Macy's Strategic Analysis: SWOT, EFE, and Polaris Plan

Company Overview, Mission, and Vision

Macy's Inc. has a long history, beginning in 1858, when Rowland H. Macy first opened Macy & Co., a dry goods store. While their first day returned only $11.06 in sales, the company quickly grew to $85,000 in revenue within the first year. In 1924, Macy's at Herald Square became the largest store in the world and hosted the first Macy's Thanksgiving Day Parade. By 2021, Macy's had been in operation for over 162 years and operated a total of 516 stores (macysinc.com).

Macy's has built a magnificent brand and is widely regarded as a leader in the retail industry. Their focus extends beyond the products they sell to the customers they serve. They have achieved this by weaving American culture and tradition into their business practices — most notably through the 4th of July Fireworks event and the Macy's Thanksgiving Day Parade, among others.

Macy's has demonstrated the ability to act quickly and pivot strategies to meet changing conditions. As a result of the pandemic, Macy's enhanced their Polaris Strategy and began offering curbside pickup, ensuring customers could continue to be served and securing future success for both the business and its employees. Most recently, Macy's announced plans to launch and innovate an online marketplace platform to further increase market reach and protect future cash flows.

In 2020, Macy's announced their three-year Polaris Strategy — the company's hybrid vision and mission statement. They employ a short-term strategic approach (approximately three to five years) that allows the business to stay agile in a changing economy and market. This structure also enables the organization to remain competitive in a fast-paced industry and make necessary changes to their vision and mission as needed (macysinc.com).

The Polaris Strategy encompasses six pillars (macysinc.com):

Macy's core Values & Behaviors include: Acceptance, Integrity, Respect, Giving Back, Commit to Win, Build Trust, Own Your Role, and Get Better Every Day.

A major challenge for most organizations is determining how to differentiate themselves from competitors. The first step is developing a vision and mission statement that clearly identifies how the organization provides value to clients. Yohn (2018) suggests there are at least five key words to avoid in corporate values statements and vision/mission documents: Ethical, Teamwork, Authentic, Fun, and Customer-Oriented. Yohn argues that any organization should inherently do all of these things without needing to state them explicitly. Why, for instance, should an organization need to tell clients that it is ethical? That should be a given, regardless of industry. These terms are also vague "blanket terms" that provide no meaningful differentiation. Macy's vision and mission statement is stronger because it is specific — it clearly identifies for shareholders the focus on delivering value through "easy-to-understand pricing and promotions" and on "Fashion and Style."

Macy's three-year vision and mission statement also allows the company to stay agile, pivoting scope as needed to align with changing trends — especially important in fashion, where profitable trends may last only one to three years. However, a potential weakness is that the Polaris Strategy, while detailed, encompasses at least six different goals. This breadth can be distracting for a large organization and may concern investors who worry that Macy's could lose focus on what matters most: sustainable cash flow.

To operate Macy's and Bloomingdale's as dynamic national brands while focusing on the customer offering in each store location.

To become a competitive retailer striving to utilize the tools necessary to employ friendly individuals ready to serve our customers and our community — having the ability to visualize opportunity on the horizon and clear, employee- and customer-friendly paths for capitalizing on it, while enhancing fast-moving, innovative technology and focusing those resources on issues important to our customers.

Employing servant leadership to operate Macy's and Bloomingdale's as a dynamic brand, empowering stronger employee and customer relationships, focusing on the customer offering in each store location, while building a bond between employees, customers, and the community.

Without catering to customers, companies risk losing the trust of loyal patrons. When an organization loses community backing, store closures follow — a reality visible today as the nation rebounds from a pandemic. Organizations cannot afford to focus solely on profit; attention should be directed toward customers, innovation, and technology that makes the organization's work easier. Profits remain the ultimate objective, but organizations should listen to those who most contribute to that profit margin. As David and David (2020) note, shared vision creates a commonality of interests that can lift workers out of the monotony of daily work and place them in a world of opportunity, challenge, and belonging. Achieving this requires collaboration between employees and managers when developing vision and mission statements.

Financial Ratio Analysis

Financial ratio analysis provides useful insight into Macy's overall business health. The key ratios examined include liquidity position, financial leverage, times interest earned, profitability, operating margin, and the P/E ratio.

Liquidity position is measured by the current ratio and quick ratio. The current ratio is calculated by dividing current assets by current liabilities; the quick ratio divides liquid assets by current liabilities. Macy's current ratio is greater than 1.0 but less than 2.0, indicating a good liquidity position that allows the company to meet its short-term obligations. The quick ratio is above 0.50, confirming that Macy's holds enough liquid assets for easy cash conversion.

Financial leverage is assessed through the debt-to-asset ratio. Macy's debt-to-asset ratio is 0.84, suggesting the company's assets are sufficient to repay its debt. The debt-to-equity ratio of 1.142 further confirms relatively manageable debt levels in both areas. The times interest earned ratio of 4.970 indicates that the company is well-positioned to meet its interest expense and debt obligations.

Profitability is reflected in Macy's gross profit margin of 3.75% and operating profit margin of 7.65%, suggesting the company is under some pressure to generate profit after deducting operating expenses. Return on assets stands at 4.62%, indicating the company's assets generate positive returns, while return on equity of 31.08% demonstrates strong returns on shareholder equity.

Operating margin of 7.65% — while below 10% — reflects a healthy margin for a retailer of Macy's scale and is useful for evaluating stock value. The P/E ratio (price-to-earnings ratio) of 9.613 falls within the range of 5–25 that investment advisors typically recommend. Given Macy's longevity and brand recognition, this ratio supports the conclusion that the company represents a solid investment.

Internal Factor Evaluation (IFE)

The IFE analysis reveals that Macy's scores favorably on its convenient locations and real estate holdings. From a shareholder perspective, the company holds significant value within its real estate portfolio. According to the company's latest 10-K filing with the SEC, there are substantial redevelopment opportunities within the overall portfolio that can unlock shareholder value, right-size the store footprint, lower overhead costs, and improve operational efficiency. This is a meaningful strength, as it provides a lever to address several key weaknesses — including a bloated cost structure, the secular shift to online sales, stale brands, and large store closures.

Many of the benefits identified in the IFE review can help mitigate, and in some cases eliminate, the shortcomings identified elsewhere in the analysis. For example, the weakness associated with store closures can be addressed by shrinking the overall store format, subleasing unused space, and leveraging technology to repurpose locations as warehousing hubs. Likewise, the growth of online sales creates an opportunity to use Macy's exceptional store footprint for warehousing and fulfillment operations. The company can leverage its real estate portfolio to emphasize trends such as "buy online, pick up in store," helping to mitigate sales declines by offering a comprehensive suite of solutions designed to encourage in-store engagement.

Additionally, the company can sell nonperforming real estate and use the proceeds to either repurchase shares or reinvest in the business. Both approaches can enhance shareholder value and improve overall returns (Abbott, 2008).

The strategies that allow Macy's to capitalize on its strengths center on its vast real estate portfolio, strong brand awareness, and capital structure. The company benefits from approximately $25 billion in annual revenues; however, profit margins of only around 7% mean there is little room to lower prices without also reducing operating expenses. Strategies to address this include optimizing the real estate portfolio through subleasing space to growing retailers — a logical step given Macy's prime locations in 45 states — and capturing the spread between its historically low long-term lease rates and prevailing market rental rates (Agrawal, 2009).

Another strategy involves the outright sale of real estate to developers who can put the space to its highest and best use. Given current monetary and fiscal policy conditions that make long-lived, high-yielding assets attractive, Macy's can capture significant premiums on its real estate and use the proceeds to fund innovation, share buybacks, or additional dividends to shareholders.

To address its major weaknesses, the firm must alleviate its bloated cost structure — high overhead and general and administrative expenses place Macy's at a competitive disadvantage versus internet retailers with low overhead and an ability to operate on thin margins. Shrinking the real estate footprint, embracing online technology, and becoming a nimbler organization are critical steps (Abraham, 1993). A smaller, more focused store portfolio will allow the organization to concentrate resources on its most profitable locations, while subleasing will lower costs related to salaries, benefits, and related overhead. By embracing online innovation, the company can also expand its reach to international markets — historically an underdeveloped opportunity for a brand with Macy's global recognition.

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