1

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:

Macy’s,

Bloomingdale’s,

Bloomingdale’s The Outlet,

1 Case written by Nirali Singh, Karol Bąk and Yawen Pan; and supervised by Oriol Amat,

UPF Barcelona School of Management, 2019.

2

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.

3

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 Rowland H. Macy’s opens R. H. Macy’s & Co., as a dry goods store in New York City

1861 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

1902 Macy's became the nation's first building to have modern escalators—made of wood—

installed

1912 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)

1924 Macy’s first Thanksgiving Day Parade, which became a tradition in New York City since

then.

2005 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

2008 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

2015 Closing of multiple stores and laying off workers

2017 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

2018 More than 100 stores closed and 20.000 people fired. 880 stores still intact. Stock value

plummeting each year.

4

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%

5

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 Lord & Taylor

Bealls Neiman Marcus

Belk Nordstrom

The Bon-Ton Sears

Boscov’s Stage Stores

Burlington Target Corporation

Dillards’s Von Maur

Hudson’s Bay Company T.J. Maxx

J.C. Penney Lord & Taylor

6

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.

7

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 Bed Bath & Beyond INC

Kohl’s Group Dillards INC

Ross Stores INC Burlington

JC Penney Co INC Nordstrom

8

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.

9

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

10

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

11

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

Provides wide range array of apparel for

women, men and children

Goods for home

Beauty, hair, fragrances and cosmetics

products.

Provide the customers the option to consult

with professional personal stylistics / shoppers.

Price

Offering affordable prices

Constant sales, coupons and special

offers

Additional saving through loyalty

programs

Promotion

Tv and Radio ads

Magazines

Online advertisement

SEM, paid search

Place and Distribution

More than 700 stores, point sales.

Online platform, ecommerce Macy.com.

International shipping available

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

12

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

13

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.

14

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 brick-

and-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.

15

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

16

On September 17, Macy’s announced its partnership with Facebook, under which 150 e-

commerce 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.

17

APPENDIX 1: BALANCE SHEET OF MACY’s. Source: S&P Capital IQ

18

APPENDIX 2: INCOME STATEMENT OF MACY’s. Source: S&P

Capital IQ

19

APPENDIX 3: CASH FLOW STATEMENT OF MACY’s. Source: S&P

Capital IQ

20

21

APPENDIX 4: RATIOS. Source: Own calculations

22

23

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.

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.

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

2010 2011 2012 2013 2014 2015 2016 2017

Equity/Total Assets

24

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

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.

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

Days Receivables 4,9 5,1 4,9 5,7 5,5 7,5 7,4 5,3

Stock Days 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

25

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.

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

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.

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

Acc Receivable Turnover 74,0x 71,8x 74,6x 63,8x 66,3x 48,5x 49,4x 68,4x

Inventory Turnover 5,3x 5,4x 5,2x 5,2x 5,6x 5,1x 4,8x 4,3x

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%

26

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.

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.

Source: Own

0

5 000,0

10 000,0

15 000,0

20 000,0

25 000,0

30 000,0

2010 2011 2012 2013 2014 2015 2016 2017

Key Stats - Income Statement

Revenue Gross Profit EBITDA EBIT Net Income

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%

27

Profitability Analysis

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.

Macy’s profitability analysis, Source: Own

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%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2010 2011 2012 2013 2014 2015 2016 2017

Profitability

Return on Investment (EBIT/TA) Financial Expenses / Total Loans

28

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

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

Source: Own

2,23 2,56

2,95 3,13

3,32

2,68 2,46 2,61

0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2010 2011 2012 2013 2014 2015 2016 2017

Altman Z Score

Cash Flow 2010 2011 2012 2013 2014 2015 2016 2017

Cash from Ops. 1104,7 1649,2 1591,2 1888,4 2399,5 1833,5 1684,3 1562,6

Cash from Investing -341,1 -529,0 -570,3 -583,8 -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

29

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.

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

(1 500,0)

(1 000,0)

( 500,0)

0

500,0

1 000,0

1 500,0

2 000,0

2 500,0

3 000,0

2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2015 2016 2016 2016 2017 2017 2017

Cash Flow

Operation CF Financial & Investment CF Net Change in CF

30

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

capital cycle

Loss of fixed assets, more than 100 department

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.

31

Boosting the penetration of private label brands from the current 29% to over 40%.

Qualitative strengths Qualitative weaknesses

Who New CEO

Story founder and CEO Rachel Shechtman

as Macy’s brand experience officer to jazz

up bricks & mortar

Inefficient management

Work environment

Inefficiency of HR to hold employees in

the company more trainings are needed.

What Changes in business model

Maintaining competitive advantage

New growth strategies

Inefficient reward system

Low employee turnover

High rotation

How R&D

Ecommerce

Boosting the penetration of private label

brands from the current 29% to over 40%.

Growth 50

Carelessness of retail employees

Less proactiveness

Changes in consumer behaviour

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

32

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.

33

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)

34

The results are shown below:

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

revenues and net income. Profitability of the

company has approximately doubled in terms

of all returns. Return on investment has

increased from 8 to 18% while the most

noticeable change is the increase in ROE

from 27 to 45%. Interestingly, this increase in

ROE can lead to better stock price of Macy’s

shares in market as people invest more in

future.

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.

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%

Income Statement -

recommendations (2017)

Before After

Ratios -

recommendations (2017)Before After

Current Ratio 1,5x 1,9x

Quick Ratio 0,4x 1,2x

Stock Days 124,7 60,9

Total Asset Turnover 1,3x 1,6x

Current Asset Turnover 3,3x 3,7x

Non Current Asset Turnover 2,1x 2,9x

Inventory Turnover 4,3x 6,1x

Return on Assets 8% 15%

Return on Investment (EBIT/TA) 8% 18%

Return on Equity 27% 45%

Liquidity

Asset Turnover

Profitability

35

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/

36

https://www.nasdaq.com/

https://www.marketwatch.com/

https://www.thestreet.com/story/14521024/1/4-ways-macy-s-is-competing-with-new-age-

retail.html