their organisation. I am interested to see how they have shaped their organisation to include data and AI and how these topics integrate with their other departments. To continue to be innovative in providing these solutions, I believe they will need a strong data team and works seamlessly across the organisation.

Very interesting post and thanks for sharing! It is always interesting to read about incumbents try to adjust its business model in order to stay relevant in a declining industry, especially when it comes to a segment that Amazon has come to dominate. Although Macy’s is going to great lengths to maintain some semblance of a market presence by leveraging AI to evolve the customer experience with the various IT initiatives, I don’t believe that they will be able to survive in the long run. Like other large department stores before them have experienced, Macy’s business model was built around the premise of in-store experiences across various brands but as we have seen the changing customer behavior in the past decade is not conducive to this such strategy. As a result, it is my feeling that Macy’s is just using AI because they know they need to do something different but I am hard-pressed to believe the investment will provide the anticipated returns.

Interesting read! Macy’s is definitely making huge bets to survive in this industry. In addition to digital transformation, Macy’s is focusing on introducing new store concepts to cater for Gen Z’s interest in experiential retail.For example, Macy’s opened a new concept called “Market by Macy’s” which is basically a small store that sells curated local products offering both branded and private label merchandise from local designers. I wonder if they this is where the biggest value add of their AI models would be i.e. in using AI to curate the best merchandise.

Creating an Omnichannel Supply Chain: A Macy’s Case Study

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In February 2020, Macy’s announced their Polaris plan , a three-year strategy created to stabilize profits and create growth. This plan included closing 125 underperforming stores and consolidating offices. It also included a major overhaul of their supply chain model.

But, of course, Macy’s had to close their doors less than 6 weeks later due to COVID-19. As their online presence was the only presence available, their longstanding supply chain strategy, which was already starting to cause major issues within the company, needed immediate attention.

Macy’s CEO Jeff Gennette stated in September 2020, “Everything on the digital agenda has been accelerated. We’re optimizing inventory placement to meet customer demand wherever and however they shop in our store.”

What’s so bad about Macy’s supply chain model?

Customers expect a strong omnichannel experience — one that integrates both the online and offline world of the retailer, enabling a frictionless shopping experience.

For retailers, the goal is to take the retailer’s replenishment cycle from days to hours and reduce inventory at stores. This way, retailers expand their use of stores to fulfil online orders and hold less inventory altogether, allowing them to dedicate more room for digital fulfillment.

Omnichannel shopping is the baseline expectation for customers, as companies such as Gap, Target, and many others have upped their omnichannel game.

And Macy’s is, er, behind.

Macy’s way of viewing their supply chain in the past was traditional: Move products from point A to point B and optimize costs at each stop along the way. Each delivery channel has its own transportation plan and technology stack, siloing all distribution and fulfillment centers.

This supply chain method was acceptable 10 years ago, but to stay afloat in the in-store and online retail spaces, Macy’s needed to make a change. Silos created major cost issues, not to mention slow speed and service in today’s two-day-delivery age.

The company’s supply chain model operated two separate warehouse networks, one for stores and the other for direct customer (online) orders. This system made rebalancing inventory nearly impossible, among other issues.

Macy’s supply chain also lacked a central platform for locating inventory at the SKU level across the chain, and the cost of goods were high compared to competitors since each private brand sold at May’s was sourced independently.

Creating a better supply chain

In 2019 Macy’s hired Dennis Mullahy , the first ever Chief Supply Chain Officer, to transform the supply chain into one that supports an omnichannel strategy.

Since then, Macy’s has made leaps and bounds in optimizing their supply flow, with COVID expediting the process.

The company is transitioning to a centralized warehouse model, implementing a flow and fold design, meaning a light initial allocation to stores and flexible replenishments. Multipurpose warehouses hold inventory, which can both replenish stores and fulfill e-commerce orders.

By having a centralized inventory, the retailer is better able to strengthen its margins and fulfill orders quicker and in the ways customers want.

“Our new model will leverage all of our assets much more productively and improve customer satisfaction by increasing speed of delivery as well as generate efficiencies in our operations and inventory utilization.” Dennis Mullahy wrote.

In addition, Macy’s is getting on board with using data and analytics to not only get items to customers faster, but also improve inventory forecasting and allocation and package consolidation.

The company plans to increase drop-shipping to boost margins in e-commerce, where delivery costs have been the largest drain on profits. They’ll also renew their efforts into Macy’s Backstage operations in order to compete with other off-price companies such as Nordstrom Rack and TJMaxx.

Behind the curve

And while these improvements are giving Macy’s the help it needs, they should’ve seen the warning signs sooner. Retailers of equal size have been making moves to change their supply chain for years now, and Macy’s is just catching up.

For example, Kohls has been working to integrate e-commerce and brick and mortar stores since the beginning of 2018. The company worked to change its purchase and inventory management system by starting with the smallest stores and working their way up.

Nordstrom has been working on omnichannel fulfillment for over 3 years, and brought in tech consulting firm Opex Analytics to help.

Walmart unveiled plans this month to install a high-tech automation system across 25 Walmart regional distribution centers through their partnership with Symbotic, a robotics and automation company — something they’ve been working toward since 2017. This system will digitize and modernize Walmart’s current supply chain facilities to enrich customer experience and support evolving demand.

But even though Macy’s may be a few steps behind, true omnichannel is a journey — and a difficult one at that. It requires a lot from the supply chain, especially in terms of speed, complexity, and efficiency. The global retailer is making strides in executing their Polaris plan by focusing more on the integrated fulfillment strategy and alternative fulfillment options and listening to what their customers want.

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Macy's Inc.: Turnaround Strategy in Crisis

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Macy's inc.: turnaround strategy in crisis description.

In 2017, Macy's Inc. (Macy's), one of the world's largest and oldest premier department stores, announced it would close 100 stores and make other significant strategic changes to try to return the brand to its former glory. Macy's sales had fallen for eight straight quarters, causing investors to fear that the company was continuing to lose market share. The firm had been pursuing an aggressive strategy to optimize all facets of its business, but had its chief executive officer addressed all of the company's challenges in an optimal way? The department store industry was still experiencing an overall decline, and competition from online companies and off-price retailers was particularly severe. Could Macy's overcome these obstacles, refocus its strategy, and turn itself around? Won-Yong Oh is affiliated with University of Nevada, Las Vegas.

Case Description Macy's Inc.: Turnaround Strategy in Crisis

Strategic managment tools used in case study analysis of macy's inc.: turnaround strategy in crisis, step 1. problem identification in macy's inc.: turnaround strategy in crisis case study, step 2. external environment analysis - pestel / pest / step analysis of macy's inc.: turnaround strategy in crisis case study, step 3. industry specific / porter five forces analysis of macy's inc.: turnaround strategy in crisis case study, step 4. evaluating alternatives / swot analysis of macy's inc.: turnaround strategy in crisis case study, step 5. porter value chain analysis / vrio / vrin analysis macy's inc.: turnaround strategy in crisis case study, step 6. recommendations macy's inc.: turnaround strategy in crisis case study, step 7. basis of recommendations for macy's inc.: turnaround strategy in crisis case study, quality & on time delivery.

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Case Analysis of Macy's Inc.: Turnaround Strategy in Crisis

Macy's Inc.: Turnaround Strategy in Crisis is a Harvard Business (HBR) Case Study on Strategy & Execution , Texas Business School provides HBR case study assignment help for just $9. Texas Business School(TBS) case study solution is based on HBR Case Study Method framework, TBS expertise & global insights. Macy's Inc.: Turnaround Strategy in Crisis is designed and drafted in a manner to allow the HBR case study reader to analyze a real-world problem by putting reader into the position of the decision maker. Macy's Inc.: Turnaround Strategy in Crisis case study will help professionals, MBA, EMBA, and leaders to develop a broad and clear understanding of casecategory challenges. Macy's Inc.: Turnaround Strategy in Crisis will also provide insight into areas such as – wordlist , strategy, leadership, sales and marketing, and negotiations.

Case Study Solutions Background Work

Macy's Inc.: Turnaround Strategy in Crisis case study solution is focused on solving the strategic and operational challenges the protagonist of the case is facing. The challenges involve – evaluation of strategic options, key role of Strategy & Execution, leadership qualities of the protagonist, and dynamics of the external environment. The challenge in front of the protagonist, of Macy's Inc.: Turnaround Strategy in Crisis, is to not only build a competitive position of the organization but also to sustain it over a period of time.

Strategic Management Tools Used in Case Study Solution

The Macy's Inc.: Turnaround Strategy in Crisis case study solution requires the MBA, EMBA, executive, professional to have a deep understanding of various strategic management tools such as SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis.

Texas Business School Approach to Strategy & Execution Solutions

In the Texas Business School, Macy's Inc.: Turnaround Strategy in Crisis case study solution – following strategic tools are used - SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis. We have additionally used the concept of supply chain management and leadership framework to build a comprehensive case study solution for the case – Macy's Inc.: Turnaround Strategy in Crisis

Step 1 – Problem Identification of Macy's Inc.: Turnaround Strategy in Crisis - Harvard Business School Case Study

The first step to solve HBR Macy's Inc.: Turnaround Strategy in Crisis case study solution is to identify the problem present in the case. The problem statement of the case is provided in the beginning of the case where the protagonist is contemplating various options in the face of numerous challenges that Macy's Department is facing right now. Even though the problem statement is essentially – “Strategy & Execution” challenge but it has impacted by others factors such as communication in the organization, uncertainty in the external environment, leadership in Macy's Department, style of leadership and organization structure, marketing and sales, organizational behavior, strategy, internal politics, stakeholders priorities and more.

Step 2 – External Environment Analysis

Texas Business School approach of case study analysis – Conclusion, Reasons, Evidences - provides a framework to analyze every HBR case study. It requires conducting robust external environmental analysis to decipher evidences for the reasons presented in the Macy's Inc.: Turnaround Strategy in Crisis. The external environment analysis of Macy's Inc.: Turnaround Strategy in Crisis will ensure that we are keeping a tab on the macro-environment factors that are directly and indirectly impacting the business of the firm.

What is PESTEL Analysis? Briefly Explained

PESTEL stands for political, economic, social, technological, environmental and legal factors that impact the external environment of firm in Macy's Inc.: Turnaround Strategy in Crisis case study. PESTEL analysis of " Macy's Inc.: Turnaround Strategy in Crisis" can help us understand why the organization is performing badly, what are the factors in the external environment that are impacting the performance of the organization, and how the organization can either manage or mitigate the impact of these external factors.

How to do PESTEL / PEST / STEP Analysis? What are the components of PESTEL Analysis?

As mentioned above PESTEL Analysis has six elements – political, economic, social, technological, environmental, and legal. All the six elements are explained in context with Macy's Inc.: Turnaround Strategy in Crisis macro-environment and how it impacts the businesses of the firm.

How to do PESTEL Analysis for Macy's Inc.: Turnaround Strategy in Crisis

To do comprehensive PESTEL analysis of case study – Macy's Inc.: Turnaround Strategy in Crisis , we have researched numerous components under the six factors of PESTEL analysis.

Political Factors that Impact Macy's Inc.: Turnaround Strategy in Crisis

Political factors impact seven key decision making areas – economic environment, socio-cultural environment, rate of innovation & investment in research & development, environmental laws, legal requirements, and acceptance of new technologies.

Government policies have significant impact on the business environment of any country. The firm in “ Macy's Inc.: Turnaround Strategy in Crisis ” needs to navigate these policy decisions to create either an edge for itself or reduce the negative impact of the policy as far as possible.

Data safety laws – The countries in which Macy's Department is operating, firms are required to store customer data within the premises of the country. Macy's Department needs to restructure its IT policies to accommodate these changes. In the EU countries, firms are required to make special provision for privacy issues and other laws.

Competition Regulations – Numerous countries have strong competition laws both regarding the monopoly conditions and day to day fair business practices. Macy's Inc.: Turnaround Strategy in Crisis has numerous instances where the competition regulations aspects can be scrutinized.

Import restrictions on products – Before entering the new market, Macy's Department in case study Macy's Inc.: Turnaround Strategy in Crisis" should look into the import restrictions that may be present in the prospective market.

Export restrictions on products – Apart from direct product export restrictions in field of technology and agriculture, a number of countries also have capital controls. Macy's Department in case study “ Macy's Inc.: Turnaround Strategy in Crisis ” should look into these export restrictions policies.

Foreign Direct Investment Policies – Government policies favors local companies over international policies, Macy's Department in case study “ Macy's Inc.: Turnaround Strategy in Crisis ” should understand in minute details regarding the Foreign Direct Investment policies of the prospective market.

Corporate Taxes – The rate of taxes is often used by governments to lure foreign direct investments or increase domestic investment in a certain sector. Corporate taxation can be divided into two categories – taxes on profits and taxes on operations. Taxes on profits number is important for companies that already have a sustainable business model, while taxes on operations is far more significant for companies that are looking to set up new plants or operations.

Tariffs – Chekout how much tariffs the firm needs to pay in the “ Macy's Inc.: Turnaround Strategy in Crisis ” case study. The level of tariffs will determine the viability of the business model that the firm is contemplating. If the tariffs are high then it will be extremely difficult to compete with the local competitors. But if the tariffs are between 5-10% then Macy's Department can compete against other competitors.

Research and Development Subsidies and Policies – Governments often provide tax breaks and other incentives for companies to innovate in various sectors of priority. Managers at Macy's Inc.: Turnaround Strategy in Crisis case study have to assess whether their business can benefit from such government assistance and subsidies.

Consumer protection – Different countries have different consumer protection laws. Managers need to clarify not only the consumer protection laws in advance but also legal implications if the firm fails to meet any of them.

Political System and Its Implications – Different political systems have different approach to free market and entrepreneurship. Managers need to assess these factors even before entering the market.

Freedom of Press is critical for fair trade and transparency. Countries where freedom of press is not prevalent there are high chances of both political and commercial corruption.

Corruption level – Macy's Department needs to assess the level of corruptions both at the official level and at the market level, even before entering a new market. To tackle the menace of corruption – a firm should have a clear SOP that provides managers at each level what to do when they encounter instances of either systematic corruption or bureaucrats looking to take bribes from the firm.

Independence of judiciary – It is critical for fair business practices. If a country doesn’t have independent judiciary then there is no point entry into such a country for business.

Government attitude towards trade unions – Different political systems and government have different attitude towards trade unions and collective bargaining. The firm needs to assess – its comfort dealing with the unions and regulations regarding unions in a given market or industry. If both are on the same page then it makes sense to enter, otherwise it doesn’t.

Economic Factors that Impact Macy's Inc.: Turnaround Strategy in Crisis

Social factors that impact macy's inc.: turnaround strategy in crisis, technological factors that impact macy's inc.: turnaround strategy in crisis, environmental factors that impact macy's inc.: turnaround strategy in crisis, legal factors that impact macy's inc.: turnaround strategy in crisis, step 3 – industry specific analysis, what is porter five forces analysis, step 4 – swot analysis / internal environment analysis, step 5 – porter value chain / vrio / vrin analysis, step 6 – evaluating alternatives & recommendations, step 7 – basis for recommendations, references :: macy's inc.: turnaround strategy in crisis case study solution.

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