30 Aug Macy’s slow demise
P&G leader Arthur Jones once said, “All organizations are perfectly designed to get the results they get!”
This truism should be tattooed on every leader’s chest so that one glimpse in the morning mirror reminds them of the CEO’s responsibility. If they don’t like their organizational results, they must change the underlying design that created them.
After closing 40 stores last year, Macy’s recently announced it plans to shut down another 100 this year. Its CEO blamed a change in the retail environment, taking no responsibility himself for Macy’s poor showing. Hmm. A CEO that increased Macy’s borrowings to buy back its stock, as the corporation did last year, has a lot of explaining to do.
Frankly, I am mad at Macy’s. The company pursued an acquisition strategy that rolled up iconic regional department stores to leverage advertising, purchasing power, and back office support. Marshall Fields, a Chicago landmark that once offered a stellar in-store experience, fell into Macy’s grip, for example. But gains from acquisitions – cutting costs largely – are a one-time event.
To be fair, Macy’s dramatically improved its advertising. And it built a substantial digital presence.
But what was Macy’s second act? Not worth staying for. A brand has to be more than the box, wrapping paper, and ribbon. The merchandise and store/on-line experience never matched the story presented in the catalogs and TV ads.
The visuals scream aspiration: “You too can be cool, beautiful, sexy, happy, the perfect mom and wife or, for men, a great success in the office, club or local dating scene.” But the reality was “meh.”
Macy’s merchandise became commoditized, and its floor space grew so crowded it felt like Sears without the washing machines. Clutter is great in an outdoor European or Seattle food market, not in a department store. Customer support became spotty at best. And aisles developed the “Everything is on sale” feel of Penny’s. Coupons proliferated, reinforcing shoppers’ conclusion that “You’re a sucker if you ever pay full price at Macy’s.” And rather than offer a range of price points at every store, Macy’s had a typology of stores, each with different average price points – angering sophisticated shoppers in smaller cities like Madison, Wisconsin.
So, of course, Macy’s must close stores to drive up its stock price. But nothing suggests the underlying system generating Macy’s results will change. Macy’s leadership settled for just another one-time earnings bump, at the cost of hundreds of jobs.
One retailer is doing it right. While Macy’s chased quarterly results,Nordstrom’s pursued a smart longer-term strategy. Nordstrom Rackbranded stores give Nordstrom a place to send discounted merchandise, allowing it to use store sales selectively (e.g., the Nordstrom Anniversary Sale). If the economy tanks, Nordstrom Rack will be there to capture the increase in frugal shoppers. There are no coupons available to the public – only rewards points for frequent buyers. Nordstrom is also a master at merchandising and service. Quality offerings exist at low, medium, and high price points. And sales representatives are visible and welcoming. Imagine.
The results speak for themselves. “Though Nordstrom’s same-store sales growth is clearly under pressure in recent periods, it outperformed Macy’s by an average of 4.7% over the last nine quarters. Nordstrom just reported its first quarterly decline in same-store sales since 2013, while Macy’s reported its eighth.” (See Chart)
Yes, there is a glut of retail space in the USA (five-and-a-half times that in Europe). With the on-line retail segment growing, many brick and mortar stores will shrink in footprint or close. But there is a story behind why Macy’s is closing so many stores while Nordstrom’s adding them, creating a market share shift. And the authors of the story are the leadership teams of these two retail giants.
What results is your system perfectly designed to create?
Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She resides in San Diego, California but still considers Madison home. She is the author of Beyond Price. This post was originally posted at Kay’s blog ~ Business Model Innovation.
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