Other’s Loss is Macy’s Gain

Discussion
May 14, 2009
George Anderson

By George Anderson

Macy’s has developed
a strategy to take advantage of the misfortunes (specifically the move
into bankruptcy and liquidation) of competitors such as Fortunoff, Gottschalks
and Mervyns so it can pick up their customers.

"Wherever there
is a store that has gone out of business, we are honing our sights on that
customer," Terry Lundgren, chairman and chief executive officer of
Macy’s, told The Wall Street Journal.

Macy’s strategy,
as The Journal article points out, is nothing new in retailing circles.
In New Jersey, for example, even though Walgreens purchased prescription
files from the failing Drug Fair chain, every pharmacy within miles of
the former chain’s stores have signs posted letting consumers know their
business is welcome.

Picking up
a fallen rival’s customers is more important than ever considering the
realities of consumer spending at this time. According to Deutsche Bank,
closed chains in the clothing, electronics and home furnishings businesses
left behind roughly $21.4 billion in sales this year.

Macy’s, as
an example, is considering adding patio furniture to its stores in the
New York area following Fortunoff’s collapse. Outdoor furniture, according
to The Journal, was
the most successful category for Fortunoff. The company has even talked
with former execs at the chain about participating in an online launch
of patio furniture this year with product to reach stores in 2010.

Discussion Questions:
Has market share become more important for a chain or independent’s success
in the current market than it has in the past? What are your thoughts
about the opportunity for retailers to pick off the bones of fallen competitors
in the current market?

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21 Comments on "Other’s Loss is Macy’s Gain"


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David Biernbaum
Guest
11 years 11 months ago

To a company like Macy’s, market share is critical during an economic recession so that they achieve “more” from “less.” However, in my opinion, if more retailers, Macy’s included, would be more creative to offer points of differentiation, they would realize greater numbers of consumers and more profits not only during a recession, but forever more.

Bill Robinson
Guest
Bill Robinson
11 years 11 months ago

Every retail store is facing intense local competition. Yet most information systems do absolutely nothing to enlighten users on how stores are doing in relation to their competitors’ fortunes. When a local competitor dies, it is vital to see the impact on the sales mix down to actionable levels: vendor, brand, category, key item, price, and planogram.

Roll up the information to include all stores facing the failed competitor. You’ll get the full picture of how you can alter your strategy to maximize the opportunity.

The same thinking goes for competitors who are expanding in your area. Notice the impact on your sales mix in the weeks and months after their opening. Then alter your strategy based on what insights you gain.

The key is to establish a solid business intelligence infrastructure including a data warehouse which includes competitive store locations and, if available, competitive prices.

Dick Seesel
Guest
11 years 11 months ago

Real growth of retail sales has been close to a zero-sum game for awhile, not just in the current recession, and adept retailers have gained comp sales by gaining share for years. Especially in the department store arena, Macy’s has been one of the few survivors and has picked off (or acquired) its competitors for a long time.

Macy’s is correct that it’s all about gaining market share at others’ expense right now. The question is whether the “My Macy’s” program will allow the company to capitalize on these opportunities, especially now that they are consolidating their buying teams to one centralized office. There is also the risk that adding category after category (e.g. patio furniture) can turn Macy’s into “a bunch of stuff” rather than a focused retailer.

Max Goldberg
Guest
11 years 11 months ago

Market share is always important, whether the economy is strong or weak. Every new customer you draw into your store offers the potential to build loyalty and therefore sales.

David Zahn
Guest
11 years 11 months ago

What market share represents is the opportunity to sell products profitably to that percentage of the population. What retailers may choose to do is to convert loyal shoppers from another retailer to their stores, thereby increasing market share; but if sales are not producing profit–all you do is lose money more quickly.

Sure, market share is an important measure and one that many retailers strive to increase, but it is not THE measure that ultimately decides success or failure. Only cash flow and profit (in that order) determine success. Chasing market share for the sake of market share is a fool’s errand.

Having said that, Macy’s is quite correct in trying to capture those shoppers and sell to them the products they seek (outdoor furniture, cosmetics, etc.). They’d be remiss not to take advantage of that opportunity.

Susan Rider
Guest
Susan Rider
11 years 11 months ago

Market share is now, and ever shall be, the world.

The more clever the marketing plan is to attract the previous customer, the better. Out-of-the-box thinking is important, such as honoring old coupons, conducting focus groups with the former competitor’s shoppers, providing a friends and family discount for the former store’s customers, etc. I don’t think a simple welcome XYZ customers billboard will do the trick.

Doron Levy
Guest
Doron Levy
11 years 11 months ago
I think it is important for high velocity retailers such as Walmart, Costco and Target to obtain large market shares. Margin for mass merchants is always lower so as the old adage goes: we have to make it up in volume. You get volume by gobbling up market share. Macy’s and other department stores really have an advantage in basket building. Those guys can make decent margin off of one customer. Bob Phibbs recently relayed an interesting experience at a Sears in SoCal which illustrates the problem facing large department stores. Opening and acquiring stores is great but is there a focus on building the sale? Store visits are obviously much longer at Macy’s then at Walmart. There is opportunity to really capture margin here and I need to see a real stride towards basket building before I’m confident in department stores again. Fortunately, Macy’s has a semi-decent reputation for service. Consistent execution will be the key for the next little while. I would say all retailers need to hug each and every customer that… Read more »
Cathy Hotka
Guest
11 years 11 months ago

Location-based marketing is every retailer’s dream. I’d like to know how they’re integrating these new categories and suppliers into existing systems and processes….

Lee Peterson
Guest
11 years 11 months ago

I’m not sure why market share would be any more important now than at any other time. If you had ever de-emphasized that in your past, you’re probably up the proverbial creek right now so–too late to re-calibrate!

I always go back to Sam Walton’s great quote about competition; “if you see your competition drowning, don’t throw them a life line, go over there and stick a hose down their throat!”–sort of says it all about market share, doesn’t it? And again, if you’re not thinking like that all the time versus just bad times, you’ve probably got a hose down your throat right about now!

Jonathan Marek
Guest
11 years 11 months ago

This is necessary, of course, but it is hard to see how it will come close to offsetting the share loss to lower-priced competitors in this environment (not to mention the margin loss in having to promote more deeply, more often to to keep comp sales numbers on the cusp of respectability).

Gene Detroyer
Guest
11 years 11 months ago
Market share is certainly important. The real question is, market share of what? When competitors go out of business their customers need somewhere to shop to purchase the goods they formerly purchased. The idea that Macy’s monitors and focuses on these opportunities is strategically good. The opportunity to increase its share of customers is on target. But, they must consider what they are focusing on. Ultimately, what they want is more traffic. Traffic will bring sales. However, to uniquely open a new category that until yesterday wasn’t considered core to your business is quite foolish. An additional category in a department store means less space and attention to the core categories and is likely to end up with loss of core sales beyond any gain made by the new “patio” offerings. In Macy’s case, if they determined that the Fortunoff demise was an opportunity to get into a category chain wide and make it core, they should do it. But, if it is only a reactive offering in unique geographies, it is likely to produce… Read more »
Li McClelland
Guest
Li McClelland
11 years 11 months ago

This latest press release from Terry Lundgren is fascinating in a “watching a car crash in slow motion” kind of way. They are now honing in, laserlike, on the customers of their bankrupt competitors? Had Macy’s not alienated so many of their existing customers through poor selection and poor service–and had they not blithely tossed away so many loyal customers from the stores they took over, such as Marshall Field’s–perhaps all this scrounging for share would not be quite as necessary.

Over the past few years Macy’s has forgotten one of the basic tenets of retail; that it is easier to keep the customers you have than to develop new ones. That said, Macy’s might as well go for it.

Marge Laney
Guest
11 years 11 months ago

Market share is always important no matter what the economic climate. Macy’s is poised to win if they use this information into enhance their My Macy’s strategy. As regional retailers like Fortunoff and Gottschalks fail, winners will grab share by offering customers in those areas the products they were offered by the defunct chains and can no longer get. Bottom-line, where there is demand someone’s going to fill it.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 11 months ago

In this environment, with a number of chains failing, market share is up for grabs. Different retailers pursue different strategies. Macy’s is trying to capture discreet, identifiable segments from non-defunct competitors. Others, such as Best Buy, pursue a strategy of updating and sharpening their message to be more relevant to customers. Still others, like many dollar stores, are updating their operations to improve their ability to capture and retain new customers.

Tom Redd
Guest
11 years 11 months ago
I disagree with some of the comments stating that Macy’s “alienated so many of their existing customers through poor selection and poor service–and had they not blithely tossed away so many loyal customers from the stores they took over, such as Marshall Field’s–perhaps all this scrounging for share would not be quite as necessary.” The direction Macy’s chose to take – one of a common brand and acquiring newer customers–is a smart, smart way to retail. Macy has seen how the shopper is changing and how it is so important to be one brand and one, personalized place to shop for each and every shopper. Last, Macy’s did not toss away loyal customers. For example, how many people really shopped Field’s because of the brand? When Field’s changed to Macy’s the shopper was in a change mode too. The shopper wanted the best value and a store of first choice and convenience. With the new Macy’s and the My Macy’s program, this is exactly what they get. PS: My beliefs are supported by the increase… Read more »
Gene Hoffman
Guest
Gene Hoffman
11 years 11 months ago

Give me a store by the side of the highway
Where the race of spending customers go by.
I’ll reach out to them with promotional glee
To capture those who from another stores did flee.

Gaining market share is my glorious quest
And as others fail I’ll be on top and best.
If you don’t agree and wish a rebuttal,
Let’s debate and see if my idea will scuttle.

Craig Sundstrom
Guest
11 years 11 months ago

“Closed chains in the clothing, electronics and home furnishings businesses left behind roughly $21.4 billion in sales this year.”

…and $21.3B of that will flow to Walmart.

Seriously though, I’m not sure how much of a benefit Macy’s can expect to see: Gottschalk’s, for one, had a positioning strategy of avoiding larger markets, and so the overlap isn’t going to be all that large.

But as for the basic question (should one try to capture customers from failed competitors), maybe, maybe not: there was probably a reason people were choosing them over you in the past, and simply dumping different types of merchandise in your store with the expectation that the newbies will rush in is likely to be an ill-considered and fruitless strategy (not that Macy’s would do anything ill-considered or fruitless, of course).

Don Delzell
Guest
Don Delzell
11 years 11 months ago
In a stagnant overall market (or a recession) market share is by definition the only way to “grow.” Period. During expansion periods, many competitors can be considered successful without altering “share” simply by participating in overall market growth. Share capture as a strategy has always been about two things. First, having a competitive differentiation which provides a compelling reason to switch loyalties. Second, the spending necessary to publicize that differentiation and induce trial. The Macy’s approach of targeting customers of now defunct retailers makes the second part of that equation cheaper. It is far less expensive to induce trial when the existing brand choice is no longer available than when it was. Further, with targeted marketing techniques (and maybe paid-for mailing lists) it is possible to be even less costly and more efficient at communicating directly with these consumers. Which still leaves the initial part of the equation. Not sure right now exactly what the Macy’s message is that communicates a compelling differentiation. So the cost will be less, the effectiveness of the spend higher,… Read more »
Mark Lilien
Guest
11 years 11 months ago

All Fortunoff shoppers know Macy’s. So do all Mervyns shoppers who live within a reasonable radius. So do all Walmart customers, and all 7-Eleven customers. Since Macy’s has 100% audience awareness already, it’s unlikely that any other competitor’s demise (unless it has a very close department store positioning, like Dillard’s) would be meaningful. The only exception: if the competitor was in the same mall or directly adjacent to it.

About that patio furniture idea: if Macy’s is going to add it in the NY metro area, what will Macy’s delete from those stores? So net-net, why bother to alienate some folks just to attract some other folks, for a seasonal department already footballed by a million other stores?

Mike Osorio
Guest
Mike Osorio
11 years 11 months ago

Macy’s is well positioned to grab market share from the demise of Gottschalks and Mervyns and other retailers selling the core product categories like apparel, home furnishings and cosmetics. I do question the idea of going after categories that may not be in their stable of core competencies–like outdoor furniture. This could prove a distraction they don’t need.

History has shown us that retailers who understand their customer and where they shop can devise effective market share strategies. The key is to understand those customers who are shopping with you and with your competition. Macy’s has the best chance of grabbing more of the customer’s dollars for categories they already bought at both Macy’s and the failed retailers.

William Passodelis
Guest
11 years 11 months ago

Margin IS EVERYTHING! If you can get it, you survive–even more important in these days of decreasing number of store chains and even types of merchants. Patio Furniture? Does a mid-market department store REALLY need this? Kmart…Target…Walmart…Sears…Lowe’s…Home Depot…Independent local seasonal retailers…enough said! Do what YOU do and pay attention and differentiate yourself. Patio Furniture? Please!

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