Minor Project 2

Business Model
Write a short  journal article on the company’s business model, and its apparent effectiveness, based on your observations and research .

Macy’s Inc. Business Model

Implementing a good business model is critical to the success of a new enterprise or an existing enterprise.  As explained by Osterwalder & Pigneur (2010, p. 14), a business model describes the rationale of how an organization creates, delivers, and captures value.  The business model canvas consists of nine elements; Customer Segments, Value Proposition, Channels, Customer Relations, Revenue Stream, Key Resources, Key Activities, Key Partnerships, and Cost Structure.  What is the importance of business model for business success?  Thompson, Jnr., Strickland III, & Gamble (2010) explained, “A company’s business model is management’s story line for how the strategy will be a moneymaker (p. 14).  I visited Macy’s located at St. Charles Towne Center in Waldorf, Maryland in order to observe the company’s effective use of the business model.

According to the Fact Book 2016, Macy’s Inc. is a premier Omnichannel retailer with FY 2015 sales of $27.1 billion as compared to FY 2014 sales of $28.1 billion a decrease of 3.0 percent.  As of April 2, 2016, the company operates 870 stores in 45 states, District of Columbia, Guam, and Puerto Rico under Macy’s, Macy’s Backstage, Bloomingdale’s, Bloomingdale’s Outlet, and Bluemercury.  Al Tayer Group LLC operates Bloomingdale’s in Dubai under a licensed agreement.  The company has a diverse workforce of 157,900. Macy’s competitors are Dillard’s Inc., J. C. Penny Corporation, Inc., and SAKS Incorporated.

Macy’s Inc. is a highly differentiated company which core business model focuses on the Omnichannel strategy.  The Omnichannel serves customers through in-store, online and mobile apps.  The Omnichannel helps the company in better decision-making, understands customers buying behavior, and provide a quicker respond time to customers shopping experience.  The other strategies that complement the core business model include My Macy’s strategy, which focused on localized merchandise based on each location targeted audience lifestyle.  Magic Connection strategy, associates engaged customers through excellent services by identifying the customer needs, offer suggestions, and perform sales transaction by means of mobile devices.

The customer segments comprise of diverse multicultural customers.  Macy’s implement its customer relationship by rewarding loyal customers with Plenti Reward Program, offers holiday sales, and additional extra special sales for Macy’s credit card-carrying customers.  Diversity strategy in marketing and advertising is utilized to deliver Macy’s messages through targeted media channels to their customers.  The delivery channel approach is through in-store, online, mobile devices, and the Fulfillment center through the Buy Online Pickup in Store and Same Day Delivery.  Macy’s Inc. value proposition recognizes the importance of the customer-centric to its existence and success.  The Omnichannel strategy is concentrated towards personalized merchandize offering and shopping experience.

Associates utilized their key activities through technology devices such as mobile phones, kiosks, and tablets to offer faster service in helping customers during sales transaction.  While the key resources utilized are financial, human capital, digital and social media, and physical assets.  Macy’s has licensing agreement with retailers, partnership with private brand designers and celebrities for merchandise.  In 2015, Macy’s Supplier Diversity Program supported minority-and women-owned businesses with a total of $1.1 billion.  The company went into joint-partnership with Fung Retailing Limited a company based in Hong Kong to capture China’s market through Alibaba online marketplace.  Macy’s cost structure in advertising for FY2015 was $1,173 million in comparison to $1,777 million for FY2014.  The company’s generated revenue in FY2015 was $27.1 billion as compared to FY2014 sales of $28.1 billion a decrease of 3.0 percent.

1n 2015, Macy Inc. suffered a setback, which affected sales, margins, and profitability due to implementation of important organizational changes that were introduced and took longer to put in place.  In addition, the company encountered problem with a labor slowdown in the West Coast ports.  Likewise, there was loss in sales due to climate change, holiday season sales of cold weather goods did not sell well in the warm weather region.  Furthermore, there was reduced spending at Macy’s flagship stores by international visitors because of strong dollar against their local currencies.
The company went back into the drawing board to examine their performance, looked for changes in consumer market, and gained insight.  As a result, Macy’s Inc. took steps to operate a flatter and faster organization for a quicker turn around in customer response time.

In January 4, 2017, Macy’s Inc. issued a press release through the company’s website announcing series of activities to streamline the company’s operation; a closure of 68 stores, and disengagement of about 3,900 workers.  The result is $550 million in savings starting FY2017 to enable additional spending of $250 towards its digital growth, and marketing efforts.

During the visit, I notice different demographic customers made up mostly of female in comparison to the male customers.  The store merchandise are arranged in each department according to Macy’s private brand “Only at Macy’s” that appeals to particular customer life style such as Alfani, Calvin Klein, Hotel Collection, Levi’s, Michael Kors, Nautica, Polo Ralph Lauren, Sean John, Tasso Elba, and Tommy Hilfiger among others.
I notice customers were encouraged at the cash register to sign up for both Macy’s Credit Card and Plenti Reward Program in order to enjoy the reward of a loyal customer program.

While Macy’s concentrated on the digital online shopping experience, the same could not be said of the in-store experience.  There were few associates at the cash register in each department, as well as the sales floor to attend to customers.  Such poor services could result in the failure of in-store customer patronage, resulting in the decline of sales as witnessed in other closed stores.  Macy’s Inc. has effectively implemented its Omnichannel online strategy that made it so easy for customers to stay within their comfort zone at home or on the go to make purchases.  Such purchases shipped directly to their homes or to the store through the Buy Online Pickup in Store and Same Day Delivery at the Fulfilment center.  Offering customers to opt for store pick-up is a good strategy because it drags the customer into the store who might be tempted to see, touch, and feel an item/s that might make them to buy, thereby generating revenue.

What is commendable about Macy’s Inc. management is their ability to see, own up, and review which part of the business model failed.  The ability to go back into the drawing board to make adjustment in order to cut cost, and save towards the development growth of the digital strategy.
Business scrutiny is very essential.  A call for action is for businesses to study Macy’s Inc. enthusiasm for change in how the company was able to step back and review its business model to overcome certain failures and deploy new strategy.  Implementing a good business model is critical to the success of a new enterprise or an existing enterprise; this cannot be over emphasized.

Download file: Macy’s Business Model Canvas Class Presentation

Bertels, H. M., Koen, P. A., & Elsum, I. (2015). Business Models Outside the Core. Research Technology Management, 58(2), 20-29. doi:10.5437/08956308X5802294
Macy’s, Inc. Announces Actions to Streamline Store Portfolio, Intensify Cost Efficiency Efforts and Execute Real Estate Strategy. Press Release January 4, 2015.  Retrieved from http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=2234057
Macy’s Inc. Fact Book 2016. The Agility to Adapt.  Retrieved from https://www.statista.com/study/35523/financial-report-about-macy-s-inc-in-2016/
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken, NJ: John Wiley & Sons, Inc.
Thompson, Jnr., A. A., Strickland III, A. J., & Gamble, Gamble, J. E. (2010). Crafting and Executing STRATEGY.  The Quest for Competitive Advantage Concepts and Cases. (17th ed.). New York, NY: McGraw-Hill Irwin