Macy’s: A giant in trouble1
1. INTRODUCTION
Macy's Inc. is an American holding listed on the New York Stock Exchange (NYSE). The
company is a leader in retail sales in the United States being the owner of the biggest store
chains as Macy's and Bloomingdale's. The company sells a wide range of products, including
clothing and accessories for men, women and children. In addition, stores belonging to
Macy's Inc. offer cosmetics, home furnishings and other consumer goods. Most stores are
located in urban or suburban areas, mainly in populous places in the United States.
Beginnings of Macy's Inc. we can find out in 1830, when John Shillito founded a company
called Shillito's, which was the first department store in Cincinnati, in Ohio. Until today,
Macy's headquarters is in the same city, in addition the company also has its office in New
York City.
Source: Macy’s Inc.
Figure 1. Macy’s Inc. Logo
The company operates over 690 department stores under the Macy's and Bloomingdale's
brands and about 160 specialist stores in 44 states and the District of Columbia in the USA, as
well as outside the United States, e.g. in Guam and Puerto Rico. As of February 3, 2018, the
company's activity was conducted through the following store chains:
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
Macy’s,

Bloomingdale’s,

Bloomingdale’s The Outlet,
Case written by Nirali Singh, Karol Bąk and Yawen Pan; and supervised by Oriol Amat,
UPF Barcelona School of Management, 2019.
1

Macy’s Backstage,

Bluemercury, Inc,

Macy’s China Limited.
In addition, Bloomingdale's in Dubai (United Arab Emirates) and Al Zahra (Kuwait) operates
on the basis of license agreements with Al Tayer Insignia - a company of Al Tayer Group,
LLC (holding company operating in the United Arab Emirates, founded in 1979).
1.1 HISTORY
Known for one of the biggest stores in the world, Macy’s is famous as one of the biggest
department stores in USA. Their story started in 1858 when Rowland Hussey Macy’s
established his first store in New York City. The store contained mostly dry goods, but the
location was far away from other dry stores at the time. Still, the store grew quickly as they
bought neighbouring buildings step by step. Early on, they were innovative in order to draw
customers like creating Santa Claus exhibitions and illuminated window displays.
The brothers Isidor and Nathan Straus bought the store in 1985 and moved it to Herald Square
7 years later where the famous Macy’s Herald store lies today.
Early 1920s they started expanding to other cities. The first expansions happened when they
bought existing companies in other cities. They renamed them into Macy’s and brought their
innovative concepts to the new locations. The company grew across United States, especially
around New York City.
The most important year in the company’s history is 1994, when Macy’s merged with
Federated Department Stores (FDS). Federated was a big department store operator owning
over 20 distinct brands. The changed its name to Federated Department Stores but changed
many of stores into Macy’s stores. The following years they restructured themselves into a
more united image using Macy’s as their main brand. This rebranding was not without
controversy as many local stores with long history became Macy’s stores in the early 2000s.
This encourage many protests, especially around Chicago where Marchall Fields was a
popular store.
In February 27, 2007, the Federated Department Stores Inc. announced that the company's
name will be reverted to Macy's Group, Inc. By March 28 the company has changed its plans
for a new name, deciding finally at Macy's, Inc.
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In March 2005, the number of Macy's stores increased to around 425 in the whole country.
In addition, it serves its clients through the website www.macys.com.
In 2015, as technology and new lifestyles made a big impact on shopping habits the company
made their first announcement that they had to close stores and lay off workers. As of 2018
they have closed over a hundred stores and fired over 20.000 people. Their stocks have
decreased with over 10% each year last three years and there are companies ready to buy the
rest of the company with its 880 stores.
Presenting the development history of Macy's Inc. it is impossible to skip two store chains
belonging to the company. They are Bloomingdale's and Bluemercury.
Bloomingdale's Inc. is an American department store chain that was founded by brothers
Joseph and Lyman Bloomingdale in 1861. In 1994, it became a part of Federated Department
Stores Inc., which is why it is currently a daughter company of Macy's Inc. From 2017 there
are 38 full-range stores and 17 outlets under the Bloomingdale's name operating in the United
States.
Bluemercury is a network of American beauty salons founded in 1999 by Marla Malcolm
Beck and Barry Beck in Georgetown, Washington, DC. Stores sell cosmetics, as well as face
and spa treatments. Macy's has launched Bluemercury services in its stores as well increased
the number of free-standing stores under the name Bluemercury.
Few important moments in the history of Macy’s are:
1858
1861
1902
1912
1924
2005
2008
2015
2017
2018
Rowland H. Macy’s opens R. H. Macy’s & Co., as a dry goods store in New York City
The red star first appeared next to the Macy's logo, which was a replica of a tattoo Roland
Hussey Macy’s had on his forearm when he was a Nantucket sailor in his teenage years
Macy's became the nation's first building to have modern escalators—made of wood—
installed
Isidor and Ida Straus, the former co-owners of Macy's, died in the sinking of the Titanic
(today, a plaque in their honour hangs inside the memorial entrance on the main floor)
Macy’s first Thanksgiving Day Parade, which became a tradition in New York City since
then.
Macy's had 240 locations, mainly in Eastern and Western Coast. The number of Macy's stores
increased to around 425 in the whole count
Macy’s consolidated three divisions - Macy's North into Macy's East, Macy's Northwest into
Macy's West; and Macy's Midwest into Macy's South
Closing of multiple stores and laying off workers
Macy’s net sales were $25.78 billion. However, few stores sales fell, while few struggled to
remain open in previous years due to high competition
More than 100 stores closed and 20.000 people fired. 880 stores still intact. Stock value
plummeting each year.
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1.2 BUSINESS DESCRIPTION
Macy's, Inc. as one of the largest US companies is mainly combined with the activities of
luxury department stores. It is a multi-channel retail organization that runs not only stores but
also internet store and mobile applications. The company sells a wide range of goods such as
clothing and accessories for men, women and children, cosmetics; home accessories, and
other consumer goods.
The company offers many brands in its stores. These are both own brands as well related
brands. The main brands offered in Macy's, Inc.'s chain stores are: Alfani, American Rag,
Aqua, Bar III, Belgique, Charter Club, Club Room, Epic Threads, First Impressions, Giani
Bernini, Greg Norman for Tasso Elba, Holiday Lane, Home Design, Collection Hotel,
Hudson Park, Ideology, INC, Jenni, JM Collection, John Ashford, Karen Scott, Lune + Aster,
M-61, Maison Jules, Martha Stewart Collection, Material Girl, Morgan Taylor, Oake, Sky,
Style & Co., Sutton Studio, Tasso Elba, Thalia Sodi.
The company's retail operations are seasonal and characterized by high share of sales and
operating revenues in November and December. Working capital requirements fluctuate
throughout the year, increasing in mid-summer in anticipation of the autumn merchandising
season. They also grow significantly before the holiday season, when the company reaches a
higher level of inventory.
In addition, Macy's, Inc. has many subsidiaries that provide various functions support for
retail operations in an integrated manner, covering the entire company. Down these
companies include:
1. FDS Bank;
2. Macy’s Systems and Technology, Inc.;
3. Macy’s Merchandising Group, Inc, (MMG);
4. Macy’s Logistics and Operations;
FDS Bank is a subsidiary of a company that provides credit services for some collection,
customer service and credit services for various credit cards accounts. Macy's Systems and
Technology, Inc. is in full possession of Macy's, Inc. and provides data processing services
and operational information management in the field company's operations, excluding
Bluemercury and Macy's China Limited. Macy's Merchandising Group, Inc. (MMG) - a 100%
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subsidiary of Macy's, Inc and its subsidiary Macy's Merchandising Group International, LLC,
are responsible for design, development and marketing of private label brands and some
licensed brands. Macy's Logistics and Operations is a division owned by the company
Macy's, Inc. and provides services in the field of warehousing and distribution of goods.
2. INDUSTRY ANALYSIS AND COMPETITORS
2.1 INDUSTRY
The department stores market in the United States is very large and represented by many
well-known companies. However, in recent years, it continued its long-term decline. This was
mainly due to competition from the electronic trading, which accelerated declines. Forecasts
indicate that within five years to 2023, the trend will continue, but department stores try to
reverse this trend, for example, by introducing new strategies. Such activities of enterprises in
this industry may lead to changes on market.
Competition from e-commerce has a negative impact in the short term, however, it positively
affects the activity of department stores in the long run, because they see their chances in the
development of e-commerce and start by themselves offer your goods online.
According to an IBISWorld report from May 2018, in the United States were 7,535
businesses classified in the department store industry in which 93,760 people were employed.
Annual revenues in this industry amounted to $ 155 billion, however, in the years 2013-2018
the annual loss of this sector amounted to 3,3. The forecasts for the coming years are also
promising successive drops in the industry.
As mentioned at the beginning of this subsection in the USA in addition to Macy's Inc.,
operates many companies in the department store industry. The list below presents the most
recognizable entities on the American market:
Barneys New York
Bealls
Belk
The Bon-Ton
Boscov’s
Burlington
Dillards’s
Hudson’s Bay Company
J.C. Penney
Lord & Taylor
Neiman Marcus
Nordstrom
Sears
Stage Stores
Target Corporation
Von Maur
T.J. Maxx
Lord & Taylor
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Moreover, Macy’s Inc. has a lot of competitors form the Europe, which also operate in the
United States of America:

H&M

Zara

Massimo Dutti

Topshop

Next
2.2 SWOT ANALYSIS
Strengths
Macy’s uses omnichannel strategy to strengthen its position and to maximize the consumers’
experience. Bloomingdale's outlet, Macy's Backstage store, Bluemercury, and online sales
platform all together allows Macy’s to improve the customers experience. Macy’s Online
platform allows the customers to place orders using any devices in a flexible way. Macy's
enjoys a high business credibility and worthiness. This accreditation has made Macy's to
receive an exemplary rating of A+ to F. The company has received this rating because it is
committed to good faith when resolving issues related to customers. The company stocks a
variety of clothing ranging from star brands like Calvin Klein, Michael Kors and Ralph
Lauren among others. Macy's has individualized merchandise offering, for example, it utilizes
location-based technology to offer more personalized recommendation and discounts (Singh,
2012). This helps the company to improve customer involvement and strengthen its
promotional and marketing activities.
Weaknesses
Macy’s has a high employee turnover with low employees’ engagement. High overheads
associated with scale could be explained by the ineffective leadership of Macy’s and the lack
of training. According to the feedback of employees of Macy’s (from glasswork website),
there is a flawed scorecard system which hurts the employees. They are measured by
scorecard but not the management team. Furthermore, there is still limited global brand
recognition. In addition to it, there is no exclusivity in the products that Macy’s has to offer.
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Opportunities
The current business of Macy’s is concentrated in US market, however the company’s has the
huge opportunity of international expansion such as to Dubai, India and Asia. The company’s
online platform (ecommerce) also helps to improve customers experience and increase the
global market share of the company. The company is also privileged to witness a growing
market for luxurious items in the beauty industry, and this is an opportunity that Macy's can
benefit from, for example, Macy's Bluemercury store can offer an opportunity for the
company to stock luxury cosmetic products as well as providing spa services. This can give
the company a new growth channel.
Threats
The main threat of Macy’s is the intensive competition. Walmart, Amazon and Kohl’s are the
main threats of Macy’s. The main rival of offline segment is Walmart while the online rival is
amazon. the company must look into ways of meeting the changing customer preferences and
seal its market position. Discounts stores such as Wal-Mart tend to offer very competitive
price unlike Macy’s. This puts Macy's in a risky situation during tough economic periods.
Customers are likely to walk away from the company when prices are unfavourable for them.
Post economic crisis there has been a shift in consumer's consumption behaviour, people tend
to spend their income saving on technology and experiences rather than clothing.
2.3 MAIN COMPETITORS
Macy’s has been facing a tough competition from many rivals in the industry. Ecommerce has
hurt the industry business more than the internal competition. However, in the year 2018
Macy’s performance by segments has improved more than its rivals.
Few of the main competitors are mentioned below (compared on similarity in size and other
factors):
TJX Companies INC
Kohl’s Group
Ross Stores INC
JC Penney Co INC
Bed Bath & Beyond INC
Dillards INC
Burlington
Nordstrom
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SALES 2018
Macy’s has maintained a second position (2018
3rd Quarter) in sales among the above
competitors. Macy’s sales of (approx) 25 million $
was only surpassed by the sales of TJX amounting
to (approx) 36 million $ in 2018.
Macy’s vs Competitors: Sales, Source: Own
STOCK GROWTH 2018
Compared with other competitors we can observe that Macy’s performance has been better
than its rivals. This is visible by comparing the Year to date (YTD%).
Macy’s vs Competitors: YTD stock growth, Source: Own
In 2018, there has been a 15.58% value increase for Macy’s stock in contrast to TJX, who has
most sales in 2018 even then, they have not been performing well in the stock market and has
a YTD decrease in stock value.
TOTAL SEGMENT MARKET SHARE 2018
With revenue growth of 2.33% in 2018, Macy’s has been able to increase its market share in
comparison to its competitors.
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Macy’s vs Competitors: Market share, Source: CSIMarket
REVENUE GROWTH
The department store chains have
been
faced
with
a
very
tough
competition from e-commerce sites in
the last few years. However, Macy’s
has been trying to keep ahead of this
raw
competition
by
using
new
strategies and has been able to
maintain a positive revenue growth in
comparison to its competitors.
Macy’s vs Competitors: company revenue growth, Source: CSIMarket
NET INCOME COMPARISON
Macy’s net Income in the 3 quarter
2018 grew year on year by 82.35 %,
faster than average growth of Macy’s
competitors of 3.05 %.
Macy’s vs Competitors: Net Income, Source: CSIMarket
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NET MARGIN vs TOTAL COSTS
Macy’s vs Competitors: Net Margin to Total costs, Source: CSIMarket
Macy’s net margin is of 1.15% while the competition has earned a net margin of 2.93% over
their total costs. It’s lower than that of competition, but when compared to previous years it
shows a declining trend.
Conclusively, Macy’s has been able to keep a positive revenue and a respectable margin in
comparison to its competitors in the industry. Macy’s has managed to maintain good sales
even with a rising competition from e-commerce sites. They are working on new strategies to
keep up with the changing industry and maintain a positive margin.
3. PRESENT SITUATION
3.1 CUSTOMERS, DISTRIBUTION CHANNELS AND 4 PS ANALYSIS
CUSTOMERS
The main target of Macy’s are the American middle class who prefer quality products at
reasonable prices. The company’s stores under the Bloomingdale’s brand offer high-end
customers an assortment of established brands such as Armani, Burberry, Chanel and
Christian Dior. Hispanic consumers also plays an important role in the US market as their
numbers are increasing. Currently, Macy’s has also been targeting millennials with other
customers. The company has launched several collections specifically aimed at Millennials,
including QMack, Maison Jules, and Bar III Carnaby.
Macy’s caters to the tastes of multicultural buyers, who represent a major portion of its
customers. That is why one of Macy’s core strategies is My Macy’s, which focuses on
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localizing product assortment based on store location. Macy’s ensures that local tastes and
preferences are reflected in the merchandise size, fit, style, and colour of a particular store.
DISTRIBUTION CHANNEL AND 4P ANALYSIS
As we mentioned previously, Macy’s is using omnichannel strategy to improve the consumer
experience and also to acquire new customers.
Product & Services
Price
Provides wide range array of apparel for
Offering affordable prices
women, men and children
Constant sales, coupons and special
Goods for home
offers
Beauty, hair, fragrances and cosmetics
Additional saving through loyalty
products.
programs
Provide the customers the option to consult
with professional personal stylistics / shoppers.
Promotion
Place and Distribution
Tv and Radio ads
More than 700 stores, point sales.
Magazines
Online platform, ecommerce Macy.com.
Online advertisement
International shipping available
SEM, paid search
KEY SUCCESS FACTORS:
Macy’s KSF are the following:

Continuous innovation in order to adapt to the market

Using the Omnichannel strategy: “Be everywhere, do everything, and never fail to
astonish the customer”. This has become Macy’s mission, and it is as true for Macy’s
today as it was over 100 years ago. Omnichannel Strategy allows Macy to service the
customer more efficiently, striving to seamlessly integrate our stores, online and
mobile app through use of cutting-edge technology as well as guide a streamlined
workforce wired to maximize opportunities across sales channels.

My Stylist – free personal shopping service
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
Loyalty program that provides discounts, benefits and offerings to credit card
members

Magic Selling program trains sales associates to step beyond their day-to-day tasks to
make customers happy.

Plenti – rewards program to earn and redeem points with Macy’s and its partners (i.e.
Exxon, AT&T, Hulu, etc.).

Through My Macy’s initiative, Macy’s adjusts its merchandise assortments at local
stores and online to reflect the customer’ regionalized tastes and desires.
3.2 STRATEGY – NORTH STAR STRATEGY
Macy’s struggles with many problems, especially connected with e-commerce competitors
this led the Board of the holding to create a new strategy, called “North Star Strategy”. It was
presented in 2017, by Jeff Gennette – CEO of Macy’s Inc. The name of the strategy is of
course linked with the logo of the company, which is a red star. The new strategy is based on
5 points.
1. From Familiar to Favourite – Consumer research confirms the Macy’s brand is
well-known and well-loved in the USA and growing across the world. Actions in this
point include understanding and anticipating its customers’ needs and strengthening its
fashion authority, as well as executing initiatives around its loyalty and pricing
strategies.
2. It must be Macy’s – The company delivers the products and experiences its
customers love and can only find with Macy’s. This includes styles and home fashion
for every day and special occasions, from its leading private brands, as well as
exclusive national brands or assortments found only at Macy’s. It makes the
company’s products unique and desirable.
3. Every Experience Matters – The biggest Macy’s asset is the ability to combine the
human touch in its physical stores with cutting-edge technology. It is enhancing is
customers’ experience as they explore Macy’s assortments, find their favourite styles,
sizes and colours, and receive their purchase through the shopping channels they
prefer. Macy’s mobile app and digital capabilities complement the store experience
and help its talented sales associates serve its customers better than ever. Macy’s app
powers personalized recommendations, serves as a loyalty tool to deepen its customer
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relationships, and offers a simplified product discovery and checkout process. The
company’s successful Buy Online Pickup in Store (BOPS) option will continue to
provide customers with the omnichannel shopping experience they love.
4. Funding our Future – This point represents the decisions and actions that the
company takes to create resources to fuel its growth. Macy’s Inc. is focused on cost
reduction and reinvestment, and creating value from its real estate portfolio, which is
very big.
5. What’s New, What’s Next – this point explores how Macy’s innovates to turn
consumer and technology trends to its advantage and drive growth. This includes
exploring previously unmet customer needs and making smart investment decisions
based on customer insight and analytics. The company will use these insights to
improve its digital concepts, brand partnerships and acquisitions, while also
innovating the company’s internal processes and customer-facing ideas.
Following the strategy Macy’s can improve its performance and start growing again. In
February 2018, during the investor’s meeting, CEO of the company Jeff Gennette showed,
that the new strategy started giving positive effect. Some of the most important conclusions
were presented below:

Macy's reorganized its marketing activities by putting more emphasis on fashion, as
well as simplifying the previously complicated price scheme;

A loyalty program called "The Star Rewards", which was introduced in September
2017 proved successful, which is why the company is planning more solutions of this
type;

Macy's improved its range of goods, which led to average growth retail sales by about
3 percent;

Macy's Backstage (outlet with discounted products) has been expanded to 45 shops;

The option called "buy online, pickup in store" has been extended using a more
artificial intelligence, to improve customer service in Macy's mobile applications;

Cash receipts from the sale of real estate amounted to USD 411 million.
Points mentioned above prove, that the company is on the good way to implement the new
strategy and improve its performance in next years.
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4. PRESENT CHALLENGES FOR MACY’S
Macy’s has been trying to improve its sales by focusing on growth categories such as beauty
and by expanding its presence in the off-price retail space through its backstage stores.
However, intense competition from online retailers such as Amazon and off-price retailers
such as Kohl’s JC continues to impact Macy’s as well as other department stores’
performances.
Source : Wall street earnings estimates

Outdated business model - low growth
Due to fierce competition and heavy promotional discounts in the industry, the entire retailing
industry is suffering from the decline of turnover and reduction of customers visiting the
store. On the other hand, the surge in online retailing is changing the consumption behaviour
steadily. The upsurge in online retailers such as Amazon has also impacted traditional brickand-mortar retailers. Macy’s has performed better than most of its competitors due to its
efforts to localize the merchandise under its My Macy’s localization strategy as well as the
expansion of its online business.
However, some rivals like Zara reacted quicker and better to customize the technology as per
needs of the consumer. Macy’s business model might no longer be sustainable. Consumers
are changing the way they shop, and it seems many are no longer willing to wander around
giant retail stores to find what they want, but instead shop online. Macy’s should have reacted
quicker on this huge global trend but they are late and it has led to a substantial decrease in
the company’s sales.
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
Losing its premier position and excessive discounting focusing on off-price business
Macy's flagship store in Herald Square serves as evidence of how the store is at risk of losing
its premiere positioning. Everything was
haphazard and in disarray, showing a lack
of care from employees. If the store
doesn't care — Why will the consumer
care? Why will they come back? Why
would they ever want to pay a premium?
In addition, the company focuses too
much on the discounts and off-prices.
Some of Macy’s store have applied the
discount apparel up to 80%.
Source: Business Insider

Threats of e-commerce rivals
The biggest concern of Macy’s (which even remains true for most of traditional, mall-based
retailers), is the imminent threat from Amazon and the aforementioned impending death of
malls.

Fall of Macy’s stock
In the last 5 years, Macy’s highest stock price has reached to $72,31 (July, 2015). After
which, the company’s stock price started to go down and never reached higher than $45. The
investors are disappointed with their results lately. The whole departmental store industry is
suffering from falling stocks. Retailers in general had a tough time, with the SPDR S&P
Retail ETF down about 10%, but the major department stores fared far worse.
Stock price fluctuation in last 5 years, Source: Macy’s INC
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On September 17, Macy’s announced its partnership with Facebook, under which 150 ecommerce brands will be offered through nine Macy’s stores in the 2018 holiday season,
called The Market. The company is working to provide a virtual and augmented reality
furniture shopping experience to customers. The short term goal is to Enhance Store Look
and Feel; Invest more into Off-Price Model. while the Long term goal is to lead the
omnichannel retail space.
QUESTIONS TO BE ANSWERED:
1. Analyse the financial statements of Macy’s.
2. Recognize the qualitative and quantitative strengths and weaknesses of Macy’s.
3. Construct a cause and effect diagram.
4. Recommend some actions and demonstrate the effects they will have on Macy’s.
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APPENDIX 1: BALANCE SHEET OF MACY’s. Source: S&P Capital IQ
17
APPENDIX 2: INCOME STATEMENT OF MACY’s.
Source: S&P
Capital IQ
18
APPENDIX 3: CASH FLOW STATEMENT OF MACY’s.
Source: S&P
Capital IQ
19
20
APPENDIX 4: RATIOS. Source: Own calculations
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Macy’s2
1.ANALYSE THE FINANCIAL STATEMENTS OF MACY’S
Structure of Balance Sheet
The analysis of the balance sheet began with the analysis of the size of assets and their
changes in recent years. Until 2015, the value of assets grew, but then it fell to 2,2% in 2016
and 16,1% in 2017. This was mainly caused by the sale of assets by the company, which is
also noticeable in the cash flow statement.
Equity/Total Assets
35,0%
30,0%
25,0%
20,0%
15,0%
10,0%
5,0%
0,0%
2010
2011
2012
2013
2014
2015
2016
2017
Macy’s Equity/TA, Source: Own
In the next step, the structure of capital and liabilities were analyzed. The equity in Macy’s is
29,2% in 2017 which is lower than the standard 40%. However, when compared with the
industry average of 30% (few companies such as Nordstrom and JC Penney has equity of only
12-13%, while Ross stores and Kohl’s has an equity level of more than 40%), Macy’s has an
appropriate ratio of equity and total assets.
2
Answers to the questions written by Nirali Singh, Karol Bąk and Yawen Pan, UPF
Barcelona School of Management, 2019.
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In fact, in the previous years the equity level has never exceeded 30% in the company. From
2010 to 2014 it was stable between 25,2-28,9%, while in 2015 and 2016 it was 21,8 and
20,7% respectively.
Additionally, equity level below 40% is not a problem for the company, debt is profitable for
Macy’s and there is no risk of bankruptcy. The company is mostly financed by long term
liabilities, which accounts for 44,6% of total assets in 2017.
Liquidity Ratios
Liquidity
2010
2011
2012
2013
2014
2015
2016
2017
Current Ratio
1,4x
1,4x
1,6x
1,5x
1,7x
1,3x
1,4x
1,5x
Quick Ratio
0,4x
0,6x
0,5x
0,5x
0,6x
0,4x
0,4x
0,4x
Cash to Current Liabilities
0,3x
0,5x
0,4x
0,4x
0,4x
0,2x
0,2x
0,3x
4,9
5,1
4,9
5,7
5,5
7,5
7,4
5,3
117,2
118,7
117,1
121,3
117,3
121,8
126,2
124,7
Days Payables
48,8
52,5
48,6
53,2
52,5
51,8
50,9
56,0
Cash Conversion Cycle
73,3
71,3
73,4
73,8
70,2
77,6
82,7
74,1
Days Receivables
Stock Days
Source: Own
Macy’s has been able to manage its assets quite efficiently and has maintained a respectable
current ratio of 1,4-1,5 over the years. The company has no liquidity issues.
However, if we compare it with the quick ratio of 0,4 in 2017, there is a huge difference
revealing that the company has huge stocks, which is understandable in department store.
It can be attributed to the policy of company to maintain high stocks due to the nature of
industry.
Macy’s has enough cash to pay its short term liabilities as indicated by the cash to current
liabilities ratio of 0,3 in 2017. Macy’s would be able to pay 30% of its short-term liabilities
using cash. In previous years, the ratio was even higher (0,5 in 2011), thus stipulating the
efficient assets management in the company.
Days receivables and days payables are very low, which is positive for the company, because
Macy’s needs only 5,3 days to collect money from customers and has 56 days to pay its
suppliers. It makes, that the company has surplus in working capital/cash, because it collects
cash almost 50 days earlier than has to pay it to suppliers. Stock days for the company are too
long (124,7 in 2017), which is negative and proves, that the level of inventories in Macy’s is
too high making the cash conversion cycle as long as 74 days in 2017.
24
Assets Turnover
Macy’s assets turnover has been impeccable in the last 8 years. The ratio has always remained
above 1 indicating that sales has always exceeded the value of assets. It’s stability over the
year shows the company’s maturity.
Assets Turnover
2010
2011
2012
2013
2014
2015
2016
2017
Total Asset Turnover
1,2x
1,2x
1,3x
1,3x
1,3x
1,3x
1,3x
1,3x
Current Asset Turnover
3,6x
3,0x
3,5x
3,2x
3,3x
3,5x
3,4x
3,3x
Non Current Asset Turnover
1,8x
2,0x
2,1x
2,2x
2,2x
2,1x
2,1x
2,1x
74,0x
71,8x
74,6x
63,8x
66,3x
48,5x
49,4x
68,4x
5,3x
5,4x
5,2x
5,2x
5,6x
5,1x
4,8x
4,3x
Acc Receivable Turnover
Inventory Turnover
Source: Own
Managing of accounts receivables in 2017 is better than in years 2013 to 2016. Inventory of
Macy’s is too high and in last years, inventory turnover has declined. We can attribute it to
bad inventory management but decrease in sales can be a prominent factor.
Debt Analysis
Debt Analysis
2010
2011
2012
2013
2014
2015
2016
2017
Debt
73%
73%
71%
71%
75%
79%
78%
71%
Quality of Debt
33%
39%
34%
37%
32%
35%
36%
37%
Financial Expenses
2%
2%
2%
1%
1%
1%
1%
1%
Return Capacity
-3%
18%
-14%
6%
0%
-15%
3%
3%
Source: Own
Share of debt is higher than 60% in all the analyzed years, however, the quality of debt is very
good, because company is mostly financed by long-term debt. The financial expense ratio
currently is even lower than 1%, specifying that only 1% of sales is required to regulate
financial expenses. Macy’s can get more loans to run its operations.
The return capacity (cash flow/total loans) in previous years has been negative due to negative
cash flow in the company. It has remained very unstable throughout the years and currently
resides at 3%, stipulating that in 33 years Macy’s can pay all its debts. It shouldn’t pose any
issues for Macy’s due to higher percentage of long term debt.
25
Analysis of Income Statement
The graph below shows the values and change of Revenues, Gross Income, EBITDA, EBIT
and Net Income In last 8 years in Macy’s.
Key Stats - Income Statement
30 000,0
25 000,0
20 000,0
15 000,0
10 000,0
5 000,0
0
2010
2011
2012
2013
Revenue
2014
Gross Profit
EBITDA
2015
EBIT
2016
2017
Net Income
Macy’s: Evolution of revenue, gross profit, EBITDA, EBIT, Net income, Source: Own
The graph shows decline in Macy’s revenues, gross income, EBITDA and EBIT in last 3
years. Until 2014 revenues were growing, but after 2014, they started declining, which is big
problem for the company. As we know from the part about business, Macy’s currently
struggles with problems with digital competitors and changes in customers preferences, who
now prefer buying online than in traditional department stores in last years. However, the net
Income increased in 2017 due to companies sale of its assets, which is temporary. Macy’s
need to work on increasing its sales again if it wants to remain profitable and continue having
a positive net income.
Margin Analysis
The margin for Macy’s has been stable from 2011 to 14. Unfortunately, due to decline in
revenues in the last 3 years, the margin of EBIT and EBITDA has been declining. It can be
caused by growth in SG&A Margin in those years. Net income margin has increased in 2017
due to sale of Macy’s assets in the previous year.
Margin Analysis
2010
2011
2012
2013
2014
2015
2016
2017
COGS Margin %
59%
60%
60%
60%
60%
61%
61%
61%
Gross Margin %
41%
40%
40%
40%
40%
39%
39%
39%
SG&A Margin %
33%
31%
31%
27%
26%
31%
33%
33%
EBITDA Margin %
12%
13%
13%
14%
14%
12%
10%
10%
EBIT Margin %
8%
9%
10%
10%
10%
8%
6%
6%
Net Income Margin %
3%
5%
5%
5%
5%
4%
2%
6%
Source: Own
26
Profitability Analysis
Margin Analysis
2010
2011
2012
2013
2014
2015
2016
2017
ROA (Net Income/TA)
4%
6%
6%
7%
7%
5%
3%
8%
ROI (EBIT/TA)
9%
11%
13%
13%
13%
10%
8%
8%
ROE (Net Income/Equity)
15%
21%
22%
24%
28%
25%
14%
27%
Financial exp./Total Loans
7%
6%
6%
5%
5%
5%
5%
5%
Source: Own
In 2016, the return on assets of Macy’s hit a rock bottom of 3% due to continuing losses in
revenue. It increased in 2017 to 8%, which is the highest in last 8 years, due to sale of its
more than 100 departmental stores. In any case the, ROA ratio over the years has increased
for Macy’s which is good for the company and its assets are profitable.
Analyzing return on Investments we can see, that it was growing until 2014, when it reached
13%, but then it started decreasing and in 2017 ROI equals 8%. Due to losses in last 3 years,
there has been a decrease in the return on investment.
Return on Equity of Macy’s is very high and very good. Shareholders can be satisfied,
because the company usually generates ROE higher than 20%. 2016 was the worst for the
company in case of profitability, because net Income significantly decreased. 2017 on the
other hand was the best for the company due to increase in net income caused due to selling
assets. That income is included in income statement as Gain (Loss) On Sale of Assets.
Financial Leverage
Macy’s is mostly financed by debt (around 70%). The financial leverage effect is positive and
lower share of Equity (< 40%) is not a problem for the company. ROI is higher than Financial
Expenses to Total Loans ratio. It proves, that financial leverage effect is positive, which
means that financing by debt is profitable for the company and share of equity around 30% is
not a problem for Macy’s.
Profitability
16%
14%
12%
10%
8%
6%
4%
2%
0%
2010
2011
2012
2013
Return on Investment (EBIT/TA)
2014
2015
2016
2017
Financial Expenses / Total Loans
Macy’s profitability analysis, Source: Own
27
Altman Z-score
Estimating Z-score allows us to evaluate solvency of the company. Below we present a
formula, which we used to estimate it.
Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5
X1 = working capital / total assets
X2 = retained earnings / total assets
X3 = earnings before interest and taxes / total assets
X4 = market value of equity / book value of total liabilities
X5 = sales / total assets
Z < 1.8: high probability of default
1.8 < Z < 3: medium probability of default
Z > 3: low probability of default
Altman Z Score
3,5
3,0
3,13
2,5
3,32
2,95
2,68
2,56
2,0
2,23
2,46
2,61
2016
2017
1,5
1,0
0,5
0
2010
2011
2012
2013
2014
2015
Macy’s Evolution: Z score, Source: Own
Macy’s Z score has been growing for 5 years from 2010 to 2014 and achieved value 3,32 in
2014, which shows, that company has very small probability of default. In years 2015-2017, it
was lower due to loss of revenues. Although, it is still relatively high and there is only
medium to low probability of insolvency.
Analysis of Cash Flow Statement
Cash Flow
2010
2011
2012
2013
2014
2015
2016
2017
Cash from Ops.
1104,7
1649,2
1591,2
1888,4
Cash from Investing
-341,1
-529,0
-570,3
-583,8
2399,5
1833,5
1684,3
1562,6
-859,2
-1009,2
-174,9
-299,8
Cash from Financing
-926,5
-85,8
-1744,6
-980,9
-1564,2
-1875,1
-1333,6
-1135,8
Net Change in Cash
-162,8
1034,4
-723,7
323,8
-23,9
-1050,8
175,8
127,0
Source: Own
28
Cash from Operations has been positive (always higher than 1,1 billion Euros) for last 8
years. The company’s operating activities has provided a positive cash flow and maintained
profit. Although, since 2014, Cash from Operations started decreasing, which proves, that last
3 years were not optimistic for the company, because of problems in the industry with online
competitors.
Cash from Investing was negative during analyzed period, which is not surprising. Macy’s
still invests money to develop its activities. However, in 2016 and 17, cash from investing
was less negative in comparison with previous years. It can be due to sale of assets of Macy’s.
Cash Flow
3 000,0
2 500,0
2 000,0
1 500,0
1 000,0
500,0
0
2010
2010
2010
2011
2011
2011
2012
2012
2012
2013
2013
2013
2014
2014
2014
2015
2015
2015
2016
2016
2016
2017
2017
2017
( 500,0)
(1 000,0)
(1 500,0)
Operation CF
Financial & Investment CF
Net Change in CF
Graphical representation of cash flows, Source: Own
Cash from Financing was negative during analyzed period. It is mostly caused because of
repurchase of common stock and common dividends paid. Macy’s used to spend a lot for
repurchasing its common stocks (1,8 bn. In 2015), but in last 2 years the company spent less,
than in previous years. Dividend policy of the company is very interesting, as Macy’s had
paid dividends every single year (during analyzed period), even when the company had
losses.
2.
RECOGNIZE
THE
QUALITATIVE
AND
QUANTITATIVE
STRENGTHS AND WEAKNESSES OF MACY’S
Financial strengths
After analysis of the company’s financial accounts, below are listed the financial strengths
and weaknesses of Macy’s
29
Financial strengths
Financial Weaknesses
High ROI and ROE
Decreasing revenues
High liquidity
Decline of Macy’s operating margins
Less financial expenses, hence, profitable debt
Low equity and high liabilities weight
Less days receivables: quick to collect cash
Continuous reduction in stock prices
Positive working capital, due to negative working
Loss of fixed assets, more than 100 department
capital cycle
stores sold
Qualitative strengths
Who

New CEO, Jeff Gennette aimed to brings a richer experience for the customer renewing
itself with unconventional ideas

Leveraging its recent acquisition of Story and the appointment of Story founder and CEO
Rachel Shechtman as Macy’s brand experience officer to jazz up bricks & mortar
What

Changing the business model

Maintaining competitive advantage

New growth strategies
How

Discounts

loyalty programs, for instance My Macy’s.

Opening online stores to compete with ecommerce websites

Growth 50 : Macy’s is testing a new concept in 50 doors that includes “hyper-curated
assortments,” modest capital improvements to the store, localized marketing and enhanced
associate interaction in areas that benefit from consultative selling such as big ticket,
beauty and fine jewellery. The most successful components will begin rolling out to other
stores in 2019.
30

Boosting the penetration of private label brands from the current 29% to over 40%.
Qualitative strengths
Qualitative weaknesses
New CEO
Inefficient management
Who
What
Story founder and CEO Rachel Shechtman
Work environment
as Macy’s brand experience officer to jazz
Inefficiency of HR to hold employees in
up bricks & mortar
the company more trainings are needed.
Changes in business model
Inefficient reward system
Maintaining competitive advantage
Low employee turnover
New growth strategies
High rotation
R&D
Carelessness of retail employees
Ecommerce
Less proactiveness
Boosting the penetration of private label
Changes in consumer behaviour
How
brands from the current 29% to over 40%.
Growth 50
Qualitative weaknesses
Who

Inefficient management team

Work environment

Inefficiency of HR to hold employees in the company more trainings are needed.
What

Inefficient reward system

Low employee turnover

High rotation

Highly competitive and dynamic sector

Mall based obsolete business model
How

Carelessness of retail employees

Lack of proactiveness in studying the changing market
31

Changes in customers preference
3. CONSTRUCT A CAUSE AND EFFECT DIAGRAM.
The biggest problem that Macy’s (as well as the retail industry) has been facing is critical
competition from e-commerce websites. It has not only led to declining revenues but also
forced them to close many of its stores in recent years. Amazon specifically has been taking a
deep market share from retail stores and has led to changes in habits of consumer behaviour,
which has set these companies on a desperate but vicious cycle of trying to retain customers.
The other issue is the continuous decline in Macy’s net income. Although, unlike its
counterparts Macy’s has managed to make a positive revenue every year, still, there has been
cost cuttings and sales of department stores. The whole industry and the shopping complex/
mall based business model has been suffering due to changing consumer behaviour.
Customers now demand more home delivered products as offered by Amazon and other
ecommerce sites and even though Macy’s has started its own online stores, it hasn’t yet bore
fruit.
Source: Own
In addition to these external factors, employee dissatisfaction is also one of the issues of
Macy’s. Their obsolete business model and inefficient management has led to issues in
internal processes that affects the business in the worst way possible.
Macy’s is steadily declining, and need to come up with strategies and ideas to stop this
downward trend.
32
4.RECOMMEND
SOME
ACTIONS
AND
DEMONSTRATE
THE
EFFECTS THEY WILL HAVE ON MACY’S.
Recommendation
All the issues that Macy’s is currently facing are more on the industry and management side.
There are no issues with the finances of the company that are not related to revenues or sales.
Macy’s is facing a tough competition and need to earn more revenues. Our recommendations
would be:

Changes in business model

Maintaining competitive edge

Exclusivity in the offered products

Better human resource management

Introducing new strategies to earn more market share
In addition to the above techniques, we also recommend to sell more of the existing
inventories.
Macy’s has high level of inventories, that leads to a high cash conversion cycle and lower
quick ratio. If Macy’s is able to convert these inventories into sales, a lot of ratios including
the margins of revenue and net income can be improved.
Demonstration of recommendations
In order to demonstrate how selling more inventories can help Macy’s, we made following
assumptions:

Reduced the inventories by 2 billion euros

Assumed that we sold those inventories and converted them into sales. Increased
revenue by 2 billion euros.

Cost of goods sold is 59% of the new revenue (extrapolation from previous years)

Paid 1 billion worth of short term loan and 1 billion worth of long term loan, by the
extra cash we retained due to increased revenue

The operations of the companies are carried out normally throughout the year with no
sale of any department store or any other fixed asset (unlike 2017)
33
The results are shown below:
Income Statement recommendations (2017)
Before
After
Results Margins Results Margins
Revenues
19 964
100,0%
21 964
100,0%
COGS
12 179
61,0%
12 959
59,0%
Gross Profit
7 785
39,0%
9 005
41,0%
EBIT
1 239
6,2%
2 459
11,2%
Net Income
1 243
6,2%
2 042
9,3%
Source: Own
With the increase in revenue by 2 billion, there is an increase in gross profit, EBIT and net
income of Macy’s. The net income has increased by a factor of 3% by just selling more
inventories.
As we decreased the inventories, we are able
to improve the liquidity ratios. The assets
turnover has increased due to increased
Ratios recommendations (2017)
Liquidity
Before
After
revenues and net income. Profitability of the
Current Ratio
1,5x
1,9x
company has approximately doubled in terms
Quick Ratio
0,4x
1,2x
Stock Days
124,7
60,9
of all returns. Return on investment has
Asset Turnover
increased from 8 to 18% while the most
Total Asset Turnover
1,3x
1,6x
noticeable change is the increase in ROE
Current Asset Turnover
3,3x
3,7x
Non Current Asset Turnover
2,1x
2,9x
Inventory Turnover
4,3x
6,1x
from 27 to 45%. Interestingly, this increase in
ROE can lead to better stock price of Macy’s
Profitability
shares in market as people invest more in
Return on Assets
8%
15%
future.
Return on Investment (EBIT/TA)
8%
18%
27%
45%
Return on Equity
Source: Own
This company is only haunted by the decrease in sales and revenues. If they are able to turn
around their business model, maintain a competitive edge and fulfil the changing demands of
their customers, all their issues related to profitability, margins and even decreasing stock
price can be resolved.
34
INTEREST OF THE CASE
Macy’s is more than 100 years old, and each time in those 100 years it faced a road block, the
company took it in stride and rose like a phoenix. The current market scenario is a huge
challenge for Macy’s due to extremely tough competition.
This case is interesting because we study a mature company, who is a leader in the
departmental store industry and is still surviving profitably in the market. We learn that even
though the company has no major issues in its finances and has been able to maintain good
return and regular pay-outs is still struggling to keep on its feet due to an obsolete business
model.
The company has enough liquidity and profitability still due to qualitative issues such as bad
management and incompetent strategies, Macy’s has been led to sell its assets. The company
needs innovation and fresh ideas to maintain an edge in the market. Additionally, the
company has suffered due to lack of understanding of customers and heedlessness of the
changing customer habit.
Macy’s although, has been trying hard to remain profitable and increase its stock value. The
CEO is interested to change the “product based” approach to “consumer experience based”
approach. The company is employing better individuals to understand the market and
investing in innovative ideas such as Growth 50 and My Macy’s. New strategies are being
formed to cope up with the competition. The decision to sell the assets is also a manoeuvre to
maintain profitability a liquidity.
Conclusively, this case shows that an organization as old, huge, and stable as Macy’s can face
issues due to lack of proactiveness and exclusivity. Macy’s even though, have never in past
made any wrong financial decisions is still suffering due to lack of sales. Although, Macy’s
tenacity to recover from these losses is exemplary and it can be a very good example in future
to bounce back from losing revenues and maintain its leadership position in the market.
REFERENCES:
https://ecampus.bsm.upf.edu/pluginfile.php/116078/mod_resource/content/0/Analysis%
20of%20financial%20statements%20Análisis%20de%20Balances%20ENGLISH.pdf
https://www.macysinc.com
https://www.capitaliq.com/
https://finance.yahoo.com
https://csimarket.com/
35
https://www.nasdaq.com/
https://www.marketwatch.com/
https://www.thestreet.com/story/14521024/1/4-ways-macy-s-is-competing-with-new-ageretail.html
36