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Macy's Inc is one of America's best-known retailers, owner of the renowned fashion and home furnishing stores Macy's and Bloomingdale's. Originally known as Federated Department Stores, the group has gradually consolidated a huge portfolio of regional retail chains to concentrate on just those two store brands. Echoing mergers elsewhere in the US retail industry, it doubled in size in 2005 as a result of the acquisition of mid-market competitor May Department Stores, all of whose local stores converted to the Macy's or Bloomingdale's brands, which previously operated only in New York. The process was completed when Federated Department Stores changed its own corporate name to Macy's Inc in 2007. Consolidation came just in time to protect the enlarged group from some of the fallout from the economic downturn of the following two years. However, the shift in consumer shopping habits finally caught up with Macy's in 2016, as performance stalled dramatically.
Who handles advertising? Click here for these and other agency account assignments from adbrands.net. The group launched its first ever national advertising campaign in 2006. It declared gross advertising & promotional expense of $1.55bn for 2016, including cooperative advertising contributions from vendors.
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Consolidation within the US retail sector, a process largely initiated by the relentless growth of discounters such as Wal-Mart and Target, wholly transformed the retail landscape in the 1990s and early 2000s. Dozens of local retailers were swept away in favour of a handful of national giants, with the Macy's brand now dominating the national department store segment. The dramatic expansion of its two best-known brands has certainly helped to insulate Macy's Inc against continuing erosion by discounters, and positions the group as the most powerful business by far within its segment of the market. However the sharp decline in consumer spending power after 2007 did considerable damage to the group's finances, and was followed by the dramatic shift towards ecommerce, with Amazon emerging as the biggest threat to Macy's in the 2010s.
As of January 2017, Macy's Inc managed an estate of 728 traditional department stores spread across 45 US states. It has closed more than 100 lower-performing stores since 2013, and is set to close at least another 50 by 2018. A few outlets are "blind" stores, only serving mail order sales. Its main brand is Macy's. Long-established as New York's most famous department store, Macy's is an intrinsic part of that city's culture, famed for the annual Thanksgiving Day Parade which it launched in 1924 and has run ever since, and its Fourth of July firework display over Central Park. It positions itself as a specialist in "affordable luxury", positioned one level above the likes of Sears and JCPenney, and two above Walmart and Target. Stores sell a wide selection of upscale but sensibly priced fashion, home goods and cosmetics. In a breakdown of merchandise sales by category for 2016, the group identified feminine accessories, intimate apparel, shoes and cosmetics as its biggest segment, accounting for 38% of total sales. This was followed by feminine apparel (23% of sales), men's & children's (23%), and home & miscellaneous (16%).
Although it offers a wide range of national designer brands (mostly in the better and moderate apparel segments), the store has put a substantial marketing push behind its own exclusive or private labels, which now account for around 30% of total sales in Macy's stores. The group claims that sales of its private labels grew three times faster than third-party brands between 2002 and 2006. In apparel, the biggest of these are Charter Club and I-N-C, supported by wear-to-work Alfani, Style & Co, Tasso Elba, teen-oriented American Rag denim and Epic Threads, and Greendog for kids. Other new lines include Bar III and Greg Norman for Tasso Elba, both launched in 2011. (Past hits include Aeropostale, originally an inhouse label in the 1980s, spun off in the following decade as an independent company).
It also has exclusive arrangements with third-party suppliers. In 2008, the group agreed a partnership with Tommy Hilfiger, becoming the only outlets in the US other than the designer's own stores to stock Hilfiger-branded apparel. In 2010, the group struck a deal with Iconix Brand Group to introduce a line of teenage apparel and accessories co-designed by Madonna and her daughter Lourdes under the Material Girl label. Other exclusive lines include Kenneth Cole Reaction and Sean John men's sportswear, and Ellen Tracy sportswear for women. It launched supermodel Heidi Klum's intimates collection in 2015, as well as a full range of clothing co-created by Latin singer superstar Thalia Sodi. Borrowing an idea from H&M, it has also commissioned designers to create limited edition one-off "capsule collections". Karl Lagerfeld and Matthew Williamson are among the designers to have taken part so far.
The group also identified home furnishings as an area for major further development and expansion. In 2004, it established a corporate division, Macy's Home Store, to handle centralized buying and marketing of all its textiles, houseware and furniture. It also manages the group's existing private label home supplies brands Hotel Collection, Belgique, The Cellar and Tools of the Trade. In 2007, Macy's launched a range of exclusive home goods under the Martha Stewart Collection banner, taking over from Kmart which had previously sold a less expensive range of goods. This range did well, so much so that rival retailer JC Penney struck its own deal with Martha Stewart in 2011. Macy's sued to block the rival line on grounds of breach of its exclusive contract with Martha Stewart, and it was granted a preliminary injunction in summer 2012. With neither side prepared to back down, the case went to court in early 2013. After almost two years of argument, the court found in Macy's favour. Macy's is also the only department store group to offer store-in-stores for the toy retailer FAO Schwarz. Private label and exclusive brands are developed and managed by the group's inhouse merchandising group.
In 2008, the group hired British direct marketing specialist Dunnhumby, best known for its work for supermarket giant Tesco, to advise on customer-centric marketing initiatives. It also launched My Macy's, a store management programme designed to adapt the range of merchandise in each store to best suite its local customers.
Until 2003, the Macy's brand name was established only in New York although its parent company, then known as Federated Department Stores, also owned a string of other businesses across the country. From 2003, however, the Macy's brand was gradually extended across the country with the rebranding of each regional chain. As a first stage, each local store added the Macy's brand to its own, creating Rich's-Macy's, Lazarus-Macy's and Goldsmith's-Macy's stores in the South; Burdines-Macy's in Florida; and Bon-Macy's stores (formerly Bon Marché) in the Pacific Northwest. In Spring 2005, all the local branding was dropped in favour of a uniform Macy's banner.
The acquisition of May Department Stores in August 2005 substantially enlarged the portfolio. Like Federated, May had traditionally operated a variety of different brands across the country, including Famous-Barr, LS Ayres and The Jones Store in the Mid-West; Filene's and Kaufmann's in the Atlantic and Northeastern states; Foley's in Texas and the South; Hecht's and Strawbridge's on the East Coast; and Robinsons-May and Meier & Frank on the West Coast. May had also acquired famed Chicago-based department store chain Marshall Field's in 2004 from Target. Following its absorption by Federated, virtually all of May's stores also began to convert to the Macy's umbrella brand. That process was complete by the end of 2006. Lord & Taylor, a group of 55 stores in and around New York, was sold in 2006, followed in 2007 by May's collection of almost 700 bridal stores across the country including David's Bridal, After Hours Formalwear and Priscilla of Boston. As a result of further consolidation, the Macy's name adorned around 673 department stores by the beginning of 2017, divided into five regional divisions. Macy's Backstage is a new "outlet"-type concept, first introduced in 2015, offering reduced-price apparel and accessories. Most locations are inside existing full-price stores but there are also a small number of freestanding shops. Clearance goods are sold in full-price stores in a separate area branded as Macy's Last Act.
Macy's is famous not only in the US but around the globe for its sponsorship of the celebrated Thanksgiving Day Parade in New York in November, as well as for a spectacular 4th of July fireworks display. The Thanksgiving parade has been running since 1926 and the 4th of July celebration since 1976.
The other main retail brand within Macy's Inc is Bloomingdale's, another venerable New York institution. Positioned above Macy's, it markets itself as the authority in more exclusive designer fashion and homewares. "Like No Other Store In The World", in fact, as its long-running brand slogan states. Like its sister brand, it too has extended its presence beyond New York, now with 55 stores across the country. As a result it claims to be America's only nationwide, upscale, full-line department store. There are also a number of Bloomingdale's Outlet clearance or discount stores. Bloomingdale's has two stores outside the US, in Dubai and Kuwait, operated since 2010 by a local licensee. An additional Bloomingdale's and the first ex-US Macy's are set to open in Abu Dhabi in 2018. Macy's also has an ecommerce operation in China as a joint venture with local company Fung Retailing, offering products through Alibaba's Tmall portal.
Macy's returned to the acquisition trail for the first time in ten years with a $210m deal to buy beauty and spa retailer BlueMercury in 2015. Since acquisition, that chain has increased its footprint from around 60 freestanding stores to over 100, selling high end skincare and makeup artistry products in 22 states. There are also around another Bluemercury concessions inside full-price Macy's stores. It continues to operate as a standalone entity under founders Marla Malcom Beck and Terry Beck
The group also operates various direct-to-consumer mail order services, including online stores for both Macy's and Bloomingdale's, as well as bridal registries in partnership with WeddingChannel.com, and teenage fashion portal ThisIsIt.com.
The group also offers credit services to customers, mainly through the Macy's credit card programme. This was operated for several years by the credit services division of General Electric. In 2006, Federated reacquired the whole portfolio and transferred it to Citibank, where it operates under the banner of Department Stores National Bank. Macy's also handles some operations of the card portfolio through its own FDS Bank unit.
The addition of May Department Stores caused revenues to peak in 2006 at just under $27.0bn. However, sales came under considerable pressure after that, gradually slipping back to a low of $23.5bn in 2009. Steady recovery from 2010 onwards allowed the group to set a new record for annual sales in the year ending Jan 2013, with a 5% year-on-year increase to $27.69bn. Net income also hit a new high, up 6% to $1.34bn. For the year to the end of Jan 2015, revenues rose marginally to $28.11bn, while net income was up 3% to $1.53bn. The comparable sales increase was 0.7%.
However the latter year marked a high point for the group. Since then, it has felt increasing pressure from a variety of factors, not least fierce competition online, especially from Amazon. For the year to Jan 2016, revenues slipped 4% to $27.08bn, while net income slumped 30% to $1.07bn. The company blamed unseasonably warm weather in the holiday quarter, lower tourist spending and higher spending by domestic customers on other areas than fashion. There were further excuses for the following year after the group suffered a 5% decline in revenues to $25.78bn while net income plunged by 43% to $611m, the lowest level since 2009 and the first time since 2010 that profits have fallen below $1bn. Profits are stated after large charges for store closures and impairments. After several years of steady growth, same store sales fell by 2.5% in 2015 and 2.9% in 2016. The rate of decline increased to over 5% for the first quarter of fiscal 2017.
The weak performance prompted rumours that Amazon had made a tentative approach to acquire the business; there was also a conditional approach from Canadian group Hudson's Bay Company. No deal transpired.
Essentially all Macy's Inc's revenues are generated in the US, although it derives a small royalty stream from the Bloomingdale's franchise in the Arabian Gulf.
Although it is now the dominant brand within the group, Macy's is in fact a comparatively recent addition to the portfolio, only acquired by Federated in 1994. The group was originally was founded in 1929 as the jointly owned holding company for several regional department store retailers, including Abraham & Straus of Brooklyn, Filene's of Boston, F&R Lazarus of Columbus, Ohio and Bloomingdale's of New York, all of whom had originally set up shop between 1850 and 1875. The idea behind Federated was to give these venerable retailers some shared protection from newcomers JC Penney and Sears & Roebuck, the latter a mail order company which had begun pushing aggressively into department stores a few years earlier. Although the Federated stores pooled their finances, they remained in all other respects independent of one another. After World War II, however, the company altered its strategy to take advantage of the post-war boom, restructuring as a single business under the leadership of Fred Lazarus.
As head of F&R Lazarus, Fred Lazarus had already proved himself to be one of the country's most influential retailers. In 1939, he was alarmed to note that the Thanksgiving Holiday was set to occur on the last day on November, thereby reducing the precious selling period between that holiday and Christmas. He personally launched a campaign to fix the holiday permanently on the last Thursday of the month in order to maximise sales potential weekend. That proposal was signed into law by President Roosevelt two years later.
Over the following years the group expanded steadily, opening stores in new cities, and later moving into the new environment of suburban shopping malls. But like its now much larger rivals, Federated was unprepared for the sudden challenge delivered by discount retailers such as Wal-Mart during the 1980s, and profits plunged towards the end of the decade. After a hostile takeover in 1988 by the Campeau Corporation, the group was slimmed down, with several chains, including Foley's and Filene's sold off. But saddled with huge debts from its various past takeovers, Federated's business continued to worsen, and the group filed for bankruptcy in 1990. It was wholly restructured before re-emerging in 1992. Two years later it acquired Macy's. This was first founded in 1858 by Rowland H Macy as a dry goods store. A former sailor, he chose a red star as his company logo, after a tattoo on his arm of the North Star. It expanded rapidly, becoming a department store in 1877, and gradually taking over 11 neighbouring properties. Macy's became the world's single biggest department store in 1924, and launched its first Thanksgiving Parade the same year. It too had expanded after the war, but was equally hard hit by the harsher retail environment of the 1980s, and had also filed for bankruptcy in 1989.
The combined Federated-Macy's business consolidated its operations over the next few years. Having acquired an extensive collection of different brand-name stores since the 1950s, it began pruning its collection, rebranding blocks of stores under a smaller roster of names, such as Bon Marche, Burdines, Rich's, Lazarus and Goldsmith. In 2003 and 2004, these regional stores groups were again rebranded to incorporate the Macy's brand, and their original names were finally phased out during 2005. Also that year, Federated announced plans to acquire smaller rival May Department Stores. The two groups had talked about merger on several occasions since the 1980s, but the latest negotiations were said to have been triggered by the departure of May's chairman & CEO at the end of 2004.
David May established his first store in a mining town in Colorado in 1877, but later moved to St Louis and acquired The Famous Clothing Store. The company's first department store opened in Cleveland in 1898 as The May Company. The business floated in 1910, acquiring William Barr Dry Goods, which was merged with Famous Clothing to become Famous-Barr's. Over the following years, The May Company expanded steadily but slowly. As a a result it was less badly affected by turbulence in the retail market during the 1980s, and took advantage of the environment to double in size with the purchase of Associated Dry Goods in 1986 (including Lord & Taylor, Sibley's, Robinson's, and other retail chains), followed by Foley's and Filene's, acquired from Federated two years later. A string of other smaller acquisitions followed, topped by the purchase of Chicago-based Marshall Field's in 2004 from Target. The group was acquired for around $11.7bn, and the transaction completed in August 2005.
In the Autumn of 2006, Macy's became the star of a new US documentary series, Macy's Unwrapped, billed as a behind-the-scenes look at the nation's best-known department store.
Last full revision 7th July 2017
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