Macy's Cashing In on Opportunities both Local and Virtual
In raising its earnings guidance for the fourth quarter, Macy's (M) demonstrates that two critical elements of its operation not only drove sales but profitable sales in the holiday season.
Which also means the company's restriction of inventory was at least as effective as the company hoped.
In the holidays, Macy's expanded upon the Believe electronic commerce initiative it successfully conduced in holiday 2008. In December of that year, online sales at macys.com and bloomingdales.com gained 39 percent followed by a 16 percent increase in January and a 24 percent advance for the fourth quarter. This year, Macy's made the Believe campaign its central marketing vehicle for the entire holiday sales push. A logical question to ask was: Would the lack of that dedicated online promotional effort hurt Macy's E-commerce initiative? It doesn't look that way at all. Online sales in January of this year improved by 24 percent and those for the quarter expanded by 27 percent.
While the Internet effort is important for Macy's, its initiative to localize key operations is critical. Two years ago, the retailer launched My Macy's, a program designed to insert merchandising teams into defined regions across the United States with the objective of better adapting the product assortment of each to local tastes. The initiative was meant to reassure and respond to shoppers who watched the Macy's brand replace local department store names the company had acquired. Those were names, including Burdines and Marshall Field's, that shoppers grew up with and understood as reflecting their preferences. It also provides customer feedback for buyers increasingly centralized in New York so that their decisions on product acquisition can be made with sufficient input from the store level.
Macy's began testing the My Macy's program in spring 2008 and expanded it by creating 69 districts across the chain, each consisting of 10 to 12 stores with its own dedicated merchandising team. Macy's hired dunnhumbyUSA to help it develop and employ information on the local markets. The market research firm works with Kroger (KR) and its parent in Britain with Tesco (TSCO) on customer intelligence, and it has built a reputation for helping retailers develop information and turn it into programs that build customer loyalty.
Terry Lundgren, Macy's chairman and CEO, credited a large part of the success the retailer had in the fourth quarter to the My Macy's initiative:
Our company's sales and earnings results for the month and quarter reinforce the confidence we have in the strategic direction of our business. It's noteworthy that all 10 of Macy's top-performing geographic markets in 2009 were original My Macy's pilot districts, indicating ongoing momentum from the process of tailoring local assortments and shopping experiences as this strategy is rolling out nationally.The fact that Macy's was able to drive sales increases and profits demonstrates that it wasn't simply buying sales with deep discounts. The results confirm that the retailer didn't over buy for the holiday season and get stuck excess inventory that needed clearance sales to move. That strategy may even have caused its some sales, as deep discounts do drive product through the checkouts, but retailers need to get consumers used to normal levels of promotional activity. With far fewer 70-percent-off clearance sales this year, retail has begun that process.
Not everything is roses and happy songs. Macy's still posted an almost one percent decline in comparable store sales, those in locations open for at least a year, in the fourth quarter. So, after an almost eight percent decline last year, comps lost ground once again in the latest quarter. Another problem the retailer faces is the structure of the My Macy's program. The buyers ultimately make the decisions on purchases, and merchandiser authority largely rests with the enthusiasm of top executives to back their advice. Lundgren is heavily invested in My Macy's and should provide the necessary support, at least for now. Yet, keeping the program on track is going to take diligence and finesse, which can disappear when executive attention is diverted elsewhere.
That being said, Macy's does appear to be on track. It will take a few quarters to see if My Macy's can build the sales and loyalty the company wants, and online sales still are dependent on a wary consumer. Yet, at least initially, it seems as if Macy's is making improvements and more quickly than even the company expected.