Macy’s Trumps Competition by Going Local
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Internet marketing expert and speaker Gary Vaynerchuk says that marketing is about to get very, very hard. Today’s consumers are looking for personal relationships with brands, and companies that do not understand this trend will get pinched.
Macy’s (NYSE: M) gets it. Three years ago the company decided to change its product offerings for different regions of the country. Macy’s localized its products to better cater to people groups and tastes.
For example, hats may still make up 3% of Macy’s in-store inventory, but those hats will be very different depending on where in the country the store is located. Broadly speaking, to make this type of decision, companies often use demographic data projections from economic forecasting firms like Moody’s, IHS, or Nielsen. They will take a deep look at the current and forecast demographic in different regions of the country and will structure their merchandise offerings based on this data.
This is a trend that Wal-Mart (NYSE: WMT) mastered years ago. By offering so many different niche products, consumers of every age, race, and creed stockpile into the store to get the best deals.
We have also seen this trend in social media, as companies like Yelp! And Facebook have tailored product offerings to individual people and connected with those people one-on-one over the web. Retail is catching on.
Macy’s move three years ago has brought about tremendous advantages for its business, even in the face of adversity. Macy’s CEO Terry Lundgren says:
Our business continues to have forward momentum, even with challenges that include a soft economy, lower spending by international tourists….We are entering the fall season with optimism about our ability to grow sales and capture market share, especially in the holiday season.
One reason that Macy’s is optimistic is that it has stolen market share away from Kohl’s (NYSE: KSS) and struggling J.C. Penney (NYSE: JCP). Though Macy’s is winning, Kohl’s does well because it mails coupons – ranging from 10% to 30% -- to customers. Those customers often ask each other which coupon they got, creating a conversation around Kohl’s. Sometimes customers will even borrow each other’s 30% off coupons and go shopping together, creating its own tribe of customers!
J.C. Penney, however, has struggled after cutting its in-store promotions. The hype that boosts Kohl’s is what J.C. Penney needs most. Aside from its poor sales strategy, J.C. Penney does not hold exclusive items – its items are also sold in Wal-Mart, Kohl’s and Target.
And what J.C. Penney lacks in exclusivity, Macy’s offers even more. Macy’s houses exclusive brands like Martha Stewart, Donald Trump, and Rachel Roy.
Continuing the Trend
To add another strong point to Macy’s, the company announced in May that it invested $15 million for a small stake in VIP-Store, a Chinese online retail company. Macy’s made the investment so that it could sell its goods to the growing base of Chinese consumers through a special section of the Chinese company’s website.
Should Macy’s succeed at this strategy, look for the company to niche-down even more by selling merchandise to other pockets of people.
The strategy has worked so far, with Macy’s reporting quarterly earnings of $279 million, or $.67 per share, beating analyst estimates of $.64. The focus should now be on whether Macy’s can continue to stave of Kohl’s and to prevent J.C. Penney from making a turnaround.
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