Can Macy’s Stay Competitive?

Macy’s is a retailer operating under three brands (Macy’s, Bloomingdale’s, and Bluemercury) that sells merchandise including apparel, accessories, cosmetics, furnishings, and other consumer goods. Founded in 1858, Macy’s pioneered many marketing practices such as a one-price system for all customers (instead of bargaining), money-back guarantees, Santa Claus during the Christmas season, and illuminated window displays to attract the attention of those passing by.[1]

However, in recent years, Macy’s has been challenged by headwinds driven by the digitalization of competitors’ supply chains and subsequent increase in market share. According to Rigby, retailers like Macy’s have lost traffic and have faced pressure on prices from eCommerce retailers such as Amazon, as their “selection is vast yet remarkably easy to search. The prices are good and easily compared. It’s convenient: You can do it at home or at work, without using gasoline or fighting to park…product reviews and recommendations are extensive.”[2] BI Intelligence estimated that “U.S. consumers will spend $385 billion online in 2016” and “that number will grow to $632 billion in 2020.”[3] While the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce.”[4]

To respond to the business headwinds in the short-term, Macy’s management has announced the closures of 68 stores in 2016 and early 2017, and its intention to close approximately 30 additional stores. Macy’s has hired Jeff Gennette as the new CEO, who joined the company in early 2017. Macy’s has equipped hundreds of stores to ship online orders, speeding up the process and making better use of unsold store inventory.[5] In the long-term, Macy’s is attempting to increase the health of its physical store portfolio, while trying to drive the growth of its e-commerce channel.

Macy should think critically about its value proposition to customers and continue to blend its physical and digital retail models into one omnichannel strategy that best matches consumer preferences. Macy’s owns most of the properties supporting its store locations. Starboard Value (an activist investor) “estimates Macy’s real estate holdings to be worth at least $21 billion.”[6] Macy’s should divest or sell and lease back all of its owned stores, which would free up capital that Macy’s could use to aggressively invest in its business. Macy’s future strategy should be to become a modern omnichannel retailer, showroom, and experience center that maximizes convenience for the customer. Macy’s could “use digital technologies to improve in-store visual merchandising, help customers connect with in-store associates (or chatbots or remote experts, if they preferred), speed checkout times and customize offers.”[7] Macy’s could entice its customers to pick up most online orders in stores, which would reduce shipping costs and driving incremental sales as customers bought additional items when they came to pick up their orders.[8] Additionally, Macy’s could leverage Nordstrom’s ideas by using data from Pintrest to influence its merchandizing and allowing customers to see Instagram images and reviews of products on large screens.[9] Macy’s could position the physical store as a social experience of shopping with friends or family that could not be replicated online. Macy’s could also utilize space in the store for services photography, professional make-up artists, hair salons, and spas. Lastly, Macy’s could also utilize location based services and sensors to track customers behavior and optimize the store and product displays appropriately.

Though my proposed solutions may allow Macy’s to better address consumer demand, there are still large looming questions: Can Macy’s make changes quickly enough to avoid a significant erosion in market share? Will Macy’s be able to meet consumers dynamic and increasingly complex demands for service while staying profitable? Will Macy’s brand still retain value and resonate with the market? (800 words)

[1] Keri Hanson, “The History of Macy’s: From Humble Beginnings to Stunning Success,” June 9, 2015,, accessed November 2017.

[2] Darrell K. Rigby, “The Future of Shopping,” Harvard Business Review, December 2011 Issue,, accessed November 2017.

[3] BI Intelligence, “Macy’s restructuring to focus on digital,” Business Insider,, January 9, 2017, accessed November 2017.

[4] BI Intelligence, “Macy’s restructuring to focus on digital,” Business Insider,, January 9, 2017, accessed November 2017.

[5] Aaron Cheris, Darrell Rigby and Suzanne Tager, “The Power of Omnichannel Stores,” Bain & Company Insights: Retail Holiday Newsletter 2016-2017, December 19, 2016,, accessed November 2017.

[6] Starboard Value, “Unlocking Value at Macy’s,” Powerpoint Presentation, January 11, 2016, Starboard Value, New York, NY.

[7] Aaron Cheris, Darrell Rigby and Suzanne Tager, “The Power of Omnichannel Stores,” Bain & Company Insights: Retail Holiday Newsletter 2016-2017, December 19, 2016,, accessed November 2017.

[8] Aaron Cheris, Darrell Rigby and Suzanne Tager, “The Power of Omnichannel Stores,” Bain & Company Insights: Retail Holiday Newsletter 2016-2017, December 19, 2016,, accessed November 2017.

[9] Trips Reddy, “13 Retail Companies Using Data to Revolutionize Online & Offline Shopping Experiences,” Umbel, May 18, 2015,, accessed November 2017.



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Student comments on Can Macy’s Stay Competitive?

  1. Brick and mortar retail is at a really interesting crossroad: should they double-down on the in-store experiences that are difficult to replicate online (styling help, the ability to test products – especially cosmetics, etc.), and events like Santa Clause at Christmas or should they try to compete head to head with their e-commerce-first counterparts? And while you address general retail shopping trends well, I wonder if this question warrants more segmentation.

    Your suggestion of an omnichannel experience seems right – and you present some interesting ideas around how to increase foot traffic in-store with pick-up incentives, digital integrations, and social experiences – but I wonder if there’s data to support this approach. Perhaps online shoppers are a very different type of consumer and Macy’s should think about serving them differently via a more segmented strategy? Perhaps certain product mixes lend themselves better to brick and mortar than they do retail from either the retailer’s perspective, the consumer’s, or both. Cosmetics comes to mind, namely in whether the rate of returns and the inability to re-sell returned product lends itself better to brick and mortar than homewares, for example.

    It would also be interesting to see more information on average basket size, rate of returns, and operational costs both in-store and online, broken down by price point, brand, category, and location to see if any obvious trends emerge. If an integrated approach to retail, such as you suggested, is preferred, they would also be keen to consider the Bonobo’s approach: small footprint retail locations where one can browse and try on styles with the help of staff, via which your chosen purchases are then shipped directly to the consumer thereby avoiding inventory holding costs in multiple locations, reducing real estate costs, and increasing the number of available touch points and locations without taking on extraordinary capital expenses.

    It will be very interesting to see how retail in general, and Macy’s specifically, transforms over the next decade. I’m looking forward to more conversations about this!

  2. Interesting!

    I think profitability is also a critical consideration in this discussion, not sure you covered that. Everyone is concerned about growth these days but less about profitability. As far as I know, most online businesses are money-losing, they sell low margin products, spend so much on advertising and expect to recover those on volume which is just never enough; Amazon, the biggest online retailer is still money-losing. Macy’s, on the other hand, reported a profit of $619 million on sales of $25.6 billion 2016. If I was a shareholder, I’d rather you keep turning profit than join the e-commerce race only to start turning losses.

    The e-commerce threat is real though. I would focus on offering more personalized, differentiated shopping experience to my brand loyal customers through improved customer care (Nordstrom model).

    Caveat: I have assumed that those customers churning to online marketplaces are the more price-sensitive customers but that may not be totally true.

  3. It is very interesting to me that as traditional retailers, such as Macy’s, are closing their brick-and-mortar locations, ecommerce retailers seem to be moving in the opposite direction. For example, in 2017 Amazon began opening physical book stores across the country (with 13 already opened and 3 more under construction), just 6 years after Borders, one of the biggest bookstores in the country, officially filed for bankruptcy. In 2017 Amazon also shelled out $13.4 billion to purchase Whole Foods, a grocery chain with nearly 500 store locations. Other ecommerce stores – including Bonobos and Warby Parker – are also bringing their businesses offline by pursuing an aggressive real estate strategy.

    My instincts would tell me that in the era of immediate gratification it would be impossible to sustain a brick and mortar retail business. However, it seems that traditional retail hasn’t lost its luster just yet. Rather, it seems that the winning combination is to have both a strong digital and physical presence, or what the author describes as ‘omnipresence.’ To this end, I would recommend that Macy’s dedicate significant resources toward building an efficient and reliable ecommerce platform that compliments a network of (fewer) flagship stores across key markets.

  4. Interesting article ! The way to go ahead in retail space definitey seems to be “click and mortar”, a combination of both online and offline stores. Macys having such a significant physical presence and brand recall should definitely capitalise on the same when it builds its online presence . The suggestions you have given for the same are definitely thought provoking . Macys has always been known as the family store with a holiday association and it needs to revaluate what that means in a digital era . It would be interesting to see what changes that would entail for its supply chain

  5. Great overview of the challenges retailers, and in particular department stores are facing. I do agree with the need for the “click and mortar” that Jason Bourne points out, however as Messi rightly said, e-commerce is a very challenging space, and even Amazon is still loosing money.

    One point I’d like to touch is the real estate value and what should Macy do with it. In particular I’m thinking of one of the trends in the market – pop up stores. At a time when so many players are trying to strike the perfect balance between online and physical stores, with retailers like Bonobos and Warby Parker moving to physical locations, and start-ups focused on pop-stores emerging, could Macy use its retail expertise and prime locations to see new brands as friends and not foes?

  6. This is an interesting article that poses several tenable solutions for the issues facing Macy’s. Given that brick and mortar stores will most likely not be completely replaced by digital retailers like Amazon, it will be interesting to see where the equilibrium between the two is established. Are department stores the best model to succeed in these omnichannel set ups? In addition to competing with Amazon and other online retailers, Macy’s will have to find a way to differentiate themselves from Nordstrom, JCPenny, and other department stores. This will pose a major challenge, as all the possible solutions listed in the article can be replicated by these competitors.

  7. You proposed some excellent turnaround strategies for Macy’s going forward, especially investing more in digital technologies to improve the in-store and omnichannel experiences. However, I think an important solution that merits more discussion is Macy’s need to focus and invest more into its own ecommerce platforms. According to a recent Business Insider article (, the company announced it saw double-digit annual revenue growth from both its and sites in 2016. As such, to help fuel further online growth, Macy’s should inject more capital into initiatives such as a mobile commerce app to drive traffic. Going forward, it would also be very useful for Macy’s to invest more in data analytics platforms for its website, including potential apparel recommendation technology that capitalize on the popularity in personalized styling services, which has made offerings like StitchFix very popular among millennials. Furthermore, global expansion into geographies where Amazon hasn’t yet taken huge online market share, such as in China, can be a smart move. In fact, just last year, Macy’s launched its own Chinese ecommerce portal ( after initial success on a storefront on Tmall Global, a web shopping site for imported products operated by Alibaba Group.

  8. Interesting read – and not altogether surprising that Macy’s is falling victim to the same trend of retailers (like JC Penney, Sears) closing down brick and mortar locations. What I would be curious to know more about is how much of Macy’s sales are lost to other eCommerce retailers (e.g., Amazon) vs. a shift in sales to Macy’s eCommerce website. If it’s the latter, then I agree that shifting to and embracing an omnichannel strategy is the way to survive, and that selling their real estate holdings would be a good way to free up capital (also could make sense since real estate isn’t Macy’s core competency; could also increase some of their financial ratio performance like ROA – similar to the FRC Target case). If, however, Macy’s sales are primarily being lost to Amazon, then I’d have to wonder how much these value-added services can function to draw customers back into the store. How do customers value convenience vs. value-added services? Have we seen any best-in-class examples of big retailers who have made this transition well? And what lessons could we learn from them?

  9. Interesting article, the future of brick and mortar retail will probably be one of the main revelations of the next decade.

    I fundamentally agree with Jason on the necessity to integrate online and brick and mortar. However, the model I have in mind is one where the store maintain its centrality, and the online experience is of the perks of the brand. When I say this I think about a model like Sephora.
    Sephora have a virtuous integration of the online experience with the shop experience. It has a great application with excellent design, dynamic offerings, and many different ways to engage with the customer. The interesting thing about this model, is that you would assume that the customer ends up not going to the store. However, the store is actually the most significant part for Sephora (not in terms of revenue, but in terms of customer’s perception). The store embodies Sephora’s brand much more that the online website or applicaton. People go to Sephora even when they don’t need to buy anything, because the store provides great services, like make-up session to improve the customer experience, similar to the ones mentioned by Michael.
    Furthermore, sometimes customers are brought back to the store because they earned a free service from buying online, and the free service happens in the store. This is a very smart way to ensure that people come back to your store.

    I imagine how all these ideas can be used for Macy’s, even though I recognize this is a much bigger challenge. I would use the money from closing the stores to build a strong integrated strategy, which requires improvement of the online service, as well as continuous marketing ideas on how to integrate the two levels of the physical store and the online store.

  10. Very interesting article.

    I believe your suggestion that the company continues to focus on the experiential aspect to shopping is spot on. In a world in which access to goods and services is becoming increasingly easy for consumers, retail stores need to be destinations as much as they are places to purchase goods. In addition to making the store experience more social, I believe your suggestion of focusing on services such as makeup artists and stylists is also a good one because those are products that cannot be ordered online and contribute to the social nature of the store.

  11. Insightful and interesting read! I agree with your point that Macy should sell or lease back its physical stores and invest to grow its market share in e-commerce. This strategy will help Macy not only secure steady cash flow from store leasing but also free up capital for large investments in e-commerce.
    In order to stay profitable and avoid erosion in market share, I think Macy should move quickly and improve customer shopping experience by incorporating existing offline and online venues. For example, Macy can provide free return and exchange services for online orders at its offline stores. Additionally, Macy should turn offline stores into online order fulfillment centers. Macy can should enhance its data analytics to effectively make a prediction based on understanding local shoppers’ shopping histories or product preferences to improve speed of order fulfillment or avoid depriving offline stores from fulfilling orders.

    and use the data to quickly fulfill its offline stores with improve its ability to predict popular items and
    its offline stores
    Ramis Junnarkov and had a similar thought as I was reading the article. Wine consumption is such an emotional experience, it is unclear to me whether companies will be able to make the adjustments required to combat climate change without entirely alienating their customer bases. For example, you mention the hybrid Chambourcin grape as a potential solution, but I can’t help but wonder if the idea of a hybrid grape tarnishes the brand equity of Nederburg. For true wine enthusiasts, I imagine many of the innovations or solutions proposed above will be perceived as diminishing the integrity of the wine, so companies must be thoughtful in how they a) execute and then b) communicate climate-change initiatives.

    1. (please disregard my previous post. see below for the re-post)

      Insightful and interesting read! I agree with your point that Macy should sell or lease back its physical stores and invest to grow its market share in e-commerce. This strategy will help Macy not only secure steady cash flow from store leasing but also free up capital for large investments in e-commerce.
      In order to stay profitable and avoid erosion in market share, I think Macy should move quickly and improve customer shopping experience by incorporating existing offline and online venues. For example, Macy can provide free return and exchange services for online orders at its offline stores. Additionally, Macy should turn offline stores into online order fulfillment centers. Macy can should enhance its data analytics to effectively make a prediction based on understanding local shoppers’ shopping histories or product preferences to improve speed of order fulfillment or avoid depriving offline stores from fulfilling orders.

  12. Macy’s, as well as may big box stores, faces an interesting challenge with the headwinds of digitalization. On the one hand, it has become easier and easier for people to access, review (and read peers’ reviews) and purchase clothes online, hence the much stronger growth in e-commerce. However, we all grew up in the generation where it was exciting to go to a department store to shop, hang out with friends, and pick out a special garment, especially special-occasion ones such as prom dresses or formal gowns.

    Your recommendation to make the experience more social and obviously different from clicking around alone at online at home is a great one.I think that there is an opportunity for Macy’s to tap back into that nostalgic excitement of sifting through and trying on multiple garments to find the right one. (I doubt that wedding boutiques have had as much of a sales decline as normal department stores given that experience factor.) In addition, emphasizing shopping as a social experience similar to getting a meal or drink with a friend will help separate the chore from the experience. The restaurant industry is an interesting analogy since even though everyone can get takeout or cook at home, they are still motivate to go to restaurants since they view it as a social experience and not simply a chore.

  13. I completely agree with your proposal that Macy’s should start thinking about a new way to provide values to its customers. According to Office for National Statistics, May 2016, 75% of global retail sales growth is from online sales while the offline in-store sales growth has been stagnated at 2-3%. Clearly, any retailer cannot continue to win in the market unless it integrates offline and online channels into one omnichannel model. Consumers with mobile phone are searching for products at multiple channels.

    At the same time, I do believe physical space still matters a lot. The positioning of physical stores has been altered from just selling direct to consumers to increasing high visibility to boost up awareness of the brand, educating brands, and importantly allowing consumers to connect directly with the brand. Now, the question is, how can we create a compelling new holistic experience for customers by integrating online and offline channels?

  14. Great ideas and perspective on opportunities for Macy’s to stay relevant as e-commerce becomes increasingly prevalent and defines success in retail. I like your ideas to better integrate in-store and digital experiences and rethink the use of the physical space — their only solution can’t be closing stores. Having worked at another large US retailer, though, I have seen the aversion to some of the large investments that are required to achieve these goals. When you have a lot of stores the investments can get big, fast. In addition, it can become hard to make these changes in the short timelines that might be required to retain customers. That being said, it was interesting to also read about how Macy’s began using RFID to track all of their merchandise, an effort that is expected to be completed by the end of 2018 ( As of May of this year, they had 50% of merchandise tagged. This type of technology allows them to fulfill online orders using their brick and mortar assets. Having better understanding of inventory will also help customers understand when it may be faster to go to the store to pick up an item rather than wait for it to ship. Ultimately, they are seeing operational and financial efficiency through this technology. Another barrier for large legacy players like Macy’s is not just having the creativity to innovate, but also to be able to rapidly test technology and truly believe in the ROI.

  15. I don’t agree Macy’s will remain profitable even if they are put all their real estate holdings in a REIT. Given that real estate is approaching a historical high (, even if Macy’s gets into a leasing agreement, they will be securing leases that are very high as of today’s rates. With omnichannel eating into the once booming brick and mortar retail stores, it will be hard for Macy’s stores to stay competitive enough to break even. For the sake of this mind exercise, it’s fair to assume that same store sales is going to shrink as more customers become digitial. Now when you couple that with Macy’s getting into long term leasing contracts through REIT, it’ll be difficult for the company to keep generating consistent cash flows. They are going to die and if I were them, I’d simply close down most of my stores and only keep the ones with the most traffic. Brick and Mortar is a dead business.

    1. I disagree with this analysis on the impact of Starboard’s REIT idea. In the real estate market, the most common metric for valuation is capitalization rate, which is the ratio of rent to property value. When capitalization rates are low, market valuations are considered to be high (sort of like how when bond yields decrease bond values go up). Right now, capitalization rates are near all-time lows (see p. 3 of Low capitalization rates are a major reason why the real estate market is near an all-time high. As valuations become less lofty, capitalization rates will go up, which means that a given property will have more rent relative to it’s value. Thus if Macy’s offloads its real estate now and secures leases, it can do so at low rents relative to the property values (rather than very high as Peter says). Starboard’s more detailed proposal contemplates using its REIT strategy to pay down most of the debt at core Macy’s (p. 15 of This would actually increase cash flow by lowering its interest burden and reduce risk to core Macy’s shareholders by decreasing financial leverage at core Macy’s).

      In summary, I agree with Michael Love’s suggestion that the Starboard’s proposal could be an excellent decision by Macy’s. By allowing Macy’s to lock in low rents relative to its property values, reduce financial risk at the core business, and have more cash to invest in transforming itself for the new economy, Starboard’s proposal is in the best interest of the company and its shareholders.

  16. Very interesting article, thank you!

    I think for giant retailers like Macy’s, omnichannel is the future. In today’s era, it is impossible for retailers to remain competitive without any online presence. In a typical customer’s shopping journey, there are many touch points with the retailer and an online presence increases the number of and returns from those touch points. Similarly physical stores too create many touch points and enables customers to make a purchase. Therefore in order to be successful, retailers need to carefully and strategically combine both online and offline channels. I don’t believe a giant retailer like Macy’s can ever be a pure online player, as brick and mortar is in their DNA and they still have many customers who shop in store (in reality, even many of the omnichannel customers make the final purchase in store). And actually their large store portfolio can be a very strong asset if they use it in sync with the online channel. The idea of store pick-ups and using store inventories to serve online customers have proved effective for retailers and I believe Macy’s can push this forward and shift its focus from brick and mortar to an effective combination of online and offline.

  17. Great commentary – thanks for posting! An interesting counterpart to Macy’s strategy is Nordstrom and their new “Nordstrom Local” stores. These stores are smaller footprint and have no inventory. Instead, there are several fitting rooms where shoppers can pre-select what they want to try on and have it shipped to their Nordstrom Local store. The stores are equipped with personal shoppers and have coffee and juice bars. It’s a shift to a more experience-based shopping experience, and could be an interesting strategy for Macy’s to emulate going forward.

  18. Very relevant writeup as it highlights the challenges of a lot of retailers today – should we stay local or should we move to e-commerce. I completely agree with your proposal that the focus lies on the in-store experience and that they should be thinking from the perspective of what value do they add and how should they communicate that. As a consumer, I think the biggest value add for me is having a consistent experience between store and online (assuming they have both channels) — so items that I see in store should also be present and easily searchable on the e-commerce portal. Since either channels have their pros and cons, this hybrid setup will allow them to provide a customizable experience and build loyalty.

  19. Interesting article to read! I agree that Macy should move into the omni channel direction by enhancing the in-store purchase experience and more diversified service. It’s interesting to see that both traditional retailers and E-commerce giants are moving into omni-channel strategy, even they start from different place. Amazon acquired WholeFood to expand it’s off-line grocery business. Alibaba also put up the “New retail” strategy and use “HeMaXianShen” to pilot the off-line business. Obviously grocery and restaurant business are still very local and off-line based, but for Macy, how can it make it’s off-line business more irreplaceable? I think Macy has an opportunity to review it’s product portfolio and start to offer services such as hair cut, salon, photography taking, kids playing center, etc. which are still mostly off-line based so far.

  20. I’d be very interested to learn more about how they can integrate both physical and digital infrastructures. Maintaining their brand image throughout that process would likely be challenging, but I assume possible. I think Macy’s has the opportunity to target various segments based off of the value in each retail space. However, though many are shifting to online sales, I do think they need to be careful to not dilute their brand through too many additional services.

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