Macy's Store Analysis: Evaluating Strategies for Improved Performance

This report provides a comprehensive analysis of Macy's retail stores, addressing the company's declining revenue and operational difficulties. It examines the key success factors, risks, and current performance, along with financial projections for 2017-2019. The core of the report proposes the implementation of an online shopping platform, better employee policies, and improved supplier relations to reverse the negative trend. The analysis includes financial considerations such as WACC, payback period, internal rate of return, and net present value calculations to assess the viability of the online store proposal. The report also discusses the costs and benefits of the online platform, technical aspects of implementation, and risk mitigation strategies. The conclusion emphasizes the viability of the online platform and recommends aligning strategies with company policies and industry regulations. It also addresses non-financial strategies to improve employee morale and supplier relationships.

Running head: MACY’S RETAIL STORES 1
Macy’s Retail Stores
Name
Institutional Affiliation

MACY’S RETAIL STORES 2
Macy’s Retail
Introduction
Macy’s store is a group of Macy’s Inc. that has been experiencing operational difficulties
from its continued sales and revenue decline. From its projections, the trend is likely to continue
if there are no significance changes in the ways of its operations. This paper seeks to propose and
analyses the probable course to take Macy’s stores to avert this trend and embark on profit and
revenue improvement trend. In this regard, this paper shall explain the current analysis of the
company in terms of key success factors, risks that face the stores, current performance, current
projections, and discussions on the current position, proposed changes, likely performance,
analysis of the proposition, recommendations, and a conclusion.
Macy’s store is currently experiencing a decline in revenue due to several factors in its
business environment that are working to its disadvantage. Some of the factors include new
entries in the marketing that are raising the level of competition (None, 2018). The competitors
are offering better discounts accompanied by engagement in various promotional activities. The
rate of inflation has also adversely contributed to bad business outcomes. The other factor is the
rate of employee turnover.
Macy’s operational projection assessment of the three years has been given as follows:
Particulars 2017 2018 2019
Revenue 25778 24770 21520
Cost of revenue 15621 15321 17325
Gross profit 10157 9449 4195
Operating expense

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Sales, general and administration 8265 9565 10210
Other expenses 577 653 770
Total operating expense 8842 10218 10980
Operating income 1315 1502 1625
Interest expense 384 572 711
Other income 21 30 28
Income before income tax 952 1110 1060
Provision for income tax 341 398 402
Minority interest -8 -11 -15
Other income -8 -10 -11
Net income from continuous process 611 3591 3800
Other 8 6 10
Net Income 619 3597 3810
From the above projection, the operation has been resulting to decline both revenue and
gross profits in 2017. There is no likely change in this trend that is expected in the current year
2018 and in 2019. Other information from their management plan include
a) Shareholders expected the rate of return= 6%
b) Tax rate=35%
c) Banks interest = 5%

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d) Shareholders principal in funding investment projects is selling of shares 60 % selling of
shares and 40 % borrowing.
e) The payback period for any project should be no more than 5 years
To change the trend, the management needs to come up with a new strategy, policies, and
procedures that will change this trend. The proposed change is the introduction of an online
shopping and sales store, the introduction of better employee policies and the improvement of
customer and supplier cordial relationship (Yurttadur et al, 2017). Through the implementation
of this proposal, the stores are expected to increase their customer base, which shall help in
improving its sales, improve on human resource policies to minimize staff turnover and attract
new and better ones and receive discounts or better prices from the suppliers, which could in turn
help in containing the inflation (Sharma & Mehra, 2017). To facilitate and enhance the online
transaction, agreements have to be made with the banks in relation to online payment.
For this proposal to succeed there are some of the factors that need to be put into
consideration. Some of the financial factors include the financial capacity to implement the
online shopping and sales platform and to facilitate the supplier’s discount criteria acquirement.
A consideration of the source of finance for implementation can be considered on whether from
internal or external sources so as to have the cheapest possible source of capital. Some of the
non-financial to facilitate include staying in line with the current registrations, anticipate the
future ones and align the implementation with them. Another factor would be performing an
industrial benchmarking to understand the industry, which shall help in aligning the proposed
strategies (Kallala et al, 2015). Other factors include an able human resource capability to come

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up with the best policies aimed at staff retention, an analysis of customer behavior and retention
attractors, and an analysis of suppliers and characteristics.
The cost of implementing the online store is analyses as follows: -
i) The cost of developing a website and all required infrastructure is estimated to be $
70,000
ii) Cost of sales staff (Virtue assistance) $ 500 per month = $60,000 per year
iii) Website maintenance $ 500 per month=$ 60,000 per year
iv) Online promotion costs estimated to be $ 50 a month= $600 per year
The initial investment cost =$ 70,000 with recurrent monthly cost amounting to $ 1,050
The online shopping is expected to have an impact on revenues averaging at $ 3,200 per month
According to Erdogan et al (2015), calculation of Macy’s WACC=
WACC = ((E/V) * Re) + [((D/V) * Rd) *(1-T)]
E = Market value of the company's equity
D = Market value of the company's debt
V = Total Market Value of the company (E + D)
Re = Cost of Equity

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Rd = Cost of Debt
T= Tax Rate
The total initial cost of the project is % 7000
From shareholders investment principal on this 60 % on equity = $4,200, borrowing 40% =
$3,800
Wacc= (42000/70000) *0.06) + [((38000/70000) *0.05) * (1-0.35))]
= 0.036 + [ 0.027*0.65]
= 0.036+ 0.018
= 0.054
=5.4%
From the expected performance projection of the online shop, the returns on profit per month
which is the difference between the monthly revenue and the monthly cost (Kassicieh et al,
2015) (3200-1050) is $ 2150. The annual profit = 2150* 12= $25,800.
The payback period is within 3years that is, we shall recover our initial investment by the end
of the third year.
Project internal rate of return in the next 5 years= P0 + Pn/(1+IRR) n
year returns
0 -70000
1 25800
2 25800

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3 25800
4 25800
5 25800
IRR 25%
The internal rate of return is 25%, which is more than the cost of capital. The project is
therefore viable.
Calculating the project net present values
NPV = C x {(1 - (1 + R)-T) / R} − Initial Investment
= 26,832
The NPV is more than 0 and therefore acceptable
Cost and benefits for an online shopping store
1. The initial cost of a web developer, which includes the entire cost of developing the
website, shopping cart, integrations with social media, reviews and the enhancement of
tracking analytics(Nesticò & Pipolo, 2015). This helps in keeping records of the visitors,
their contacts, and the demand records can be analyzed with ease, therefore, making the
appropriate changes of stock on time.
2. Cost of the sales staff, which can be done by hiring a virtue assistant to drive traffic and
update social media at a fractional cost of hiring a salesman to spend daily hours at the
store. The virtue assistant can also so the analysis and compilation of orders.

MACY’S RETAIL STORES 8
3. Online marketing and promotions, which can also be done by a virtue assistant. The cost
of online marketing is much less since the only internet is required with the help of the
virtue assistant.
4. The web hosting costs which is less than $30 per month. This cost is far much less than
the cost of renting a store.
Technical aspects to consider before implementation
1. Whether to host the platform or get a third party to do web hosting; For Macy’s
stores, the third-party web hosting is a better option since they shall not be engaged in
the initial cost of installing the server (Chu, 2017). It is also less risky for them.
2. The capability of the third-party hosting in terms of the features provided, a
reputation which can be got from reviews by their customers, the price should be
rational and the ability to grow in the sense that they can accommodate the future
growth of the stores.
3. A full security plan in the sense that they are able to prevent probable criminal
activities such as website attacks, the presence of firewalls, password security among
others
4. Presence of automated backups; Accidents happen every now and then and if they do,
it is possible to lose company information. To prevent this, backups are necessary and
the hosting company should have the ability to store backups frequently.
5. Presence of shipping software; which will help in tracking the orders from when the
customer places the order to when the payment is done

MACY’S RETAIL STORES 9
6. A payment gateway, which will help in the transaction; Bank agreements are also
necessary to enhance this.
The main advantage of initiating this online shopping platform is that it shall give an
opportunity to double the revenues while minimizing the costs as much as possible. With this
effect, Macy’s stores shall have curbed the most dreaded effect of revenue decline. The other
causes of bad effects can be handled in non-financial grounds, for example, devising better
policies of attracting (Grossmeier et al, 2015)and retaining staffs, for example, adjusting working
hours per person and even enhancing more health measures.
The implication of this online shopping implementation is that the initial investment fund
required shall have to be set aside. This investment shall not secure the expected revenue at once
and therefore set aside a marketing budget (Dewachter, 2017). Although there is an initial
financial pinch, the ultimate outcome shall benefit the business.
Out of considerations and analysis outcomes, the online platform is a viable project that
shall help in raising the company’s revenues. However, the management should ensure that they
align the platform with the policies of the company, follow them and align the implementation
with the present and anticipated rules and regulations governing the industry (Kosinova et al,
2016). Analyze the suppliers and align their purchasing policies with those of the suppliers. This
shall help in benefitting from their discount rates and can also help the store discover other
suppliers who have better prices. Risk mitigation and management are also necessary to ensure
that future is fully secured.
Conclusion

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Macy’s stores which are part of Macy’s Inc has been experiencing a continued decline in
its revenue brought about by declining sales as a result of new entrants in the market. To curb
this decline, an introduction of an online shopping store has been proposed. The proposed
investment in this online shopping platform is viable and should be implemented as shown by
the results of the internal rate of return which is 25% and has a positive net present value. Before
implementation, other factors for example of the designer of the platform and the host should be
considered. An analysis of the third-party hosts should also be looked into. The other factor,
which is a declining staff employee, is to be tackled using non-financial methods. The
implication of the investment is that some funds have to be put aside for the purpose of initial
investment costs and the running cost until the platform can make funds, which can be used in its
maintenance. Other effects shall be the changing of human resource policies to provide better to
improve the employee morale.
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