Present day Federated consists of both Bloomingdale’s and Macy’s stores and operates in 34 states as well as Guam and Puerto Rico. While Bloomingdale’s and Macy’s provide both private and national brands and are similar in merchandising categories (men’s, women’s and children’s apparel, home decor, shoes, beauty, and accessories), they differ greatly in culture. Bloomingdale’s, being more upscale, targets consumers that are more concerned with trend and quality than they are price. Macy’s targets the more value oriented consumer and represents a broader Federated clientele. Macy’s represents 423 of the 459 Federated locations while Bloomingdale’s represents only 36 locations. Because I can better relate to the value conscious consumer of the Macy’s division and because they represent such a large portion of Federated, I will further explore their current characteristics and behaviors that suggest that they possess qualities of both monopolistic competition and oligopolies.
Federated Department Stores was founded in 1929, the same year the stock market crash signified the commencement of the Great Depression, with the merger of Abraham & Straus of Brooklyn, Filene’s of Boston, F;R Lazarus ; Co. of Columbus, Ohio and Bloomingdale’s of New York. Recognizing economic sensitivity to the Great Depression and WWII, Federated initially focused its efforts on ground-breaking retail tactics such as accommodating credit policies. In the mid to late 1900’s, Federated shifted its endeavors to growth and development, having increased its stores by 400 percent between 1964 and 1979. Although the company filed for bankruptcy in 1988 because of a failed takeover by Robert Campeau, a Canadian real-estate developer, Federated persevered through the tough times by taking risks and embracing change. While originally being composed of four family-owned department stores in 1929, Federated is now comprised of over 450 stores and is known as one of the leading department store operators in the industry.
III.Nature of the Product/Target Market
After co-branding the Macy’s name with local Federated stores in 2003, the Macy’s division became the central focus for revamping. Federated describes their Macy’s “core customer” as a fashion conscious working woman between the ages of 25-54, with an average household income of more than $75,000 a year. She is married and loves to shop, but her buying habits are based solely on her standard of living. Through product assortment, pricing, customer feedback for improvement and marketing strategies, Macy’s plans on reinventing itself to an all new level. Macy’s sales for 2003 were broken down into the following categories:
I would consider the products at Macy’s to have a large negative price elasticity of demand and a large positive cross-price elasticity of demand because there are many alternatives and good substitutes, following monopolistic competition. If I was speaking of some of the extremely high-end clothing brands at Bloomingdale’s, such as Dolce & Gabbana or Vera Wang, I might agree that the price elasticity of demand was relatively low because of brand loyalty to the most contemporary designers. These consumers are willing to pay the extra money, even to excessive amounts, to be seen in the trendiest and most expensive lines. Possessing these two different types of department stores probably accounts for much of their success during economic fluctuations such as recessions. Although I prefer the high-end brands at Bloomingdales, I would be more likely to shop at Macy’s during economic hardship.
The typical Macy’s customer relies on the value of the dollar as well as quality. While Macy’s consumers probably appreciate the well known, reliable brands provided such as Nike and Guess, they are not obsessed with the up-to-the minute trends and expensive lines of Bloomingdale’s and would rather spend the money they save elsewhere. As research has proven that about half of female Macy’s shoppers have children, I am sure they have more important priorities than contemporary clothing. But because the brands supplied at Macy’s are more affordable, they are also more common.
Federated competes nationally in a market that Standard & Poor’s defines as “full-line department stores.” According to Standard ; Poor’s, full-line department stores, such as J.C. Penney and Sears Roebuck, can be defined as those providing a variety of products while specialty department stores, such as Nordstrom and Neiman Marcus, are those that focus on apparel, shoes and accessories. As one would expect, full-line department stores are much more common than specialty stores.
Federated competes nationally because they are competing as a department store operator. They have to look at the big picture. For example, they must decide on the best places to open new locations. Federated was forced to close all 66 of their Florida locations at one point or another during hurricane season this year. I doubt they will be opening new stores there any time soon as they reported a loss of $30 million in sales due to Hurricanes Frances, Ivan, and Jeanne in August and September. Federated also makes general improvement decisions for their stores. Over the past couple of years they have invested over $170 million on improvements such as making their fitting rooms more accessible, appealing to the female market (their decision-maker) by providing cable television in designated areas to keep husbands and children busy while they shop, and supplying electronic price checkers and shopping buggies.
While there are thousands of department stores in the U.S., they vary greatly in size, products and services, prices, marketing, etc. Regional department stores such as Boscov’s offer only 41 locations and are limited to the Mid-Atlantic region of the country. International department stores such as Wal-Mart offer over 1,500 locations and are located in 9 different countries. Federated’s biggest national, full-line department store competitors include Sears Roebuck & Co., J.C. Penney Co. Inc., and May Department Stores Co. Sears Roebuck & Co. dominates the full-line department store industry with nearly 900 stores and a reported $40 billion in annual revenue. The reason for this is probably because they appeal to a broader market providing a variety of products and services that many department stores do not offer, such as lawn and garden equipment and automotive services.
V.How Do They Compete?
Although Macy’s utilizes customer feedback from a “Tell Us What You Think” link on their website to assist with product assortment, they are limited in their ability to differentiate products. One effective way they have distinguished themselves is by offering certain products and lines exclusively. For example, Donald Trump’s new fragrance is only available in Federated stores. A new home accessories line called “Inhabit” will also only be available at Macy’s. Other than this strategy, there is not much that can be done, as all of their more popular brands are available in millions of other retail institutions, giving the consumer many options. Though Macy’s claims they cut out the confusion of coupons and discounts by providing every day low prices, it is my speculation that they price comparably with the other full-line department stores on their retail level and they are not aggressive price cutters.
Another powerful tool in differentiating themselves from competitors is advertising. Federated is moving toward a more centralized advertising campaign for Macy’s called “Way to Shop” that is uniform across the U.S. through macys.com. The main focus of “Way to Shop” is to receive feedback from Macy’s consumers in order to maximize their shopping experience. They want to create a consistency in their advertising and focus more on their target market as a whole. Their commercials, which can be seen on their website through a link called Macy’s TV, are mainly directed at the women I described earlier in my paper. Conversely, Sears and J.C. Penney’s advertises on a localized level providing a link on their website where you can plug in your zip code and display a virtual weekly neighborhood circular (based on a hard copy that is also distributed locally) that you can flip through. Because of the time of year, the ads all share a similar theme of giving for the holidays.
I feel that Federated’s decision to direct their ads to their target market is only the first step in powerful advertising. While I respect that Macy’s is trying to centralize their marketing strategies for “greater efficiency and impact,” I think that they would have a greater effect if they took it one step further than just targeting women. Targeting women regionally or locally would help the target market to identify even better with the products. The more people feel that a commercial or ad, and in turn a product, applies to them as an individual, the more likely they are to respond to it. I think that a nationally uniform campaign is not only impersonal, but a bad idea in general. How can you have a national campaign targeting women when the needs of a woman in Nevada are going to be extremely different than the needs of a woman in Maine?
In addition to possessing some characteristics of monopolistic competition (such as many firms, good profit information, and a little product differentiation), Macy’s also possesses some characteristics of an oligopoly. The government, under the North American Industry Classification System (NAICS), divides department stores into three categories: department stores (i.e. Macy’s), conventional department stores (i.e. Boscov’s), and discount or mass merchandising department stores (i.e. BJ’s Wholesale Club). Following the characteristics of an oligopoly, I would consider the ease of entry into the department store market to be extremely difficult, due to the consolidation presently going on in the industry. Conventional department stores, which tend to operate regionally or locally, are being bought out by big parent department store operators. Another behavior of an oligopoly that Macy’s has adopted is massive advertising, as it is one of the few ways it has of distinguishing itself in the industry.
One fundamental principle that I found while researching Federated is that they are not afraid of change. In an ever changing industry like fashion and home decor, they really cannot afford to be. Though they may be limited in their ability to differentiate their products, Macy’s has been working hard to differentiate itself from competitors through their shopping experience as a whole. They have been applying their resources to making their customer’s experience more interesting and convenient with new technology and a comfortable ambiance.
Federated is also not afraid to spend. According to a special report in Mediaweek, Federated Department Stores Inc. was rated as one of the top 10 year to date retail advertising spenders, expending $13.1 million so far. They also increased their capital expenditures from $568 million in 2003 to an expected $1.8 billion through 2006. Their capital expenditures break down as follows:
Their philosophy follows the old adage, you have to spend money to make money.
A detrimental hurricane season and other economic factors such as rising gas and food prices and job security unease caused department stores across America to feel the negative repercussions in sales. Federated’s latest quarterly profits, however, were up 10 percent from this time last year. Shares went up from 36 cents/share to 42 cents/share while analysts anticipated earnings of only 39 cents/share. Sales remained flat at $3.49 billion, but same-store sales (representing stores open at least one year) increased by about .4 percent. Competitors in the discount or mass merchandising category actually benefited from the hurricanes and gas prices, and consumers wanted to buy in bulk to save money. According to both Standard and Poor’s and Federated’s own financial data, sales have slightly declined over the past few years. Sears sales have also slightly declined over the past few years, while J.C. Penney’s sales have slightly increased. Federated is hopeful, however, that with decreasing employment claims, better weather and several internal changes that things are looking brighter for the future.
There are several actions presently being taken to refurbish Federated. The company has hired a new CEO, Terry Lundgren, and also appointed an organization within the company to focus on the further development of the Macy’s home division. Between the diversity of quality employees and vendors, they hope to overcome the premonition that the department store is a dying breed. They are well on their way opening seven new firms in 2004.
Federated, and department stores in general, encompass a huge portion of not only American history but also the American economy. Fred Lazarus, former president of the present day Lazarus-Macy’s, was even responsible for the changing of the Thanksgiving holiday to the fourth Thursday in November. Lazarus suggested this to President Roosevelt in 1939 in order to give consumers more shopping days between Thanksgiving and Christmas thereby improving economic efficiency. Federated also operates the largest store in America, the Macy’s flagship in Manhattan, and sponsors the annual Thanksgiving Day parade. Without retail stores like Federated, America would not only lose a substantial amount of history, but the backbone of our economy.