A case of Planning for a miracle on the 34th Street

A case of Planning for a miracle on the 34th Street

There is absolutely no reason for any reasonable person to worry about our financial obligations. These were the confident words of R H Macy’s CEO Edward S Finkelstein in 1991. By April 1992, however, the $6.3 billion retailer had filed and Finkelstein was no longer CEO, Mounting debt, alack of new equity, and an antiquated operating system proved to be more imposing obstacles than initially expected.

Macy’s, The World’s largest Store, was not yet ready to give in to defeat, however. Embracing a rather unorthodox idea, the directors placed the company’s fate in the hands of two disparate co-CEOs: Myron “Mike” Ullman III, a financial whiz and a relative newcomer to both Macy’s and the retail industry, and Mark Handler, Finkelstein’s protégé and a career long Macy’s merchandising executive. They were gambling on Ullman’s ability to fix the numbers and Handler’s skill in maintaining the company’s image and revamping its product line.

Wasting no time, Ullman and Handler decided to shift the company’s focus away from the high priced, glitzy product line for which it had become famous to anew, more moderately priced line to appeal to the new wave of cost conscious consumers. While some people claimed that such downscaling would cost Macy’s its reputation as a fashion authority, the CEOs disagreed. Moderate is a price point, not a fashion statement, Ullman asserted. We can sell well made, stylish clothes that don’t cost a fortune.

For example, Macy’s began carrying Levi Strauss products again, after having dropped the brand in 1983 when Levi began to sell to competitors such as J C Penney’s and Sears. At the time, Macy’s had considered such retailers inferior, and did not want to carry the same merchandise.

A change of heart came with the change in times. As Ullman explained, managers realized that “customers don’t criticize us because they don’t like the merchandise we carry; rather we get criticized when we don’t have what they want to buy when they come in to buy it. In order to remedy this problem, the CEOs implemented a new system referred to as Buyer-Planner-store, or BPS for short. The buyer is the person who is going to shop the market and shop the competition, pointed out Jane Sanford, corporate senior vice president for BPS and MIS. The buyer will get the best merchandise, the best price and the best delivery. The planner will influence the quantities of the buys by the buyer and will track variations in customer response store by store. The store manager will pick up nuances in the store that we may miss. Such a system enables Macy’s to plan for the customer.

While this represents a quantum leap from Macy’s old system, the BPS is not a new idea. Specialty chains such as the Limited and the Gap have been using similar systems for years. Nevertheless, implementation of the system does demonstrate that Macy’s is finally waking up to the need for change. When you had a buyer who was buying for eight or ten stores, back in the good old days, commented Handler, he or she could make the distributions and still shop the market, and still do the advertising. But now that we expect a buyer to deal with as many as 60 locations the whole structure needs to be changed.

Attempting to improve customer service and store layout, Ullman and Handler installed a new satellite network to connect suppliers with salespeople, similar to the systems already in place in companies such as Home Depot and Dayton Hudson. Fashion designer Donna Karan, for instance, can inform people how best to coordinate her clothing and accessories for store display. Moreover, the satellite linkup permits Macy’s executives to talk directly to their employees about issues or concerns.

In addition, Macy’s has taken a step ahead of the competition in what may prove to be the most profitable and successful portion of the CEOs’ plan: TV Macy’s. Slated to begin in the fall of 1994, TV Macy’s is a 24 hour cable channel selling Macy’s own private label apparel, house wares and other items in addition to national brand products. While rivals such as Saks Fifth Avenue have experimented with one or two hour spots on QVC or Home Shopping Network (HSN), TV Macy’s will be the first channel devoted entirely to a single retailer. The channel which will compete directly with HSN and QVC, hopes to tap into the rapidly expanding $2.25 billion home shopping market. In addition, it will serve to familiarize home viewers with Macy’s products and provide access to those products to people not located near a Macy’s store. Retail consult Isaac Lagando estimates that the channel could generate upwards of $250 million in sales by its fourth year.

While Macy’s is far from out of the woods, it appears that under the new direction of its co-CEOs, the 137 year old retailing chain is at least on the right path. This has been a very painful exercise, admits Ullman. We’ve trailed the industry. But we’re trying to return to a leadership position. Considering that Macy’s headquarters store is on 34th Street in New York, anything is possible.

  • Nirmal Chudasama

     pl provide case review