My Macy's Program Isn't a Strong Reason to Own Macy's

A Citi Investment Research Analyst upgraded Macy's to Buy stating that she believes the company's My Macy's program "should lead to improved top line (as well as margin) trends ahead, particularly beginning in 2010." It's a program that empowers the stores to make buying and planning decisions. While this may sound like a good idea, in my opinion, it isn't. I believe it's a dilutive strategy that encourages management by committee rather than through strategic direction and brand focus.

More than 15 years ago I worked at Tommy Hilfiger to help build its US wholesale business through department stores including Macy's, May Company, Dillard's, and Belk. Sales grew from $74 million to more than $1.5 billion. Our strategy was simple; great product at the right price, strong advertising, and deep control of our product across the channel. My job was controlling the product across the channel, and to do that it was clear that we needed to strategically plan and manage our business FOR the department store channel.

 

I believe the reason for this is clear; there are very few great merchants in the world and it's unreasonable to think that department stores can train and motivate 1000's of strong merchants who can better plan, select, present and sell products better than the brand itself. It's why someone like Mickey Drexler at J Crew is considered an Oracle. His abilities far outweigh most in the industry. There are the strong and fantastic like Wal Mart and J Crew. And then there is the mediocre like just about everyone else. Great brands are built by the fantastic. And great brands control their assortment through the department store channel, if they haven't already left the channel and gone vertical.

 

My Macy's is a program whereby regional buying and planning teams study their stores and determine which brands they want to focus on, and which they want to eliminate. In theory this sounds good. In reality it encourages greater emotional decision making and liquifies an already diluted channel. Contrast this program with what a retail behemoth and leader like Wal Mart would do. Wal Mart supplies its vendors with extremely robust selling information and performance analysis. The vendors are responsible for ensuring that its products are in the right stores at the right time. Wal Mart in turn establishes performance parameter for the vendors. If you perform, you continue to do business with Wal Mart. If you don't perform, you're out.

 

I believe Macy's needs to establish a structure whereby it doesn't empower its stores, but its vendors. Macy's should focus its merchant talent on nurturing new and up-and-coming brands. Let the big brands like Ralph Lauren, Liz Claiborne, Jones New York and the others run their businesses. Set the standard, let them perform or move them out. There are very sound strategies for Macy's, Dillard's and Belk to use in moving towards this approach. My Macy's is a noble effort, but it's no reason to be optimistic that sales will improve and margins will climb. If you are interested in discussing those ideas or learning more about Macy's, please call.

 

This author consults with leading institutions through GLG