Answer to the Question 1

Resources:
Resources are refers to the assets of a company. Usually, a company’s asset can be divided into
two categories:

Resources

Tangible Intangible

Tangible assets:
1. Physical existence assets: Macy’s has wide variety of stores, distribution center in
various states of the U.S. They also have huge cash and inventories. In 2009, Macy’s
opened two new stores in the central valley of California. They also many stores in big
cities such as New York, San Francisco and Kansas City.
2. Huge cash and Inventory: Macy’s cash and cash equivalents ($1306 million in 2009)
more than doubled compared to 2008 only $583 million. They also have lot of
merchandise inventories for their stores in stock so that no customer can go out without
buying the product that they want.
3. Wide ranges of products: Macy’s is a retail store that consist of broad range of goods
and services. Apart from clothes, they sell products like mattresses, furniture, Handbag,
cosmetics, and children’s clothing etc. In 2007, Martha Stewart 's products range covers
bed and bath, household items, flatware and glassware, and kitchen goods included in
its product line.
4. Distribution Center: Macy’s has diversified distribution center all over the U.S. They
have launched two new 600,000 sq. distribution center in Portland, Tennessee and
Goodyear which helps to operate direct to consumer operation very efficiently and
swiftly.
Intangible Assets:
1. Goodwill: Macy’s have good reputation in the retail industry in the USA and also all over
the world. Almost all the countries in the world including Europe Macy’s is recognized
retail store for its reputation. They have also unique patent, trademarks, brand name,
product quality, responsiveness to customers make them different than others.
2. Skilled Human Resources: Macy’s have the largest human resource among all other
retail company in the U.S. around 167 thousand. They provide welfare-to-work
programs with govt. from coast to coast so that recipient gains employable skills and
knowledge. Macy’s provide them employment opportunities for many of the
participants in these programs.

Capabilities:
Capabilities refers to having skills to utilize resources in order to productive use. Macy’s
Organize their distribution system and logistics technique so efficiently through direct to
consumer technology so that they can fulfill their order instantly when customers made an
order on online. It also provides low cost minimization. They have also implemented a one-
price program that results in the same item being priced at a fixed price to each consumer
without a bargaining choice. The company always try to utilize the products into environment
friendly goods such as, Haven by Hotel collection. Which include bath and bed items, such as
cotton sheets and towels. Macy's established a code of conduct setting the basic norm and
condition for suppliers doing business with the organization. The company’s excellent human
resources help manage the company very effectively and efficiently. Macy's offers equal job
opportunities and also offers employee inspiration, support and training, as well as
compensation. Macy’s new point-of - sale system that makes it easier for sales team members
to handle complicated tasks. This enable them multichannel retailing in the future.

Distinctive Competency:
 Macy Inc. possesses valuable, expensive to imitate, and non-substitutable capabilities.
Such capabilities include their management system such as Direct to consumer, point of
sale, one price system, bringing environment friendly products etc. and their excellent
large number of human capital and their partnerships with suppliers, as well as their
marketing campaign and capabilities.
  Their distribution center, wide variety stores and healthy portfolio make them a
recognized brand in the retail industry at both domestically and globally.

Answer to the Question 2

Competitive advantage
In order to build a competitive advantage a company first to attain a superior ability in four
aspect. And this four aspect is done by the functional level strategies. It aims to quite effectively
strengthen the company's operations. A company different functional department like head of
HR, Finance, and marketing and so on have decided how they will operate the business very
efficiently that based on the strategy decided by Business level either Cost-leadership and
differentiation. Here, we find out in which business strategy that the Macy’s followed by
analyzing the four aspects of functional level strategies that leads to a competitive advantage
and finally superior profitability. They are following below:

1. Efficiency: Efficiency indicates using the least amount of resources produce a highest
number of product and services without waste of money and resources. This also called
process innovation. The purpose of this innovation is to minimizing the company’s
internal cost. Here, Macy’s do a lot of process innovation to minimize its costs and
deliver the products and services to the hand of the customers. Like, the recent use of
automated systems for selling iPod and other electronic goods was a very successful
initiative strategy. Although it’s a one kind of differentiation strategy but in other sense
it minimizes lot of cost behind human resource, time etc. Then they introduce various
innovative selling strategy like one-price system, quoting prices for goods, launching
quick service concepts, Direct to consumer technology and point of sale system which
enable sale associates handle the tasks more efficiently and gain the firm competitive
advantage.

2. Quality: There are two types of quality that the company provides to customers.
a) Quality to reliability: It means company provides whatever they promised to the
customers.
b) Quality as excellence: It means providing more value to customers than they are
promised and give superior services in terms of quality. Here, Macy’s sell the
 products from world’s top renowned brands and provides the customer
excellent value and services.

3. Product innovation: It refers to coming up to something new in the market. As Macy’s is

a service retail company and not a manufacturing company so they don’t have their own
product and thus product innovation is not compulsory for them.
4. Customer responsiveness: The Company try to value customer feedback and respond or
act to it instantly. Here, Macy’s gets customer feedback though their website
Macy’s.com and they respond to it directly according to their feedback. Also as Macy’s
have numerous distribution centers all around the U.S so that they can provide
customer services very efficiently.

Macy’s follow different types of functional steps to increase efficiency that are described below:

 Learning Effects: Macy’s has adopted welfare to work programs to provide training and
development which helps them to gain skills and knowledge and also Macy’s provide
those skilled human resources job opportunities.
 Marketing: To include national brand advertisement, Macy’s uses network and
television, magazines, and internet media. They maintain a balanced level of brand
promotion and direct marketing. They also do a unique marketing campaign using dozen
design celebrities that results in merchandise sold in their stores and online. Macy’s also
developed their marketing strategy by opening distribution centers in different states.
They recently opened two new distribution center costs around $300 million
investment.
 Economies of scale: Macy’s are to achieve economies of scale by opening its diversified
new stores at different locations. By investing on fixed assets such as stores every year
they want to increase their sales and also minimize their cost by spreading fixed cost
and boost profitability.
 R and D: Macy’s should research why their sales growth are lowering day by day. By
doing research and development cost can also be minimized. Like, a very viable tactic
has been the recent use of robotic machines to sell electronic goods.
 Human Resource: Macy’s provides their employees proper training and knowledge to
make them more knowledgeable and experience employee so that they can operate the
business very efficiently.
 Information Systems: Online sales of both brands Macy’s and bloomingdales.com were
grew around 16.2 percent. The customer can order through online and give their
feedback and thus they can virtually contact with their customers and supplier. Also
 new “smart registers” allow the sales associates perform the work more efficiently. It
also reduces the communication cost, utilization of resources cost etc.

Thus, by analyzing all functional strategies I can say that in the whole scenario Macy’s prioritize
their process innovation most, then provide quality products and values to the customer and
they are very responsive towards customers. Like their quick service concept of restaurant that
is a specific types of restaurant that provides fast services to the customer with variation on
food and having minimal table. But at the same time, in order to sustain in the market for the
long term they are trying to do a little innovation in the product such as using robotic machines,
direct to consumer technology etc. Therefore, Macy’s followed a Broad cost leadership strategy
that helps the company gain a competitive advantage.

Building competitive advantage through Broad cost leadership strategy:

 Huge Market Share: The greatest competitive advantage that the Macy’s gain by
following Broad cost leadership strategy is market capture. It constituted the retail
industry around $4.85 billion more than its competitor Dillard’s and J.C. Penny.
 Global Recognition: The unique strategy, marketing and distribution system and wide
variety of products make the Macy’s a recognized retail brand in the U.S as well as the
whole world.
 Large number of Employees: Macy’s has the largest number of employees among all
the competitors which is also a great competitive advantage for them. It has around 167
thousand employees around the country.
In terms of gross margin and total revenue Macy’s also leads with a 39.70 percent and
$24.89 billion respectively more than its competitors.
 Gross Margin: Another competitive that the Macy’s gain than its competitors is gross
margin. Macy’s gross margin is about 39.70 percent more than its other retail
competitors. Their products quality, brand image and unique strategy help the firm gain
a competitive advantage.

Answer to the Question 3

On which Threat Macy’s are missed out for them to be in a position of closing stores, cutting
jobs, lowering dividends and less attractive incentives for employees I can determine by doing
Pestle analysis:
PESTLE Analysis
1. Macroeconomic Forces:
Economic forces is a major threat that the Macy’s face among all other forces. From the
middle of 2009, they experienced very difficult economic environment. As a result,
earnings from Macy’s dropped from 90 per cent to $7 million and sales dropped to
$15.6 million. Mattresses, furniture, and purse sales declined sharply. During the period
of economic recession (2007-2009) in the whole world affect many retailer company’s
sales revenue and income. Consequently, they have to lay off number of employees. In
2009, Macy’s lay off around 960 employees around the country. High debt levels of
retail companies causes them a slower sales growth and profitability. This results also
cutting the dividends by 62 percent. Their short term debt

2. Environmental Forces:
Macy’s has made a commitment and trying to improve the natural environment. As
energy cost is a fixed cost and it is fixed for every Macy’s stores so high energy cost
causes high business risk. But over the past five years, the company have begun to host
solar panels on 28 Macy’s stores in California and as a result they have been able to
reduce its energy consumption by 10 percent.

3. Legal Factors:
For certain countries the legal structure and mechanisms are not stable enough to
protect the property rights of an entity. Macy’s has severe Vendor or supplier code of
conduct. If any supplier wants to trade with Macy's then they must sign written
statements in which they consent to abide by the code of conduct of the organization. It
also results in closing stores because if supplier don’t agree with the code of conduct
then it hampers the business process.

Among all the Microenvironment forces (pestle) this three forces that the Macy’s missed out
causes the cutting job, closing stores and cutting dividends.
But another reason that is a threat for Macy’s is that their optimistic vision statement. Ill-timed
acquisition of May company has felt negative impact on their sales growth. Thus the optimistic
statement of the company's vision and the severe economic downturn in the US resulted in the
closure of 11 Macy’s stores.
 Answer to the Question 4
As US retail clothing industry are in deep trouble and many company faces negative profit
margins many potential competitor want to enter in the market but there are some barriers
that they might have faced before entering the market. Barriers to entry is related to Porter five
forces model.

Porter five forces Model

1. Risk of Entry by potential competitors: LOW

It refers to the companies that are not currently in the market but have the capability to
enter into the industry. Currently, the clothing retail industry is not good so it creates
many opportunities for the new potential competitors but they might face some
barriers like:
 Economies of Scale:
The first and foremost barrier that a new competitor might face is the
economies of scale. It arise when a company expands production by reducing
per unit cost. It include: gaining cost reduction through mass production,
Spreading fixed cost over a large output volume. Now if the new company
enters in the industry and produces small scale suffers cost disadvantage
relative to established companies. If they want to produce on a large scale they
must raise their investment capital in order to increase production facilities
which results in a high risk for the new companies. If the product is not sold as
much they produce then they will face a great loss.
 Brand loyalty:
 In the retail industry there are so many recognized brand that made a strong
position in the market as well as in the consumer mind. Some brands like
Macy’s, Saks, Dillard’s, and J.C Penny are the retail giant in the US. Consumers
have preference to buy the products from these stores. Macy’s uses television,
online media to advertise its brand name, products, product innovation through
technology. The Macy’s Thanksgiving Day parade constituted around 3.5 million
love spectators and this causes their brand name stronger. Significant brand
loyalty thus makes it impossible for new entrants to take out existing firms in
the form of market share.

 Absolute Cost Advantages:

Many new entrants are struggling to line up lower cost structure compared to
existing companies. If they go for cost leadership strategy then they will have to
do lot of process innovation, research and development like the Macy’s does.
When existing firms have an absolute cost advantage, the risk of new firms
entering would be minimized.
 Capital Requirements:
Competition in a new market suggests that the business has funds to invest.
Starting a big department store like the ones founded by Macy's Inc. isn't
inexpensive. It needs a lot of capital not only cash but also for physical
infrastructure like retail spaces, capital for human resources (employees,),
inventory, and for promotional activities. If a new entrant undervalues the
operational costs in this industry, this lead to the new company’s early decline
or failure.
 Customer switching Cost:
A new entrant company also face the customer switching cost. It can be
described by doing research and making consumer comparisons such as
spending time, energy, and money between the product provided by the
existing company and a new potential entrant’s product. When switching costs
are high consumer emphasis will remain on existing established product even
though the new entrant offers better quality products.
 Government Regulations:
Government regulation has also constructed a major entry barrier for the new
entrant into many industries. If government impose some tax, vat laws and
regulation of every product then every retailer should increase their prices as a
result customers do not buy the product. Thus it is also a great threat for the
new entrants.
 2. Rivalry among established companies: High
Rivalry among established companies in retail industry is high. Macy’s have some major
competitors in retail market such as Saks, Dillard’s and J.C Penny. Saks capture the retail
market more than Macy’s around 5.19 billion dollar.

3. Threat of substitute Product: Medium

Product substitution is not a much threat for Macy’s inc. As Macy’s stores offers quality
designer brand name product the threat of substitute is low. The only threat can be
substitution of designer product and sold it into a lower price than competitor.

4. Bargaining Power of Buyer: High

As there are many retailers in the market so option is many for the buyers. They usually
want to buy the product where they find at reasonable with a high quality. So they
easily switch from one brand to another brand.

Therefore, by analyzing the retail market we can conclude that it is not easy for a new entrant
to enter in the market and thus barriers to entry is low. Another thing as there is shortage of
information about supplier related to Macy’s in this case so bargaining power of supplier
cannot be described properly.