Macys Department Store Repositioning Case Solution

1. Porters Five Forces Analysis

Following are the Porter Five Forces analysis of the Macy’s Departmental Store:

1. Threat of New Competition: After the advent of discount stores like Wal-Mart and Target with massive varieties & assortments in their stores, there is a declining growth seen in departmental stores. These discount stores offer tight competition to most of the department stores such as Eaton's, Mervyn's and Ward's, and eventually these stores shut down their operations. Indeed, advent of online shopping stores like Amazon and eBay also affect sales growth of other retailers. Internet also gives an opportunity to popular brands to sell their products to customers directly with a variety benefits like free delivery. Consequently, the threat of new competition in the retail industry is high. However, for every new entrant, it is slightly difficult to get and sustain customer loyalty, access to all distribution channels, develop a successful brand name and achieve breakeven point easily.

2. A Threat of Substitute of Product/Services: There are many departmental stores in USA and other segments such as Macy's, Dillard's, in high class general stores; Nordstrom, Lord, Taylor and Bloomingdale and in lower class such as JCPenney, Sears and many other stores based according to their segments. It shows that buyer's switching cost; buyer's propensity to substitute and relative price performance of substitute, are almost negligible. Nevertheless, perceived level of differentiation may create a difference in choice. For example, Nordstrom is famous for its customer service and discount stores are popular for low prices. Macy's tries to differentiate itself by positioning itself as "affordable luxury" and focusing more on middle segment with moderately prices.

3. Bargaining Power of Customers: The bargaining power of customers is low, yet it is effective as many of them opt for discount stores than traditional department stores. For example, internet based shopping stores are increasing because customers want convenience. However, customers do not have much bargaining power because this business runs on small margins and mostly retailers & suppliers determine the margins together. In the retailing industry, one can find large base of customers in comparison to other industries, this tells that bargaining power of the customer is low. Although, it can be said that customers do have some bargaining power, but they cannot make any major change in the retail industry. For example, Macy's repositioned itself to increase shopping experience and opted for localization & customization than standardization in their stores for their local customers. 

4. Bargaining Power of Suppliers: In the retail industry, retailers have more bargaining power if they have a considerable amount of customer base. There are normally more suppliers available as compare to retailers. Therefore, retailers can switch to other brands easily. However, successful and popular brands can have bargaining power because retailers cannot do anything if customers demand it. For example, Macy's store is selling nationally advertised brands such as Ralph Lauren, Anne Klein and many more because they advertise heavily to generate their demand so that they may have some bargaining power. Retailers have to build a good relationship with such successful brands. Similarly, Macy's store decides to keep brands like Martha Stewart, Tommy Hilfiger, Matthew Williamson, Kurt Lagerfeld and many more to attract their customers.